Two-Sided Markets with Pecuniary and Participation Externalities
AbstractThe existing literature on "two-sided markets" addresses participation 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 differentiated platforms compete in advertising and offer consumers a service free of charge (such as a TV program) that is financed through advertising. We show that advertising can exhibit the properties of a strategic substitute or complement. Surprisingly, there exist cases in which platforms benefit 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 CESifo Group Munich in its series CESifo Working Paper Series with number 1776.
Date of creation: 2006
Date of revision:
two-sided markets; broadcasting; advertising; market entry; digital television;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-10-07 (All new papers)
- NEP-COM-2006-10-07 (Industrial Competition)
- NEP-MIC-2006-10-07 (Microeconomics)
- NEP-MKT-2006-10-07 (Marketing)
- NEP-NET-2006-10-07 (Network Economics)
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