A Price Theory of Multi-sided Platforms
AbstractI develop a general theory of monopoly pricing of networks. Platforms use insulating tariffs to avoid coordination failure, implementing any desired allocation. Profit maximization distorts in the spirit of A. Michael Spence (1975) by internalizing only network externalities to marginal users. Thus the empirical and prescriptive content of the popular Jean-Charles Rochet and Jean Tirole (2006) model of two-sided markets turns on the nature of user heterogeneity. I propose a more plausible, yet equally tractable, model of heterogeneity in which users differ in their income or scale. My approach provides a general measure of market power and helps predict the effect of price regulation and mergers. (JEL D42, D85, L14)
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by American Economic Association in its journal American Economic Review.
Volume (Year): 100 (2010)
Issue (Month): 4 (September)
Find related papers by JEL classification:
- D42 - Microeconomics - - Market Structure and Pricing - - - Monopoly
- D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
- L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Nevo, Aviv, 1998. "Identification of the oligopoly solution concept in a differentiated-products industry," Economics Letters, Elsevier, vol. 59(3), pages 391-395, June.
- Shaked, Avner & Sutton, John, 1982. "Relaxing Price Competition through Product Differentiation," Review of Economic Studies, Wiley Blackwell, vol. 49(1), pages 3-13, January.
- Bengt Holmstrom, 1981.
"Moral Hazard in Teams,"
471, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Marc Rysman, 2004. "Competition Between Networks: A�Study of the Market for Yellow�Pages," Review of Economic Studies, Wiley Blackwell, vol. 71(2), pages 483-512, 04.
- Glenn Ellison & Drew Fudenberg, 2003.
"Knife Edge of Plateau: When Do Market Models Tip?,"
NBER Working Papers
9528, National Bureau of Economic Research, Inc.
- Fudenberg, Drew & Ellison, Glenn, 2003. "Knife-Edge or Plateau: When Do Market Models Tip?," Scholarly Articles 3160493, Harvard University Department of Economics.
- Glenn Ellison & Drew Fudenberg, 2003. "Knife-Edge or Plateau: When do Market Models Tip?," Levine's Working Paper Archive 506439000000000098, David K. Levine.
- Matthew Gentzkow & Jesse M. Shapiro, 2010.
"What Drives Media Slant? Evidence From U.S. Daily Newspapers,"
Econometric Society, vol. 78(1), pages 35-71, 01.
- Matthew Gentzkow & Jesse M. Shapiro, 2006. "What Drives Media Slant? Evidence from U.S. Daily Newspapers," NBER Working Papers 12707, National Bureau of Economic Research, Inc.
- Steven T. Berry & Joel Waldfogel, 1999.
"Free Entry and Social Inefficiency in Radio Broadcasting,"
RAND Journal of Economics,
The RAND Corporation, vol. 30(3), pages 397-420, Autumn.
- Steven Berry & Joel Waldfogel, 1996. "Free Entry and Social Inefficiency in Radio Broadcasting," NBER Working Papers 5528, National Bureau of Economic Research, Inc.
- Becker, Gary S & Murphy, Kevin M, 1993. "A Simple Theory of Advertising as a Good or Bad," The Quarterly Journal of Economics, MIT Press, vol. 108(4), pages 941-64, November.
- repec:rje:randje:v:37:y:2006:3:p:668-691 is not listed on IDEAS
- repec:rje:randje:v:37:y:2006:3:p:720-737 is not listed on IDEAS
- Shapiro, Carl & Farrell, Joseph, 2008.
"Antitrust Evaluation of Horizontal Mergers: An Economic Alternative to Market Definition,"
Department of Economics, Working Paper Series
qt35c5f846, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Farrell Joseph & Shapiro Carl, 2010. "Antitrust Evaluation of Horizontal Mergers: An Economic Alternative to Market Definition," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 10(1), pages 1-41, March.
- Farrell, Joseph & Shapiro, Carl, 2008. "Antitrust Evaluation of Horizontal Mergers: An Economic Alternative to Market Definition," Competition Policy Center, Working Paper Series qt8z51b1q8, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
- S. J. Liebowitz & Stephen E. Margolis, 1994. "Network Externality: An Uncommon Tragedy," Journal of Economic Perspectives, American Economic Association, vol. 8(2), pages 133-150, Spring.
