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Location Decisions of Competing Platforms

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Abstract

There are examples of entry in two-sided markets, where first entrants occupy a `central location' and serve agents with `intermediate tastes', while later entrants are niche players. Why would the first entrant choose to become a `general' platform, given that later entrants will not have enough room for differentiation, resulting in an intense price competition? This one-sided market logic may not apply in a two-sided market. A key difference in a two-sided market, stemming from the presence of cross-group network externalities, is stronger demand creation. We develop a model which can deliver the above mentioned empirical observation, when the network externalities are intermediate. On the other hand, when externalities are low, our model predicts that differentiation will be maximum, as it would be in a one-sided market. Finally, for strong externalities only one platform is active and locates at the center.

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File URL: http://www.netinst.org/Serfes_Zacharias_09-18.pdf
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Bibliographic Info

Paper provided by NET Institute in its series Working Papers with number 09-18.

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Length: 30 pages
Date of creation: Aug 2009
Date of revision: Aug 2009
Handle: RePEc:net:wpaper:0918

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Web page: http://www.NETinst.org/

Related research

Keywords: Product Selection; Two-sided markets; Endogenous Locations; Cross-group Network Externalities.;

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  1. GABSZEWICZ, Jean J. & LAUSSEL, Didier & SONNAC, Nathalie, . "Press advertising and the political differentiation of newspapers," CORE Discussion Papers RP -1561, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Rajeev K. Tyagi, 2000. "Sequential Product Positioning Under Differential Costs," Management Science, INFORMS, vol. 46(7), pages 928-940, July.
  3. Konstantinos Serfes & Hyunho Kim, 2004. "A Location Model with Preference for Variety," Econometric Society 2004 North American Summer Meetings 127, Econometric Society.
  4. Peitz, Martin & Valletti, Tommaso M., 2008. "Content and advertising in the media: Pay-tv versus free-to-air," International Journal of Industrial Organization, Elsevier, vol. 26(4), pages 949-965, July.
  5. repec:rje:randje:v:37:y:2006:3:p:645-667 is not listed on IDEAS
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Cited by:
  1. Vitor Miguel Ribeiro & Jo√£o Correia-da-Silva & Joana Resende, 2014. "Nesting Vertical and Horizontal Differentiation in Two-Sided Markets," FEP Working Papers 535, Universidade do Porto, Faculdade de Economia do Porto.

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