Competing for Contacts: Network Competition, Trade Intermediation and Fragmented Duopoly

Dimitra Petropoulou ()

No 371, Economics Series Working Papers from University of Oxford, Department of Economics

Abstract: A two-sided, pair-wise matching model is developed to analyse the strategic interaction between two information intermediaries who compete in commission rates and network size, giving rise to a fragmented duopoly market structure. The model suggests that network competition between information intermediaries has a distinctive market structure, where intermediaries are monopolist service providers to some contacts but duopolists over contacts they share in their network overlap. The intermediaries` inability to price discriminate between the competitive and non-competitive market segments, gives rise to an undercutting game, which has no pure strategy Nash equilibrium. The incentive to randomise commission rates yields a mixed strategy Nash equilibrium. Finally, competition is affected by the technology of network development. The analysis shows that either a monopoly or a fragmented duopoly can prevail in equilibrium, depending on the network-building technology. Under convexity assumptions, both intermediaries invest in a network and compete over common matches, while randomising commission rates. In contrast, linear network development costs can only give rise to a monopolistic outcome.

Keywords: International Trade; Pairwise Matching; Information Cost; Intermediation; Networks (search for similar items in EconPapers)
JEL-codes: F10 C78 D43 D82 D83 L10 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-cse, nep-int, nep-mic and nep-net
Date: 2007-11-01
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Working Paper: Competing for Contacts: Network Competition, Trade Intermediation and Fragmented Duopoly (2008)
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Persistent link: http://EconPapers.repec.org/RePEc:oxf:wpaper:371

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