Welfare Implications in Intermediary Networks

Thành Nguyen () and Karthik Kannan ()
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Thành Nguyen: Krannert School of Management, Purdue University, West Lafayette, Indiana 47907
Karthik Kannan: Krannert School of Management, Purdue University, West Lafayette, Indiana 47907

Information Systems Research, 2021, vol. 32, issue 2, 378-393

Abstract: We study the welfare implications of competing middlemen in a two-sided market, where goods are intermediated between providers and purchasers. In our model, each intermediary sets the quantities it intermediates, and the prices are a consequence of a Cournot competition. Our analysis shows that, unlike traditional markets, increasing competition is not always beneficial for market efficiency and that mergers can have an ambiguous effect on efficiency. We also analyze how the underlying network influences social welfare. We define a parameter called the intermediary capacity of the network and show how the price of anarchy depends on this parameter. These results suggest an intuitive and simple measure for the level of competitiveness in a networked market involving intermediaries.

Keywords: network economics; ad-exchange; ride-sharing; market competition in networks (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:orisre:v:32:y:2021:i:2:p:378-393

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