Title

Competition in Mediation Services: Modeling the Role of Expertise, Satisfaction and Switching Costs

Department

Economics, Finance, & Quantitative Analysis

Document Type

Article

Publication Date

7-18-2013

Abstract

This article analyzes competition among mediation service providers that match clients and vendors in a horizontally differentiated market. This is an issue that is important for decision support of mediators in determining pricing and service strategies. We present a simulation model to simultaneously represent search as well as the behaviors of clients, vendors, and multiple competing mediators. Among our findings: intermediaries find it optimal to offer registration fee incentives and derive revenues from transaction fees from successful matches; as switching costs increase, incumbent utilities increase and entrant utilities decrease; expertise, modeled as the ability of mediators to assess vendor attributes accurately, is a powerful competitive weapon for entrants to erode the incumbent intermediary's first mover advantage. On the other hand, client satisfaction is an instrument for an incumbent intermediary to deter entrance by competitors.

Digital Object Identifier (DOI)

10.1080/10919392.2013.807711