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Nesting Vertical And Horizontal Differentiation In Two-Sided Markets

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  • Vitor Miguel Ribeiro
  • João Correia-da-Silva
  • Joana Resende

Abstract

We develop a model that is a synthesis of the two-sided markets duopoly model of Armstrong (2006) with the nested vertical and horizontal di erentiation model of Gabszewicz and Wauthy (2012), which consists of a linear city with di erent consumer densities on the left and on the right side of the city. In equilibrium, the high-quality platform sells at a higher price and captures a greater market share than the low-quality platform, despite the indiff erent consumer being closer to the high-quality platform. The di fference between market shares is lower than socially optimal, because of the inter-group externality and because the high-quality platform sells at a higher price. We conclude that a perturbation that introduces a negligible di erence between the consumer density on the left and on the right side of the city may disrupt the existence of equilibrium in the model of Armstrong (2006). Finally, we show that inter-group externalities make it easier to deter an inferior-quality entrant and make it easier for a superior-quality entrant to conquer the market.
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Suggested Citation

  • Vitor Miguel Ribeiro & João Correia-da-Silva & Joana Resende, 2016. "Nesting Vertical And Horizontal Differentiation In Two-Sided Markets," Bulletin of Economic Research, Wiley Blackwell, vol. 68(S1), pages 133-145, December.
    • Handle: RePEc:bla:buecrs:v:68:y:2016:i:s1:p:133-145
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    File URL: http://hdl.handle.net/10.1111/boer.2016.68.issue-S1
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    References listed on IDEAS

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    Cited by:

    1. Luigi Serio & Piero Tedeschi & Giovanni Ursino, 2018. "Making Sense of (Ultra) Low-Cost Flights Vertical Differentiation in Two-Sided Markets," Management Science, INFORMS, vol. 64(1), pages 401-420, January.
    2. Debora Di Gioacchino & Alina Verashchagina, 2017. "Mass media and attitudes to inequality," Working Papers in Public Economics 178, University of Rome La Sapienza, Department of Economics and Law.
    3. Maria Rosa Battaggion & Serena Marianna Drufuca, 2020. "Quality competition and entry: a media market case," Journal of Economics, Springer, vol. 130(1), pages 1-36, June.
    4. Di Gioacchino, Debora & Verashchagina, Alina, 2020. "Mass media and preferences for redistribution," European Journal of Political Economy, Elsevier, vol. 63(C).
    5. Nestor Duch-Brown, 2017. "Quality discrimination in online multi-sided markets," JRC Working Papers on Digital Economy 2017-06, Joint Research Centre.

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    More about this item

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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