Competition, Market Coverage, and Quality Choice in Interconnected Platforms
We study duopoly competition between two interconnected Internet Service Providers (ISP) that compete in quality and prices for both Content Providers (CP) and consumers. We develop a game theoretic model using a two-sided market framework, where ISP's are modeled as interconnected platform...
| Main Authors: | , , , |
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| Other Authors: | |
| Format: | Article |
| Language: | en_US |
| Published: |
2011
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| Online Access: | http://hdl.handle.net/1721.1/61971 https://orcid.org/0000-0002-1827-1285 |
| Summary: | We study duopoly competition between two interconnected
Internet Service Providers (ISP) that compete in quality and
prices for both Content Providers (CP) and consumers. We
develop a game theoretic model using a two-sided market
framework, where ISP's are modeled as interconnected platforms with quality bottlenecks; a consumer on a low quality
network accessing content on a high quality platform experiences low quality. Platforms first pick quality levels from
a bounded interval and in the subsequent stages compete in
prices for both CP's and consumers. CP's are heterogenous
in content quality which is uniformly distributed between [gamma[over-bar]-1, gamma[over-bar]]. We first establish the existence of a price subgame perfect equilibrium (SPE) given any asymmetric pair
of platform quality choices. We show that the higher the
asymmetry the more likely the CP market is to be uncovered
if the average content quality (represented by gamma[over-bar]) is low. In
contrast, if gamma[over-bar] is high then the market is always covered. We
then show that a SPE for the whole game exists and characterize all the equilibrium choices of the quality game. In
particular, we show that the equilibria involve either maximal differentiation or partial differentiation depending on
gamma[over-bar] Moreover, we characterize the resulting market configurations in the final stage and show that they depend on gamma[over-bar]
and the asymmetry between platforms represented by the
ratio of the qualities, I. |
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