Essays on Two-Sided Markets with Externalities

Abstract

This thesis examines the strategic incentives of market players under constrained situations that generate economic externalities. The first chapter considers a model of competition in which economic activity takes place through networks of bilateral interactions. Economic externalities in this context arise naturally due to trade limitations enforced by network structures and disturb market outcome. The second chapter focuses on managerial incentives of a monopolistic retailer to maximize its profits in a market characterized by demand uncertainty. In particular, this chapter investigates the consequences of using category captains, who are leading manufacturers that retailers rely on for recommendations in a particular category, for a monopolistic retailer. In this context, delegation of decision power to a category captain creates externalities over other manufacturers. The third chapter focuses on incentive trade off between demand uncertainty and price discrimination for oligopolistic firms. On one hand, firms that face uncertainty choose sub-optimal strategies, which results in profit losses, in order to smooth their strategies across different market outcomes. On the other hand, firms that face different variety of consumers tend to discriminate consumers by offering different prices in the hope of capturing higher surplus. Motivated by this trade off, the goal of this chapter is to better understand the consequences of exogenously enforced price discrimination.