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Competition in Two-Sided Markets

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  • Mark Armstrong

    (University College London)

Abstract

There are many examples of markets involving two groups of agents who need to interact via 'platforms', and where one group's benefit from joining a platform depends on the number of agents from the other group who join the same platform. This paper presents theoretical models for three variants of such markets: a monopoly platform; a model of competing platforms where each agent must choose to join a single platform; and a model of 'competing bottlenecks', where one group wishes to join all platforms. The main determinants of equilibrium prices are (i) the relative sizes of the cross-group externalities, (ii) whether fees are levied on a lump-sum or per-transaction basis, and (iii) whether a group joins just one platform or joins all platforms.

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File URL: http://128.118.178.162/eps/io/papers/0505/0505009.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Industrial Organization with number 0505009.

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Length: 32 pages
Date of creation: 25 May 2005
Date of revision:
Handle: RePEc:wpa:wuwpio:0505009

Note: Type of Document - pdf; pages: 32
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Web page: http://128.118.178.162

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Keywords: Two-sided markets; network externalities; supermarkets; advertising;

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References

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  1. Dobson, Paul W & Waterson, Michael, 1997. "Countervailing Power and Consumer Prices," Economic Journal, Royal Economic Society, vol. 107(441), pages 418-30, March.
  2. Gabszewicz, Jean J. & Laussel, Dider & Sonnac, Nathalie, 2001. "Press advertising and the ascent of the 'Pensee Unique'," European Economic Review, Elsevier, vol. 45(4-6), pages 641-651, May.
  3. Wright, Julian, 2002. "Access Pricing under Competition: An Application to Cellular Networks," Journal of Industrial Economics, Wiley Blackwell, vol. 50(3), pages 289-315, September.
  4. van Raalte, Chris & Webers, Harry, 1998. "Spatial competition with intermediated matching," Journal of Economic Behavior & Organization, Elsevier, vol. 34(3), pages 477-488, March.
  5. Jean-Charles Rochet & Jean Triole, 2002. "Platform Competition in Two Sided Markets," FMG Discussion Papers dp409, Financial Markets Group.
  6. Beggs, Alan W, 1994. "Mergers and Malls," Journal of Industrial Economics, Wiley Blackwell, vol. 42(4), pages 419-28, December.
  7. Howard Smith & Donald Hay, 2005. "Streets, Malls, and Supermarkets," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 14(1), pages 29-59, 03.
  8. Klemperer, Paul D & Meyer, Margaret A, 1989. "Supply Function Equilibria in Oligopoly under Uncertainty," Econometrica, Econometric Society, vol. 57(6), pages 1243-77, November.
  9. Anthony Dukes & Esther Gal–Or, 2003. "Negotiations and Exclusivity Contracts for Advertising," Marketing Science, INFORMS, vol. 22(2), pages 222-245, November.
  10. Konrad Stahl, 1982. "Location and Spatial Pricing Theory with Nonconvex Transportation Cost Schedules," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 575-582, Autumn.
  11. Armstrong, Mark, 2001. "The theory of access pricing and interconnection," MPRA Paper 15608, University Library of Munich, Germany.
  12. Armstrong, Mark & Vickers, John, 2001. "Competitive Price Discrimination," RAND Journal of Economics, The RAND Corporation, vol. 32(4), pages 579-605, Winter.
  13. Mark Armstrong & Julian Wright, 2007. "Two-sided Markets, Competitive Bottlenecks and Exclusive Contracts," Economic Theory, Springer, vol. 32(2), pages 353-380, August.
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