Hybrid platforms and bargaining power
Exploring the effects of hybrid operation on bargaining power
My PhD resesarch project examines the applicability of random order values, and more specifically, the Shapley value to the problem of modeling bargaining in a setting with one indispensable player and a large number of smaller, non-indispensable players. The project is motivated by platform economies, but the results are applicable to a wide range of settings. The repository for the thesis, as well as the three chapters, can be found at stanmart/phd-thesis.
This chapter presents a model of a hybrid platform, which engages in bargaining with the fringe entrants. It uses the Shapley value to model bargaining outcomes in tractable but not overly simplistic manner.
- Paper: Hybrid platforms and bargaining power
- Archived Github repository: stanmart/ValueOfIntermediation
Hybrid platforms and bargaining power
This paper explores the effects of a platform selling their own products in addition to acting as intermediaries (hybrid platform) in a setting when bargaining takes place between the platform and the potential entrants. It highlights a so-far underappreciated aspect of hybrid platforms: having their own products increases their bargaining power over the other sellers. The results show that when the platform has a larger product variety of its own, its bargaining power increases, and thus can obtain a larger share of total profits. This in turn leads to less fringe entrants.
As it turns out, even within an otherwise frictionless setting (most notably, lump-sum platform entry fees), the decrease in fringe entry is so large that it is not compensated by the increase in the platform’s own product variety. This in turn leads to a lower total product variety, and, ultimately, a decrease in consumer surplus.
These results demonstrate that there is a so far underapppreciated aspect of the hybrid operation of platforms. Namely, platform’s having their own products increases their bargaining power, which might change how profits are divided between the platform and the fringe entrants. Under certain conditions, can lead to a decrease in consumer surplus.