Platform Competition and Interoperability: The Net Fee Model

Abstract

We study the effects of competition and interoperabilty in platform markets. To do so, we adopt an approach of competition in net fees, which is well-suited to situations where users pay additional charges, after joining, for on-platform interactions. Compared to other approaches, net fees expand the tractable scope to allow platform asymmetry and variable total demand. Regarding competition, our findings raise concerns, including possible dominance-inducing entry, which symmetric models overlook. Our results are more optimistic towards the helpfulness of policies that promote interoperability among platforms, but they urge caution when total demand variability is a significant factor.