Competition or Monopoly? The Impact of Market Structure on E-Platforms and Smes

Recent decades have witnessed the thriving of platform economics. More small-and-medium-sized enterprises (SMEs) are selling products via these E-platforms, e.g., Amazon and Alibaba. These SMEs are usually short of funds and the E-platforms can step up to offer financing services due to technological transitions. In this paper, we build up a game-theoretical model to investigate both the E-platforms and SMEs’ optimal decisions and corresponding performance in the presence of market competition. The platforms, competing in the credit market, decide on a credit line and these competing SMEs decide on how many to borrow and the corresponding quantity. We compare two scenarios when two competing SMEs sell through a monopoly platform or sell through multiple competing platforms. Interestingly, we find not only the platform but also the sellers are better off in the monopoly platform case, which seems quite counter-intuitive. It happens when the monopoly power restrains the over-competition among the monopolized SMEs. We also show that the system’s profit improves under the monopoly platform case. Moreover, we extend our model into two extensions when the endogenous interest rate and multiple competing platforms, indicating the robustness of our main findings