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Beyond Equilibrium: Revisiting Two-Sided Markets from an Agent-Based Modeling Perspective

Torsten Heinrich () and Claudius Gräbner ()

MPRA Paper from University Library of Munich, Germany

Abstract: Two-sided markets are an important aspect of today's economies. Yet, the attention they have received in economic theory is limited, mainly due to methodological constraints of conventional approaches: two-sided markets quickly lead to non-trivial dynamics that would require a computational approach, as analytical models quickly become intractable. One approach to this problem is to opt for models that operate on an aggregated level, abstracting from most of the (micro-level) causes of these non-trivial dynamics. Here we revisit a well known equilibrium model by Rochet and Tirole of two-sided markets that has taken this approach. Analyzing the model from an agent-based perspective, however, reveals several inconsistencies and implicit assumptions of the original model. This, together with the highly implausible assumptions that are required to make the model analytically tractable, limits its explanatory power significantly and motivates an alternative approach. The agent-based model we propose allows us to study the phenomenon of two-sided markets in a more realistic and adequate manner: Not only are we able to compare different decision making rules for the providers, we are also able to study situations with more than two providers.%We find that Thus, our model represents a first step towards a more realistic and policy-relevant study of two-sided markets.

Keywords: Two-sided markets; Network externalities; Agent-based modeling; Simulation; Heuristic decision making; Reinforcement learning; Satisficing; Differential evolution; Evolutionary economics; Market structure; IT economics; Equilibrium dynamics (search for similar items in EconPapers)
JEL-codes: C61 C62 C63 D4 L14 L15 (search for similar items in EconPapers)
Date: 2015-11-13
New Economics Papers: this item is included in nep-cmp and nep-hme
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https://mpra.ub.uni-muenchen.de/67860/1/MPRA_paper_67860.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/68374/9/MPRA_paper_68374.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/76425/1/MPRA_paper_76425.pdf revised version (application/pdf)

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