The Role of Negative Intra-Side Externalities in Two-Sided Markets
AbstractThis paper presents a theoretical model of two-sided markets with both positive inter-side externalities and negative intra-side externalities. It analyzes the net impact of negative intra-side externalities on platform prices, demands and profits in three scenarios: (i) monopoly platforms, (ii) competing platforms with two-sided single-homing, and (iii) competitive bottlenecks. The paper shows that a monopoly platform will produce lower equilibrium profits in the presence of negative intra-side externalities. By contrast, competing platforms with two-sided single-homing enjoy a higher equilibrium profit, whereas the net impact of negative intra-side externalities on the equilibrium profit of competing platforms with one-sided multi-homing (competitive bottlenecks) remains ambiguous. Based on the analysis, we derive implications for platform owners on how to manage negative intra-side externalities.
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Bibliographic InfoPaper provided by University of Zurich, Institute for Strategy and Business Economics (ISU) in its series Working Papers with number 0121.
Length: 26 pages
Date of creation: Mar 2010
Date of revision:
Two-sided market; platform competition; network externalities;
Find related papers by JEL classification:
- D42 - Microeconomics - - Market Structure and Pricing - - - Monopoly
- D62 - Microeconomics - - Welfare Economics - - - Externalities
- 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-2010-03-28 (All new papers)
- NEP-COM-2010-03-28 (Industrial Competition)
- NEP-NET-2010-03-28 (Network Economics)
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