A primer on verti-zontally differentiated peer-to-peer energy intraday trading platforms with and without customization

Abstract

This study analyzes a two-sided market where two platforms compete to attract agents from two distinct sides to participate in peer-to-peer (P2P) energy intraday trading. These intermediaries are differentiated both vertically and horizontally and engage in price competition to attract additional members on both sides. While considering quality disparities at the intermediation level, we also examine the possibility that both platforms may choose to customize their trading services. In the absence of service customization (ASC) regime, results confirm that equilibrium outcomes depend on the interaction between the strength of indirect network effects and the degree of quality differentiation between platforms. Notably, regardless of whether horizontal or vertical dominance prevails, the intensity of inter-group externalities consistently promotes pro-competitive effects in private equilibrium. However, when platforms opt for the provision of service customization (PSC) regime, inter-group externalities no longer impact equilibrium prices and profits when the quality discrepancy between platforms is sufficiently high. This finding not only theoretically challenges conventional wisdom in network effects literature but also suggests to practitioners that the pro-competitive role of inter-group externalities disappears in this specific market condition, where some agents already enjoy a significantly high reputation, making the internalization of indirect network effects irrelevant. When that is the case, this research highlights the strategic role of customization diffusion, combined with asymmetric quality differences at the intermediation level, to mitigate intense price competition caused by inter-group externalities in P2P energy intraday trading systems. If regulators overlook this dynamic, the surplus traditionally enjoyed by incumbent operators at the distribution level – typically attributed to the persistence of a natural monopoly – may shift to those who preemptively establish high-quality platforms in institutional environments that support service customization.