Price Discrimination in Two-Sided Markets
AbstractWe examine the profitability and the welfare implications of price discrimination in two-sided markets. Platforms have information about the preferences of the agents that allows them to price discriminate within each group. The conventional wisdom from one-sided horizontally differentiated markets is that price discrimination hurts the firms and benefits consumers, prisoners' dilemma. Moreover, it is well-known that the presence of indirect externalities in two-sided markets can intensify the competition. Despite all these, we show that the possibility of price discrimination, in a two-sided market, may actually soften the competition. Therefore, the implications of price discrimination from one-sided markets may not carry over to two-sided markets. This is the case regardless of whether prices are public or private, although private prices boost profits. Our analysis also sheds light on the welfare properties of price discrimination in intermediate goods markets, such as Business-to-Business (B2B) markets.
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Bibliographic InfoPaper provided by NET Institute in its series Working Papers with number 07-25.
Length: 34 pages
Date of creation: Sep 2007
Date of revision: Sep 2007
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Price discrimination; Two-sided markets; Indirect network externalities; Market segmentation.;
Other versions of this item:
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-10-27 (All new papers)
- NEP-COM-2007-10-27 (Industrial Competition)
- NEP-IND-2007-10-27 (Industrial Organization)
- NEP-MIC-2007-10-27 (Microeconomics)
- NEP-MKT-2007-10-27 (Marketing)
- NEP-NET-2007-10-27 (Network Economics)
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