Imperfect Platform Competition: A General Framework

We propose a general model of imperfect competition among multi-productfirms, the consumption of whose goods yields externalities from oneconsumer to another. We extend the allocation approach of Weyl (2010)'smonopoly model, proposing a solution concept, Insulated Equilibrium,that allows for tractable analysis of competition. In such anequilibrium each firm's price on one side of the market adjusts to allfirms' participation levels on the other side, so as to insulate its ownallocation. This eliminates both the indeterminacy of consumer reactionsonce platforms have set their tariffs and the multiplicity of reactionfunctions that platforms can have to one another's tariffs. Our approachallows us to derive intuitive first-order conditions characterizingequilibrium without restrictive assumptions and to analyze the effectsof competition, mergers and regulation.