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Two-Sided Platforms: Product Variety and Pricing Structures

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  • Andrei Hagiu
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    Abstract

    "This paper provides a new modeling framework to analyze two-sided platforms connecting producers and consumers. In contrast to the existing literature, indirect network effects are determined endogenously, through consumers' taste for variety and producer competition. Three new aspects of platform pricing structures are derived." "First, the optimal platform pricing structure shifts towards extracting more rents from producers relative to consumers when consumers have stronger demand for variety, since producers become less substitutable. With platform competition, consumer preferences for variety, producer market power, and producer economies of scale in multihoming also make platforms' price-cutting strategies on the consumer side less effective. This second effect on equilibrium pricing structures goes in the opposite direction relative to the first one." "Third, variable fees charged to producers can serve to trade off producer innovation incentives against the need to reduce a platform holdup problem." Copyright (c) 2009, The Author(s) Journal Compilation (c) 2009 Wiley Periodicals, Inc..

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    Bibliographic Info

    Article provided by Wiley Blackwell in its journal Journal of Economics & Management Strategy.

    Volume (Year): 18 (2009)
    Issue (Month): 4 (December)
    Pages: 1011-1043

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    Handle: RePEc:bla:jemstr:v:18:y:2009:i:4:p:1011-1043

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    Web page: http://www.kellogg.northwestern.edu/research/journals/JEMS/

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    Cited by:
    1. Jullien, Bruno, 2010. "Two-Sided B2B Platforms," IDEI Working Papers 652, Institut d'Économie Industrielle (IDEI), Toulouse, revised Mar 2011.
    2. Nicholas Economides & Joacim Tåg, 2007. "Net Neutrality on the Internet: A Two-sided Market Analysis," Working Papers 07-45, NET Institute, revised Nov 2007.
    3. BELLEFLAME, Paul & PEITZ, Martin, . "Platform competition and seller investment incentives," CORE Discussion Papers RP -2339, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    4. Reisinger, Markus, 2010. "Unique Equilibrium in Two-Part Tariff Competition between Two-Sided Platforms," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 308, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    5. E. Glen Weyl, 2010. "A Price Theory of Multi-sided Platforms," American Economic Review, American Economic Association, vol. 100(4), pages 1642-72, September.
    6. Gans, Joshua S., 2012. "Mobile application pricing," Information Economics and Policy, Elsevier, vol. 24(1), pages 52-59.
    7. Andrei Hagiu & Hanna Halaburda, 2013. "Information and Two-Sided Platform Profits," Harvard Business School Working Papers 12-045, Harvard Business School.
    8. Chen, Kong-Pin & Yen-Chi, Huang, 2009. "A search-matching model of the buyer-seller platforms," MPRA Paper 38372, University Library of Munich, Germany, revised 14 Dec 2011.
    9. Jullien, Bruno & Pavan, Alessandro, 2013. "Platform Pricing under Dispersed Information," TSE Working Papers 13-429, Toulouse School of Economics (TSE).
    10. Bruno Jullien & Alessandro Pavan, 2013. "Platform Competition under Dispersed Information," Discussion Papers 1568, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    11. Rasch, Alexander & Wenzel, Tobias, 2013. "Piracy in a two-sided software market," DICE Discussion Papers 85, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    12. Claire M. Weiller & Michael G. Pollitt, 2013. "Platform Markets and Energy Services," Cambridge Working Papers in Economics 1361, Faculty of Economics, University of Cambridge.
    13. Elizabeth J. Altman & Mary Tripsas, . "Product to Platform Transitions: Organizational Identity Implications," Harvard Business School Working Papers 14-045, Harvard Business School.
    14. Andre Veiga & E. Glen Weyl, 2011. "Multidimensional Heterogeneity and Platform Design," Working Papers 11-33, NET Institute, revised Nov 2011.

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