Title: Beyond equilibrium: revisiting two-sided markets from an agent-based modelling perspective

Authors: Torsten Heinrich; Claudius Gräbner

Addresses: Institute for New Economic Thinking (INET) at the Oxford Martin School, University of Oxford, Walton Well Road – Eagle House, OX2 6ED Oxford, UK; Institute for Institutional and Innovation Economics (IINO), University of Bremen, Hochschulring 4, D-28359 Bremen, Germany ' Institute for Comprehensive Analysis of the Economy, Johannes Kepler University Linz, Altenbergerstraße 52, 4040 Linz, Austria

Abstract: Two-sided markets are an important aspect of today's economies. Yet, the attention they have received in economic theory is limited, mainly due to methodological constraints of conventional approaches: Two-sided markets often exhibit non-trivial dynamics that are difficult to describe via analytical equilibrium models. We illustrate this point by revisiting a well-known equilibrium model of two-sided markets by Rochet and Tirole from an agent-based computational perspective. We identify several inconsistencies as well as implicit and implausible assumptions of the original model. These limit its explanatory power and motivate an alternative approach. The agent-based model we propose allows us to study two-sided markets in a more realistic and adequate manner: Not only are we able to compare different decision-making rules for the providers, we can also study situations with more than two providers. Thus, our model represents a first step towards a more realistic and policy-relevant study of two-sided markets.

Keywords: two-sided markets; network externalities; agent-based modelling; simulation; heuristic decision making; reinforcement learning; satisficing; differential evolution; evolutionary economics; market structure; IT economics; equilibrium dynamics.

DOI: 10.1504/IJCEE.2019.100558

International Journal of Computational Economics and Econometrics, 2019 Vol.9 No.3, pp.153 - 180

Received: 16 Dec 2015
Accepted: 24 Feb 2017
Published online: 04 Jul 2019 *

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