The competition effect of decentralized platforms: An analytical model

Envelopment angst and concerns about the exploitative appropriation of data network effects can lead to fragmented platform markets. In this paper, we investigate if this fragmentation can be mended with decentralized platform architectures. Abstracting from an exemplary case in the mobility-as-a-service sector, we model a competitive two-platform market with a centralized platform and decentralized alternative. We find that in markets with high envelopment costs, the co-existence of these platforms leads to market segmentation: Complementors with low market power join the centralized platform, while complementors with high market power join the decentralized platform. Furthermore, the existence of a decentralized alternative can increase welfare. Lastly, by considering data control aspects, we demonstrate the effect of favorable platform design on complementor decision-making.