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Two–Sided Markets with Pecuniary and Participation Externalities

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  • Richard Schmidtke
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    Abstract

    The existing literature on "two-sided markets" addresses partici- pation externalities, but so far it has neglected pecuniary externalities between competing platforms. In this paper we build a model that incorporates both externalities. In our setup di®erentiated platforms compete in advertising and o®er consumers a service free of charge (such as a TV program) that is ¯nanced through advertising. We show that advertising can exhibit the properties of a strategic substitute or complement. Surprisingly, there exist cases in which platforms bene¯t from market entry. Moreover, we show that from a welfare point of view perfect competition is not always desirable.

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    File URL: http://www.bgpe.de/texte/DP/003_schmidtke.pdf
    File Function: First version, 2006
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    Bibliographic Info

    Paper provided by Bavarian Graduate Program in Economics (BGPE) in its series Working Papers with number 003.

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    Length: 47 pages
    Date of creation: Jun 2006
    Date of revision:
    Handle: RePEc:bav:wpaper:003_schmidtke

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    Web page: http://www.bgpe.de/
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    Related research

    Keywords: two-sided markets; broadcasting; advertising; market entry; digi- tal television;

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