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Platform pricing in matching markets

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  • Maarten GOOS
  • Patrick VAN CAYSEELE
  • Bert WILLEKENS

Abstract

This paper develops a simple model of monopoly platform pricing accounting for two pertinent features of matching markets. 1) The trading process is characterized by search and matching frictions implying limits to positive cross-side network effects and the presence of own-side congestion. 2)Matched agents bargain over the division of the match surplus depending on the qualitative characteristics of both parties. We find that, compared to the frictionless benchmark typically analyzed in the classic platform pricing literature, the harms of monopoly market power are mitigated by frictions. However, when the platform is allowed to make investments in the reduction of frictions, a private platform is likely to under-invest compared to a Pigouvian platform. In addition, accounting for user quality differentiation further reduces classic harms of monopoly market power when user quality types are complements in creation of the match surplus. In this case it is socially desirable to attract smaller groups of users with higher average quality to maximize the aggregate match surplus, resulting in a downward price distortion. This result is reversed when quality types are substitutes and the distortion disappears when they are strategically independent.

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Bibliographic Info

Paper provided by Katholieke Universiteit Leuven, Centrum voor Economische Studiën in its series Center for Economic Studies - Discussion papers with number ces11.32.

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Date of creation: Dec 2011
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Handle: RePEc:ete:ceswps:ces11.32

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  1. Jan Eeckhout & Philipp Kircher, 2009. "Identifying Sorting - In Theory," PIER Working Paper Archive 09-007, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  2. Rochet, Jean-Charles & Tirole, Jean, 2003. "Platform Competition in Two-Sided Markets," Open Access publications from University of Toulouse 1 Capitole http://neeo.univ-tlse1.fr, University of Toulouse 1 Capitole.
  3. E. Glen Weyl, 2010. "A Price Theory of Multi-sided Platforms," American Economic Review, American Economic Association, vol. 100(4), pages 1642-72, September.
  4. BELLEFLAMME, Paul & TOULEMONDE, Eric, 2007. "Negative intra-group externalities in two-sided markets," CORE Discussion Papers 2007039, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. Damiano, Ettore & Li, Hao, 2005. "Competing Matchmaking," Micro Theory Working Papers damiano-05-01-25-10-08-07, Microeconomics.ca Website, revised 18 Oct 2005.
  6. Mark Armstrong, 2006. "Competition in two‐sided markets," RAND Journal of Economics, RAND Corporation, vol. 37(3), pages 668-691, 09.
  7. Barbara Petrongolo & Christopher A. Pissarides, 2000. "Looking Into the Black Box: A Survey of the Matching Function," CEP Discussion Papers dp0470, Centre for Economic Performance, LSE.
  8. Damiano, Ettore & Li, Hao, 2005. "Price Discrimination and Efficient Matching," Micro Theory Working Papers damiano-05-03-21-12-21-58, Microeconomics.ca Website, revised 22 Mar 2005.
  9. 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.
  10. Jan Eeckhout & Philipp Kircher, 2008. "Sorting and Decentralized Price Competition," PIER Working Paper Archive 08-020, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  11. María Fernanda Viecens, 2009. "Pricing strategies in two-sided platforms: The role of sellers’ competition," Working Papers 2009-11, FEDEA.
  12. Simon P. Anderson & André de Palma, 2006. "Information Congestion," Virginia Economics Online Papers 364, University of Virginia, Department of Economics.
  13. David S. Evans & Richard Schmalensee, 2010. "Failure to Launch: Critical Mass in Platform Businesses," Review of Network Economics, De Gruyter, vol. 9(4), pages 1.
  14. Rochet, Jean-Charles & Tirole, Jean, 2006. "Two-Sided Markets: A Progress Report," Open Access publications from University of Toulouse 1 Capitole http://neeo.univ-tlse1.fr, University of Toulouse 1 Capitole.
  15. repec:aea:jeclit:v:43:y:2005:i:4:p:959-988 is not listed on IDEAS
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