Abstract:
While online marketplaces gained economic relevance in recent years, the academic debate on how the design of multi-sided markets shapes competition on such platform has been quite limited. In this paper, I investigate how platforms’ marketplace design choices (especially pricing strategies) affect the likelihood of seller collusion and whether platforms have incentives to break or sustain cartels. Building on a game-theoretic model, I analyze how marketplace design choices may affect competition between sellers in a multi-sided market and how platforms can exploit this. My results suggest that high transaction fees limit competition between sellers by increasing their incentives to collude. In that, platforms can manipulate the degree of product variety in each product category on the platform. The outlined theoretical framework also enables the exploration of additional non-pricing-related marketplace design features, such as information disclosure and the number of products.