Competition and Strategic Partnership between Intermediary Platforms in the Presence of Heterogeneous Technologies

Should platform based market intermediaries collaborate with their competitors? If so, should they share their technologies, their member networks, or both? These are the questions we seek to answer using a simple two-sided network model where the members' utilities are driven by both network size and the level of technology provided by the platforms. Consistent with the literature, we find that these network markets are characterized by extremely asymmetric outcomes. Under open competition, the superior-technology platform completely dominates the market and, surprisingly, this extreme asymmetry persists even as the technology gap between the leading and the competing platforms vanishes. Our analysis on the possibility of strategic partnership reveals that platforms would not want to share technologies alone with rivals, however, sharing their networks, with or without side payments, can be Pareto optimal. The likelihood of partnership is influenced by platforms' relative strengths in technology and the cross-platform technology experience.