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Unique Equilibrium in Two-Part Tariff Competition between Two-Sided Platforms

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  • Reisinger, Markus
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    Abstract

    Two-sided market models in which platforms compete via two-part tariffs, i.e. a subscription and a per-transaction fee, are often plagued by a continuum of equilibria. This paper augments existing models by allowing for heterogeneous rading behavior of agents on both sides. We show that this simple method yields a unique equilibrium even in the limit as the heterogeneity vanishes. In case of competitive bottlenecks we find that in this equilibrium platforms benefit from the possibility to price discriminate if per-transaction costs are relatively large. This is the case because two-part tariffs allow platforms to better distribute these costs among the two sides. Under two-sided single-homing price discrimination hurts platforms if per-transaction fees can be negative.

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    Bibliographic Info

    Paper provided by Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich in its series Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems with number 308.

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    Date of creation: Feb 2010
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    Handle: RePEc:trf:wpaper:308

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    Keywords: Two-Sided Markets; Per-Transaction Fee; Subscription Fee; Two-Part;

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    References

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    1. Mark Armstrong & Julian Wright, 2007. "Two-sided Markets, Competitive Bottlenecks and Exclusive Contracts," Economic Theory, Springer, vol. 32(2), pages 353-380, August.
    2. Peitz, Martin & Valletti, Tommaso, 2004. "Content and Advertising in the Media: Pay-TV versus Free-To-Air," CEPR Discussion Papers 4771, C.E.P.R. Discussion Papers.
    3. Simon P. Anderson & Stephen Coate, 2005. "Market Provision of Broadcasting: A Welfare Analysis," Review of Economic Studies, Oxford University Press, vol. 72(4), pages 947-972.
    4. Paul Belleflamme & Eric Toulemonde, 2009. "Negative Intra-Group Externalities In Two-Sided Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(1), pages 245-272, 02.
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    9. Roman Inderst & Tommaso Valletti, 2009. "Price discrimination in input markets," RAND Journal of Economics, RAND Corporation, vol. 40(1), pages 1-19.
    10. Green, Richard, 1999. "The Electricity Contract Market in England and Wales," Journal of Industrial Economics, Wiley Blackwell, vol. 47(1), pages 107-24, March.
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    17. repec:hrv:faseco:4589709 is not listed on IDEAS
    18. Jean-Charles Rochet & Jean Tirole, 2003. "Platform Competition in Two-Sided Markets," Journal of the European Economic Association, MIT Press, vol. 1(4), pages 990-1029, 06.
    19. 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.
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    25. repec:rje:randje:v:37:y:2006:3:p:645-667 is not listed on IDEAS
    26. Andrei Hagiu, 2009. "Two-Sided Platforms: Product Variety and Pricing Structures," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 18(4), pages 1011-1043, December.
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    29. Armstrong, Mark, 2006. "Price discrimination," MPRA Paper 4693, University Library of Munich, Germany.
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