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Hybrid Platform Model: Monopolistic competition and dominant firm
We provide a canonical and tractable model of a trading platform which controls the variety and prices of the products it hosts by charging a percentage fee on sellers and choosing whether to sell its own product (hybrid mode). We micro-found and derive a mixed market demand system for differentiated products to capture interactions between monopolistically competitive (fringe) sellers and a sizeable range of platform products. The hybrid platform steers consumers towards its products by charging higher seller fees than pure marketplace. This “insidious steering” intensifies the better the platform’s own products. The hybrid platform debases third-party products if its products are strong enough. With perfectly elastic fringe entry, banning hybrid mode benefits consumers if and only if the ban leads to a pure marketplace. However, for sufficiently inelastic fringe, consumers might benefit from increasing the platform products’ presence.
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