A Preference-Based Model of Platform Competition

We study platform competition by modeling the preferences of a "representative buyer" over the services platforms provide and the commodities they intermediate. This captures an intensive margin of buyers' participation which is neglected by the canonical setting and delivers a welfare measure of platform quality. Assuming that sellers offer a large variety of commodities under monopolistic competition and free entry, in contrast to previous results we find that in a duopoly setting strategically chosen commissions (whose value depends on sellers' expenditure share and demand elasticity) actually worsen buyers' welfare, which improves if platforms set commissions in advance of sellers' entry