The Doubly-Nested Prisoner's Dilemma: Platform Enablement and Strategic Delegation on Industrial Internet Platforms

Xiaojun Pan

EconStor Preprints from ZBW - Leibniz Information Centre for Economics

Abstract: Industrial internet platforms reshape both the digital infrastructure and the internal governance of downstream firms. This paper shows that platform enablement can trap firms in a doubly-nested prisoner's dilemma: access decisions (whether to join the platform) and delegation decisions (whether to hire a manager) simultaneously yield Nash equilibria that are strictly Pareto-dominated by the joint non-access, non-delegation optimum, with joint profit losses of approximately 3.2 percent. Unlike single-decision platform traps (Hagiu and Wright, 2026), our dilemma arises from the interaction between two distinct firm-level decisions, each generating its own Pareto-suboptimal equilibrium. Within a three-tier platform-duopoly-consumers Bertrand game, we obtain three results. First, platform-enhanced network externalities shift the sales-oriented delegation threshold downward by an amount equal to the platform's network-enhancement parameter, pushing firms from defensive profit-oriented to offensive sales-oriented incentive contracts. Second, the dilemma is sustained by a division of roles within the platform's two-part tariff: the fixed fee absorbs network premia through a threat-point channel, while the usage fee distorts marginal incentives. Third, the dilemma forms a structural ridge along the Choi-Lee threshold, occupying approximately 18 percent of the relevant differentiation-network parameter space. Because the equilibrium violates neither per se collusion nor abuse-of-dominance prohibitions, conventional antitrust is structurally inadequate; mandatory data interoperability, by raising non-accessing firms' outside option, emerges as a targeted instrument.

Keywords: Industrial Internet Platform; Strategic Delegation; Network Externalities; Two-Part Tariff; Prisoner's Dilemma; Platform Regulation (search for similar items in EconPapers)
JEL-codes: D43 L13 L51 L86 (search for similar items in EconPapers)
Date: 2026
New Economics Papers: this item is included in nep-mic
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