Two–Sided Markets with Pecuniary and Participation Externalities
AbstractThe 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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Bibliographic InfoPaper provided by Bavarian Graduate Program in Economics (BGPE) in its series Working Papers with number 003.
Length: 47 pages
Date of creation: Jun 2006
Date of revision:
two-sided markets; broadcasting; advertising; market entry; digi- tal television;
Find related papers by JEL classification:
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- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
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