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 effects. This type of externality occurs when both groups benefit, possibly with different intensities, from an increase in the size of one group and from a decrease in the size of the other. We explain why common externality is relevant for the health and education sectors. We focus on the symmetric equilibrium and show that when the externality itself satisfies an homogeneity condition then platforms'profits and price structure have some specific 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 specific but realistic case where the common network externality is homogeneous of degree zero, platforms'profit 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 affected but in such a way that platforms only transfer rents from consumers to providers. Finally, we show that a transaction fee leads to a lower remuneration for providers than a flat salary scheme. This, in turn, results in a lower prices level so that profits are the same under both regimes.
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Bibliographic InfoPaper provided by Paris Dauphine University in its series Economics Papers from University Paris Dauphine with number 123456789/5992.
Date of creation: 2010
Date of revision:
Publication status: Published in Cahiers de la Chaire Santé, 2010
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.
- Helmuth Cremer & David Bardey & Jean-Marie Lozachmeur, 2009. "Competition in two-sided markets with common network externalities," DOCUMENTOS DE TRABAJO 005937, UNIVERSIDAD DEL ROSARIO.
- 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.
- 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
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