Two-Sided Platform Competition in a Sharing Economy
Forthcoming in Management Science
55 Pages Posted: 13 Apr 2020 Last revised: 22 Feb 2022
Date Written: August 18, 2017
Abstract
We examine competition between two-sided platforms in a sharing economy. In sharing
economies, workers self-schedule their supply based on the wage they receive. The platforms
compete for workers as well as consumers. To attract workers, platforms use diverse wage
schemes, including fixed commission rate, dynamic commission rate, and fixed wage. We develop a model to examine the impacts of the self-scheduled nature of the supply on competing
platforms and the role of the wage scheme in the platform competition. We find that the price
competition between platforms is more intense in a sharing economy compared to an economy
with a fixed supply of workers if and only if the platforms serve more consumers and workers in the sharing economy than in the traditional economy, regardless of the wage scheme employed by the platforms. Further, any of the three wage schemes can be the best for the platforms and the worst for consumers and workers, depending on the market characteristics. In markets where the competition is more fierce on the demand side than on the supply side, the fixed-wage scheme results in the highest profits for the platforms and lowest surpluses for consumers and workers. In contrast, in markets where the competition on the supply side is more competitive, when the supply is highly (mildly) more competitive, the fixed-commission rate (dynamic-commission-rate) scheme generates the highest profits for platforms, leading to the lowest surpluses for consumers and workers and the lowest social welfare. The differential impacts of the wage scheme on the price (demand-side) and quantity (supply-side) competition explain our findings.
Keywords: Platform Competition, Sharing Economy, Analytical Modeling
JEL Classification: D43
Suggested Citation: Suggested Citation