Three Essays on Middlemen in Intermediated Markets

Abstract

This dissertation comprises three essays on theoretical analysis of middlemen in intermediated markets. Chapter 1 gives a brief survey on the market intermediation literature and also briefly describes the subsequent chapters.

In Chapter 2 I study the role of horizontally differentiated middlemen in a bilateral search market in which heterogeneous agents of each group possess private information concerning the value of joint production. I focus on the effect of the middlemen on agents' search efforts and on pricing decisions by middlemen. In particular, I show that the middlemen intensify agents' search activities. I also provide an explanation for why middlemen often use asymmetric pricing for two groups in a market.

In Chapter 3 I study a model of platform competition when both indirect network effect and the desirability concerns of the agents are present. The desirability concerns are defined as the perceived quality of platforms. A platform with a higher proportion of high-type agents is regarded as a platform with a better quality. Under these circumstances, I derive conditions for the existence of equilibrium. In a dominant platform equilibrium, I show that some agents may not be served by the dominant platform. I also show that two platforms with different perceived quality may coexist in equilibrium. It suggests that endogenous market segmentation may arise in two-sided markets.

In chapter 4 I study the effort-maximizing contest rule when there is a positive externality between aggregate efforts and the contest audience: the audience is more willing to pay for watching a contest if each participating contestant expends more effort. The Tullock rent-seeking contest with endogenous entry is extended by incorporating the contest audience into the model. In order to fund the contest, the organizer with no budget has to collect fees from one or both of two groups. It is shown that the effort-maximizing contest rule under a positive externality attracts only two entrants and, in the unique subgame perfect equilibrium, the entrants are always subsidized regardless of the size of entry costs, and the audience pay a positive fee.