Two-Sided Competition and Differentiation (with an Application to Media)
AbstractWe model a duopoly in which two-sided platforms compete on both sides of a two-sided market. Platforms (or intermediaries) select the quality they offer consumers, and the prices they charge to consumers and firms. In this model, non-trivial competition on both sides induces non-quasiconcave payoffs in one subgame. All equilibria are characterized. Under well-defined conditions, the unique equilibrium in pure strategies can be computed. Prices entail a discount on one side, a premium on the other one and the quality offered to consumers is distorted downward. When the pure-strategy equilibrium fails to exist, a mixed-strategy equilibrium is shown to always exist and the distributions are characterized. In this case, the market may be preempted ex post. The model may find applications in the media, internet trading platforms, the software industry or even the health care industry (HMO/PPO).
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Bibliographic InfoPaper provided by School of Economics, The University of New South Wales in its series Discussion Papers with number 2010-27.
Length: 38 pages
Date of creation: Nov 2010
Date of revision:
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More information through EDIRC
Two-Sided Market; Vertical Differentiation; Industrial Organization; Platform Competition;
Find related papers by JEL classification:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- D62 - Microeconomics - - Welfare Economics - - - Externalities
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-02-26 (All new papers)
- NEP-COM-2011-02-26 (Industrial Competition)
- NEP-MKT-2011-02-26 (Marketing)
- NEP-NET-2011-02-26 (Network Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Kaiser, Ulrich & Wright, Julian, 2004.
"Price Structure in Two-sided Markets: Evidence from the Magazine Industry?,"
ZEW Discussion Papers
04-80, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
- Kaiser, Ulrich & Wright, Julian, 2006. "Price structure in two-sided markets: Evidence from the magazine industry," International Journal of Industrial Organization, Elsevier, vol. 24(1), pages 1-28, January.
- A. Blasco & P. Pin & F. Sobbrio, 2011. "Paying Positive to Go Negative: Advertisers' Competition and Media Reports," Working Papers wp772, Dipartimento Scienze Economiche, Universita' di Bologna.
- A. Blasco & F. Sobbrio, 2011. "Competition and Commercial Media Bias," Working Papers wp767, Dipartimento Scienze Economiche, Universita' di Bologna.
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