Heinrich, Torsten and Gräbner, Claudius (2015): Beyond Equilibrium: Revisiting TwoSided Markets from an AgentBased Modeling Perspective.
Preview 
PDF
MPRA_paper_68374.pdf Download (898kB)  Preview 
Abstract
Twosided markets are an important aspect of today's economies. Yet, the attention they have received in economic theory is limited, mainly due to methodological constraints of conventional approaches: twosided markets quickly lead to nontrivial dynamics that would require a computational approach, as analytical models quickly become intractable.
One approach to this problem is to opt for models that operate on an aggregated level, abstracting from most of the (microlevel) causes of these nontrivial dynamics. Here we revisit a well known equilibrium model by Rochet and Tirole of twosided markets that has taken this approach. Analyzing the model from an agentbased perspective, however, reveals several inconsistencies and implicit assumptions of the original model. This, together with the highly implausible assumptions that are required to make the model analytically tractable, limits its explanatory power significantly and motivates an alternative approach.
The agentbased model we propose allows us to study the phenomenon of twosided markets in a more realistic and adequate manner: Not only are we able to compare different decision making rules for the providers, we are also able to study situations with more than two providers. Thus, our model represents a first step towards a more realistic and policyrelevant study of twosided markets.
Item Type:  MPRA Paper 

Original Title:  Beyond Equilibrium: Revisiting TwoSided Markets from an AgentBased Modeling Perspective 
Language:  English 
Keywords:  Twosided markets; Network externalities; Agentbased modeling; Simulation; Heuristic decision making; Reinforcement learning; Satisficing; Differential evolution; Evolutionary economics; Market structure; IT economics; Equilibrium dynamics 
Subjects:  C  Mathematical and Quantitative Methods > C6  Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C61  Optimization Techniques ; Programming Models ; Dynamic Analysis C  Mathematical and Quantitative Methods > C6  Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C62  Existence and Stability Conditions of Equilibrium C  Mathematical and Quantitative Methods > C6  Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C63  Computational Techniques ; Simulation Modeling D  Microeconomics > D4  Market Structure, Pricing, and Design L  Industrial Organization > L1  Market Structure, Firm Strategy, and Market Performance > L14  Transactional Relationships ; Contracts and Reputation ; Networks L  Industrial Organization > L1  Market Structure, Firm Strategy, and Market Performance > L15  Information and Product Quality ; Standardization and Compatibility 
Item ID:  68374 
Depositing User:  Torsten Heinrich 
Date Deposited:  15 Dec 2015 06:29 
Last Modified:  27 Sep 2019 11:17 
References:  Armstrong, M. (2006). Competition in twosided markets. The RAND Journal of Economics, 37 (3), 668–691. doi:10.1111/j.17562171.2006.tb00037.x Arthur, W. B., Ermoliev, Y. M., & Kaniovski, Y. M. (1987). Path dependent processes and the emergence of macrostructure. European Journal of Operational Research, 30, 294–303. Bendor, J., Mookherjee, D., & Ray, D. (2001). Reinforcement learning in repeated interaction games. The B.E. Journal of Theoretical Economics, 1 (1), Article 3. doi:10.2202/15345963.1008 Choi, J. P. (2010). Tying in twosided markets with multihoming. The Journal of Industrial Economics, 58 (3), 607–626. doi:10.1111/j.14676451.2010.00426.x David, P. A. (1985). Clio and the economics of QWERTY. American Economic Review, 75 (2), 332–337. Katz, M. L. & Shapiro, C. (1985). Network externalities, competition and compatibility. American Economic Review, 75 (3), 424–440. Koloseni, D., Lampinen, J., & Luukka, P. (2013). Differential evolution based nearest prototype classifier with optimized distance measures for the features in the data sets. Expert Systems with Applications, 40 (10), 4075–4082. doi:http://dx.doi.org/10.1016/j.eswa.2013.01.040 Liu, J. & Lampinen, J. (2005). A fuzzy adaptive differential evolution algorithm. Soft Computing, 9 (6), 448–462. doi:10.1007/s005000040363x Meyer, T. G. (2012). Path dependence in twosided markets: a simulation study on technological path dependence with an application to platform competition in the smartphone industry (Doctoral dissertation, Free University of Berlin, Berlin, Germany). Available online http://www.diss.fuberlin.de/diss/servlets/MCRFileNodeServlet/FUDISS_derivate_000000012507/Meyer_2012_Path_depende Peitz, M., Rady, S., & Trepper, P. (2011). Experimentation in twosided markets. CEPR Discussion Paper No. DP8670. Available at SSRN: http://ssrn.com/abstract=1965918. Rochet, J.C. & Tirole, J. (2003). Platform competition in twosided markets. Journal of the European Economic Association, 1 (4), 990–1029. Rochet, J.C. & Tirole, J. (2006). Twosided markets: a progress report. The RAND Journal of Economics, 37 (3), 645–667. Shy, O. (2011). A short survey of network economics. Review of Industrial Organization, 38 (2), 119–149. doi:10.1007/s1115101192886 Simon, H. A. (1955). A behavioral model of rational choice. The Quarterly Journal of Economics, 69 (1), 99–118. doi:10.2307/1884852. eprint: http://qje.oxfordjournals.org/content/69/1/99.full.pdf+html Storn, R. & Price, K. (1997). Differential evolution – a simple and efficient heuristic for global optimization over continuous spaces. Journal of Global Optimization, 11 (4), 341–359. doi:10. 1023/A:1008202821328 
URI:  https://mpra.ub.unimuenchen.de/id/eprint/68374 
Available Versions of this Item

Beyond Equilibrium: Revisiting TwoSided Markets from an AgentBased Modeling Perspective. (deposited 13 Nov 2015 06:26)
 Beyond Equilibrium: Revisiting TwoSided Markets from an AgentBased Modeling Perspective. (deposited 15 Dec 2015 06:29) [Currently Displayed]