Networked Cournot Competition in Platform Markets: Access Control and Efficiency Loss

Abstract

This paper studies network design and efficiency loss in online platforms using the model of networked Cournot competition. We consider two styles of platforms: open access platforms and discriminatory access platforms. In open access platforms, every firm can connect to every market, while discriminatory access platforms limit connections between firms and markets in order to improve social welfare. Our results provide tight bounds on the efficiency loss of both open access and discriminatory access platforms. For open access platforms, we show that the efficiency loss at a Nash equilibrium is upper bounded by 3/2. In the case of discriminatory access platforms, we prove that, under an assumption on the linearity of cost functions, a greedy algorithm for optimizing network connections can guarantee the efficiency loss at a Nash equilibrium is upper bounded by 4/3.

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