Network Externalities and Platform Strategy: Agency, Bundles Entry, and Integration

Axel Gautier, Leonardo Madio and Shiva Shekhar

No 11711, CESifo Working Paper Series from CESifo

Abstract: We consider a market in which a platform hosts third-party monopolistic complementors. Users are segmented into single-use and multi-use consumers, and services exhibit network externalities. In the agency model, the presence of multi-use consumers leads complementors to set inefficiently high prices, reducing demand and the platform’s profits. Platform entry can resolve these pricing inefficiencies by targeting multi-use consumers with a bundled offering, but it then fragments the market, diminishing network benefits for consumers. We find that the platform opts to enter only when it has committed to a low commission fee, and network benefits are modest. Integration with a complementor reduces prices for consumers and enhances network benefits, thereby improving consumer welfare, but the pricing inefficiency is only partially mitigated.

Keywords: platform; network externalities; platform strategy; hybrid business model (search for similar items in EconPapers)
JEL-codes: L22 L86 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_11711

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