Asymmetric Competition between Interconnected B2B Marketplaces Based on Two-sided Market Theory

Abstract

According to traditional theory of network effect, B2B marketplaces in e-commerce should be considerably concentrated or even the whole B2B industry would be monopolized by one firm because the most powerful marketplace will attract almost the market participants. However, in reality in many types of electronic marketplaces there generally exist different firms in size. To correctly explain this phenomenon is the purpose of our paper. According to emerging two-sided market theory, B2B marketplace is a typical two-sided market. We develop an asymmetric Cournot duopoly competition model on open electronic B2B network based on two-sided market theory. It is shown that there exists a great scope such that asymmetric interior unique Nash equilibrium could hold, which means that market concentration doesn't prevail in B2B e-marketplace. In addition, when a firm improves more quality of its product or service relative to other firm, it could earn more profit.