Robin Seung-Jin Lee
Business Economics PhD
Dissertation Chair: Prof. A. Pakes
Essays on Platform Competition and Two-Sided Markets
In platform and two-sided markets, consumers adopt, join, or visit a platform in order to access goods or services provided by firms who are also affiliated with that platform. These include "hardware-software"
markets in which consumers purchase a hardware device in order to utilize software developed for it, certain content and media markets, retail marketplaces, and even "buyer-seller networks" such as HMOs and hospitals whereby consumers join the former to access the services of the latter.
Though in some platform markets there is a chicken-and-egg problem in that platforms need to simultaneously attract both sides of the market, this particular coordination issue is not always present: often, one side of the market comprises firms that are limited in number -- e.g,. major software publishers, record labels, or local hospitals -- who are strategic, imperfectly substitutable, hold significant market power over consumers, and/or affiliate with a platform before consumers do. Via exclusive deals, integration, and other vertical restraints, platforms compete fiercely to get these oligopolistic firms "onboard" and dominate -- if not tip -- the market.
This dissertation contains three essays which introduce, extend, and employ a variety of methodological tools to study this particular form of platform competition and its impact on competition and industry structure.
The first essay -- my job market paper entitled "Vertical Integration and Exclusivity in Two-Sided Markets" -- develops techniques to analyze the adoption decisions of consumers and firms for competing platform intermediaries in two-sided markets, and applies the methodology to empirically measure the impact of vertical integration and exclusive contracting in the sixth-generation of the U.S. videogame industry (2000-2005). I introduce a framework to structurally estimate consumer demand in platform-intermediated markets which accounts for dynamics and the selection of heterogeneous consumers across platforms and time; I then specify a dynamic network formation game to model the hardware adoption decisions of software providers, and use estimates to determine the new equilibrium industry structure if exclusive vertical arrangements were prohibited. Counterfactual experiments indicate that exclusivity benefited the smaller entrant platforms and not the dominant incumbent, which stands contrary to the interpretation of exclusivity as primarily a means of foreclosure and entry deterrence.
The second and third essays are theoretical, and explore other issues concerning platform competition. The second, "Exclusivity and Control", examines how the allocation of control rights over strategic variables affects the propensity of a content provider to join a single platform exclusively; the third, "Competing Platforms," analyzes when a market will be served by a single or multiple platforms if platforms are allowed to offer contingent contracts to partner firms.
