Chicken & Egg: Competition Among Intermediation Service Providers

Posted: 22 Jul 2003

See all articles by Bernard Caillaud

Bernard Caillaud

CERAS-ENPC; Centre for Economic Policy Research (CEPR)

Bruno Jullien

University of Toulouse 1 - Toulouse School of Economics (TSE); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)

Abstract

We analyze a model of imperfect price competition between intermediation service providers. We insist on features that are relevant for informational intermediation via the Internet: the presence of indirect network externalities, the possibility of using the nonexclusive services of several intermediaries, and the widespread practice of price discrimination based on users' identity and on usage. Efficient market structures emerge in equilibrium, as well as some specific form of inefficient structures. Intermediaries have incentives to propose non-exclusive services, as this moderates competition and allows them to exert market power. We analyze in detail the pricing and business strategies followed by intermediation services providers.

Suggested Citation

Caillaud, Bernard and Jullien, Bruno, Chicken & Egg: Competition Among Intermediation Service Providers. Available at SSRN: https://ssrn.com/abstract=406691

Bernard Caillaud (Contact Author)

CERAS-ENPC ( email )

28, rue des Saints-Peres
75007 Paris
France
+33 1 44 58 28 75 (Phone)
+33 1 44 58 28 80 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Bruno Jullien

University of Toulouse 1 - Toulouse School of Economics (TSE) ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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