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Second-Degree Price Discrimination by a Two-Sided Monopoly Platform

Author

Listed:
  • Doh-Shin Jeon
  • Byung-Cheol Kim
  • Domenico Menicucci

Abstract

We study second-degree price discrimination by a two-sided monopoly platform. The incentive constraints of the agents on the value creation side may be in conflict with internalizing externalities on the value capture side, which may render pooling optimal. Even without such conflict between the two sides, pooling may be optimal due to type-dependent Spence effects when the preferences of the marginal agents diverge from those of the average agents on the value capture side. We perform a welfare analysis of price discrimination and show that prohibiting price discrimination improves welfare when there is a strong conflict between the two sides.

Suggested Citation

  • Doh-Shin Jeon & Byung-Cheol Kim & Domenico Menicucci, 2022. "Second-Degree Price Discrimination by a Two-Sided Monopoly Platform," American Economic Journal: Microeconomics, American Economic Association, vol. 14(2), pages 322-369, May.
    • Handle: RePEc:aea:aejmic:v:14:y:2022:i:2:p:322-69
    DOI: 10.1257/mic.20190369
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    Citations

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    Cited by:

    1. Kohei Kawaguchi & Toshifumi Kuroda & Susumu Sato, 2021. "Merger Analysis in the App Economy: An Empirical Model of Ad-Sponsored Media," HKUST CEP Working Papers Series 202103, HKUST Center for Economic Policy.
    2. Jeon, Doh-Shin & Ichihashi, Shota & Kim, Byung-Cheol, 2024. "Mechanism Design for Ad - Suppo rted Platforms," TSE Working Papers 24-1591, Toulouse School of Economics (TSE), revised Nov 2025.
    3. Song Lin, 2020. "Two-Sided Price Discrimination by Media Platforms," Marketing Science, INFORMS, vol. 39(2), pages 317-338, March.
    4. Kim, Soo Jin & Pal, Pallavi, 2025. "Quality differentiation and optimal pricing strategy in multi-sided markets," The Quarterly Review of Economics and Finance, Elsevier, vol. 99(C).
    5. Neaketa Chawla & Debasis Mondal, 2022. "Platform competition and price discrimination," Indian Economic Review, Springer, vol. 57(1), pages 1-21, June.
    6. Sue H. Mialon & Samiran Banerjee, 2025. "Net neutrality and regulation on the internet access," Journal of Regulatory Economics, Springer, vol. 67(1), pages 1-28, June.
    7. Yonghong Sun, 2020. "Optimal service versioning for dating platforms," Information Technology and Management, Springer, vol. 21(4), pages 217-226, December.
    8. Renato Gomes & Alessandro Pavan, 2024. "Price customization and targeting in matching markets," RAND Journal of Economics, RAND Corporation, vol. 55(2), pages 230-265, June.
    9. Carroni, Elias & Paolini, Dimitri, 2020. "Business models for streaming platforms: Content acquisition, advertising and users," Information Economics and Policy, Elsevier, vol. 52(C).
    10. Sato, Susumu, 2019. "Freemium as optimal menu pricing," International Journal of Industrial Organization, Elsevier, vol. 63(C), pages 480-510.
    11. Zennyo, Yusuke, 2020. "Freemium competition among ad-sponsored platforms," Information Economics and Policy, Elsevier, vol. 50(C).
    12. Martin Peitz, 2024. "The Economic Theory of Two-Sided Platforms," CRC TR 224 Discussion Paper Series crctr224_2024_584, University of Bonn and University of Mannheim, Germany.
    13. E. Carroni & D. Paolini, 2019. "The business model of a streaming platform," Working Paper CRENoS 201902, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
    14. Christian Bach & Robert Edwards & Christian Jaag, 2023. "Postal Platform Pricing with Limited Consumer Attention," Working Papers 202318, University of Liverpool, Department of Economics.
    15. Soo Jin Kim & Pallavi Pal, 2021. "Quality Differentiation and Optimal Pricing Strategy in Multi-Sided Markets," CESifo Working Paper Series 9267, CESifo.
    16. Anna D’Annunzio & Antonio Russo, 2025. "Taxation, Revenue Sharing and Price Discrimination," CSEF Working Papers 761, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    17. Shota Ichihashi & Byung-Cheol Kim, 2023. "Addictive Platforms," Management Science, INFORMS, vol. 69(2), pages 1127-1145, February.
    18. D’Annunzio, Anna & Russo, Antonio, 2024. "Platform Transaction Fees and Freemium Pricing," TSE Working Papers 24-1569, Toulouse School of Economics (TSE).

    More about this item

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L82 - Industrial Organization - - Industry Studies: Services - - - Entertainment; Media

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