Holdup, Profit Distribution and Platform Antitrust

Abstract

The bargaining process between the platform and users has great impact on the pricing scheme and the successful establishment of a platform. When users receive utilities after paying a initial cost to join the platform, they face the risk of platform's aggressive pricing and are discouraged from joining the platform. The problem of incredible commitment leads to the launch failure of potential platforms and great welfare loss in equilibrium, which is named "platform holdup'' by us. An effective and practical solution is that government supervises on platform's misbehaviour to provide implicit guarantee. For platforms, spontaneously providing subsidies to new users or dividends to joined users are also efficacious solutions. Competition can partly solve the problem, but may be inefficient and only effective under certain circumstances.