Hybrid Versus Pure Platforms Under Endogenous Wholesale Pricing

ABSTRACT Recent debates regarding the relative efficiency of hybrid and pure platform modes have become central in platform economics. This paper investigates the effect of the platform mode in a setting where downstream sellers on the platform purchase products from an upstream manufacturer before competing in quantities. The choice between the hybrid and pure platform modes alters the upstream manufacturer's pricing incentives and, in turn, affects total market quantity and welfare. I derive the conditions under which the hybrid platform mode yields a higher, lower, or equal total quantity compared to the pure platform mode. The key determinant is the modularity of demand, which depends on the elasticity of marginal revenue. These results highlight that platform regulation should jointly consider demand structure, upstream pricing behavior, and market structure.