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Two-Sided Markets with Pecuniary and Participation Externalities

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Author Info
Richard Schmidtke ()
Abstract

The 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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Publisher Info
Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 1776.

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Date of creation: 2006
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Handle: RePEc:ces:ceswps:_1776

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Related research
Keywords: two-sided markets; broadcasting; advertising; market entry; digital television;

Find related papers by JEL classification:
D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
L82 - Industrial Organization - - Industry Studies: Services - - - Entertainment; Media

This paper has been announced in the following NEP Reports:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Volker Nocke & Martin Peitz & Konrad Stahl, 2004. "Platform Ownership," Discussion Papers 16, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich. [Downloadable!]
    Other versions:
  2. Simon P. Anderson, 2005. "Regulation of Television advertising," Virginia Economics Online Papers 363, University of Virginia, Department of Economics. [Downloadable!]
  3. Rochet, Jean-Charles & Tirole, Jean, 2003. "Platform Competition in Two-Sided Markets," IDEI Working Papers 152, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
    Other versions:
  4. Caillaud, Bernard & Jullien, Bruno, 2003. " Chicken & Egg: Competition among Intermediation Service Providers," RAND Journal of Economics, The RAND Corporation, vol. 34(2), pages 309-28, Summer.
  5. Jean J. Gabszewicz & Didier Laussel & Nathalie Sonnac, 2004. "Programming and Advertising Competition in the Broadcasting Industry," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 13(4), pages 657-669, December. [Downloadable!] (restricted)
  6. Nilssen,T. & Sorgard,L., 2001. "The TV industry : advertising and programming," Memorandum 18/2001, Oslo University, Department of Economics. [Downloadable!]
  7. Brendan M. Cunningham & Peter J. Alexander, 2004. "A Theory of Broadcast Media Concentration and Commercial Advertising," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 6(4), pages 557-575, October. [Downloadable!] (restricted)
  8. Kind, Hans Jarle & Nilssen, Tore & Sørgard, Lars, 2005. "Advertising on TV: Under- or Overprovision?," Memorandum 15/2005, Oslo University, Department of Economics. [Downloadable!]
  9. Reisinger, Markus, 2004. "Two-Sided Markets with Negative Externalities," Discussion Papers in Economics 478, University of Munich, Department of Economics. [Downloadable!]
  10. Mark Armstrong, 2005. "Competition in Two-Sided Markets," Industrial Organization 0505009, EconWPA. [Downloadable!]
    Other versions:
  11. Simon P. Anderson & Stephen Coate, 2000. "Market Provision of Public Goods: The Case of Broadcasting," NBER Working Papers 7513, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  12. Peitz, Martin & Valletti, Tommaso, 2004. "Content and Advertising in the Media: Pay-TV versus Free-To-Air," CEPR Discussion Papers 4771, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  13. Häckner, Jonas & Nyberg, Sten, 2000. "Price Competition, Advertising and Media Market Concentration," Research Papers in Economics 2000:3, Stockholm University, Department of Economics. [Downloadable!]
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