Discussion Paper Details

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Title: Hybrid Platform Model

Author(s): Simon P Anderson and ÷zlem Bedre-Defolie

Publication Date: June 2021

Keyword(s): Antitrust Policy, hybrid business model, Tax policy and Trade platform

Programme Area(s): Industrial Organization

Abstract: We provide a canonical and tractable model of a trade platform enabling buyers and sellers to transact. The platform charges a percentage fee on third-party product sales and decides whether to be "hybrid", like Amazon, by selling its own product. It thereby controls the number of differentiated products (variety) it hosts and their prices. Using the mixed market demand system, we capture interactions between monopolistically competitive sellers and a sizeable platform product. Using long-run aggregative games with free entry, we endogenize seller participation through an aggregate variable manipulated by the platform's fee. We show that a higher quality (or lower cost) of the platform's product increases its market share and the seller fee, and lowers consumer surplus. Banning hybrid mode benefits consumers. The hybrid platform might favor its product and debase third-party products if the own product advantage is sufficiently high. We also provide some tax policy implications.

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Bibliographic Reference

Anderson, S and Bedre-Defolie, ÷. 2021. 'Hybrid Platform Model'. London, Centre for Economic Policy Research.