- Robin S. Lee, 2007. "Vertical Integration and Exclusivity in Two-Sided Markets," Working Papers 07-39, NET Institute, revised Aug 2012.
- Kaiser, Ulrich & Wright, Julian, 2006.
"Price structure in two-sided markets: Evidence from the magazine industry,"
International Journal of Industrial Organization,
Elsevier, vol. 24(1), pages 1-28, January.
- Kaiser, Ulrich & Wright, Julian, 2004. "Price Structure in Two-sided Markets: Evidence from the Magazine Industry?," ZEW Discussion Papers 04-80, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
- Julian Wright, 2004.
"The Determinants of Optimal Interchange Fees in Payment Systems,"
Journal of Industrial Economics,
Wiley Blackwell, vol. 52(1), pages 1-26, 03.
- Julian Wright, 2001. "The Determinants of Optimal Interchange Fees in Payment Systems," Industrial Organization 0108001, EconWPA.
- Alvin E. Roth, 2002. "The Economist as Engineer: Game Theory, Experimentation, and Computation as Tools for Design Economics," Econometrica, Econometric Society, vol. 70(4), pages 1341-1378, July.
- Ilya Segal, 1999. "Contracting With Externalities," The Quarterly Journal of Economics, MIT Press, vol. 114(2), pages 337-388, May.
- Elena Argentesi & Lapo Filistrucchi, 2005.
"Estimating market power in a two-sided market: the case of newspapers,"
Economics Working Papers
ECO2005/07, European University Institute.
- Elena Argentesi & Lapo Filistrucchi, 2007. "Estimating market power in a two-sided market: The case of newspapers," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(7), pages 1247-1266.
- Caillaud, Bernard & Jullien, Bruno, 2003. " Chicken & Egg: Competition among Intermediation Service Providers," RAND Journal of Economics, The RAND Corporation, vol. 34(2), pages 309-28, Summer.
- Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, January.
- Church, Jeffrey & Gandal, Neil, 1992. "Network Effects, Software Provision, and Standardization," Journal of Industrial Economics, Wiley Blackwell, vol. 40(1), pages 85-103, March.
- Besanko, David & Donnenfeld, Shabtai & White, Lawrence J, 1987. "Monopoly and Quality Distortion: Effects and Remedies," The Quarterly Journal of Economics, MIT Press, vol. 102(4), pages 743-67, November.
- Hagiu Andrei, 2007. "Merchant or Two-Sided Platform?," Review of Network Economics, De Gruyter, vol. 6(2), pages 1-19, June.
- Klemperer, Paul D & Meyer, Margaret A, 1989. "Supply Function Equilibria in Oligopoly under Uncertainty," Econometrica, Econometric Society, vol. 57(6), pages 1243-77, November.
- Simon P. Anderson & Stephen Coate, 2005.
"Market Provision of Broadcasting: A Welfare Analysis,"
Review of Economic Studies,
Oxford University Press, vol. 72(4), pages 947-972.
- Simon P. Anderson & Stephen Coate, 2003. "Market Provision of Broadcasting: A Welfare Analysis," Virginia Economics Online Papers 358, University of Virginia, Department of Economics.
- Bresnahan, Timothy F., 1982. "The oligopoly solution concept is identified," Economics Letters, Elsevier, vol. 10(1-2), pages 87-92.
- Marc Rysman, 2004. "Competition Between Networks: A Study of the Market for Yellow Pages," Review of Economic Studies, Oxford University Press, vol. 71(2), pages 483-512.
- O'Keeffe, Mary & Viscusi, W Kip & Zeckhauser, Richard J, 1984. "Economic Contests: Comparative Reward Schemes," Journal of Labor Economics, University of Chicago Press, vol. 2(1), pages 27-56, January.
- Andrei Hagiu, 2009. "Two-Sided Platforms: Product Variety and Pricing Structures," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 18(4), pages 1011-1043, December.
- repec:rje:randje:v:37:y:2006:3:p:645-667 is not listed on IDEAS
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jane Voros) or (Michael P. Albert).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.