Competition in two-sided markets with common network externalities
AbstractWe study competition in two sided markets with common network externality rather than with the standard inter-group e¤ects. This type of externality occurs when both groups bene�t, possibly with di¤erent intensities, from an increase in the size of one group and from a decrease in the size of the other. We explain why common externalityis relevant for the health and education sectors. We focus on the symmetric equilibrium and show that when the externality itself satis�es an homogeneity condition then platforms� pro�ts and price structure have some speci�c properties. Our results reveal how the rents coming from network externalities are shifted by platforms from one side to other, according to the homogeneity degree. In the speci�c but realistic case where the common network externality is homogeneous of degree zero, platform�s pro�t do not depend on the intensity of the (common) network externality. This is in sharp contrast to conventional results stating that the presence of network externalities in a two-sided market structure increases the intensity of competition when the externality is positive (and decreases it when the externality is negative). Prices are a¤ected but in such a way that platforms only transfer rents from consumers to providers
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Bibliographic InfoPaper provided by UNIVERSIDAD DEL ROSARIO in its series DOCUMENTOS DE TRABAJO with number 005937.
Date of creation: 15 Oct 2009
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Two-Sided markets; Common Network Externality; Health; Education;
Other versions of this item:
- David Bardey & Helmuth Cremer & Jean-Marie Lozachmeur, 2014. "Competition in Two-Sided Markets with Common Network Externalities," Review of Industrial Organization, Springer, vol. 44(4), pages 327-345, June.
- Bardey, David & Cremer, Helmuth & Lozachmeur, Jean-Marie, 2009. "Competition in two-sided markets with common network externalities," IDEI Working Papers 578, Institut d'Économie Industrielle (IDEI), Toulouse, revised Oct 2010.
- Bardey, David & Cremer, Helmuth & Lozachmeur, Jean-Marie, 2009. "Competition in two-sided markets with common network externalities," TSE Working Papers 09-103, Toulouse School of Economics (TSE), revised Oct 2010.
- Bardey, David & Cremer, Helmuth & Lozachmeur, Jean-Marie, 2010. "Competition in two-sided markets with common network externalities," Economics Papers from University Paris Dauphine 123456789/5992, Paris Dauphine University.
- D42 - Microeconomics - - Market Structure and Pricing - - - Monopoly
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-10-24 (All new papers)
- NEP-COM-2009-10-24 (Industrial Competition)
- NEP-MIC-2009-10-24 (Microeconomics)
- NEP-NET-2009-10-24 (Network Economics)
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