This research studies a competitive bottleneck market. Reviewing the exiting literature, I try to enhance our understanding of the competitive bottleneck market, and discuss policy intervention tools based on the understanding. I also construct a theoretical model on the business coordination strategy between a platform and seller-side users, to investigate the effect on market competition, market structure, innovation activities, and user welfare. The business coordination, such as exclusive contracts and mergers, can resolve the competitive bottleneck situation, relieve the buyer-side competition, and harm single-homing buyer’s welfare. In the case of merger in which the platform acquires some of the multi-homing sellers, some of sellers can be single-homing. Or seller-side can disappear as the platform internalizes all seller-side users. Then, the (competitive bottleneck) market becomes two-sided single-homing market or the one-sided market. This study shows that the platform has an incentive to adopt the business coordination strategy, to remove the competitive bottleneck and increase the profits.
The policy suggestion in this work can be divided into three groups. The first is industrial policy, the second is regulation policy, and the last is consumer protection. For the industrial policy, I discuss the government assistance to secure users and the innovation support for the sellers, in the view of the long-term productivity improvement. For the regulation / consumer protection, I concentrate on the consumer welfare (or user welfare). When the seller-side users are consist of mid and small size businesses or self-employed businesses, the welfare of seller-side users becomes a policy maker’s concern, as well as the consumer welfare.
To discipline the abuse of market dominance by the competitive bottleneck platform, the large scale modification for the existing regulation tools is needed. In the competitive bottleneck market, the anti-competitive conducts can happen in the competitive side of the market, rather than in monopoly side of the market. Thus, we need new perspectives to regulate the anti-competitive conducts. For the cartel cases, we also need the significant modification in the regulation schemes. The restrained competition on one side can promote the competition on the other side. For the merger investigation, we need to study how the market structure, competition patterns, and user welfare change, as well as the possibility of foreclosing effects and exploitative conducts, which are examined currently.