Open Transaction Networks and Platform Competition

Paul Belleflamme, Sumit Shrivastav, Kishen Shastry, Daniele Rinaldo and Jean-Louis Arcand
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Paul Belleflamme: Université catholique de Louvain, LIDAM/CORE, Belgium
Sumit Shrivastav: Université catholique de Louvain, LIDAM/CORE, Belgium

No 2026022, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: orks in which buyers and sellers connected through independent applications can transact with one another. India’s Open Network for Digital Commerce (ONDC) is the leading real-world instance. We develop a two-sided Hotelling model in which two competing platforms choose whether to adopt the shared protocol on the buyer side, the seller side, both sides, or neither. Existing theory suggests that platforms typically underinvest in interoperability, the ability of users of different networks to interact with one another. We show that full interoperability between competing platforms can instead emerge as the equilibrium outcome of platform competition. Compliance with the protocol expands the trading opportunities of a platform’s users, including access to participants beyond both platforms, and it softens competition for exclusive control over users. Much of the resulting profit gain is a transfer, since opening the network allows platforms to withdraw the cross-side subsidies they concede under exclusivity. When compliance is costless, total welfare is maximised by full compliance. Users gain relative to the closed benchmark only when the newly reachable pools are sufficiently valuable, and a planner who weighs users alone often prefers compliance on a single side, which expands reach without raising fees. Beyond arranging interoperability, OTNs redistribute network-generated rents, with implications for the design of inclusive digital public infrastructure.

Pages: 40
Date: 2026-08-28
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Persistent link: https://EconPapers.repec.org/RePEc:cor:louvco:2026022

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