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Asymmetric Networks in Two-Sided Markets

  • Attila Ambrus
  • Rossella Argenziano

This paper investigates pricing decisions and network choices in two-sided markets with network externalities. Consumers are heterogeneous in how much they value the externality. Imposing restrictions on the extent of coordination failure among consumers generates clear qualitative conclusions about equilibrium market configurations. Multiple asymmetric networks can coexist in equilibrium, both in the case of a monopolist network provider and in the case of competing providers. These equilibria have the property that one network is cheaper and larger on one side, while the other network is cheaper and larger on the other side. Product differentiation is endogenized by consumers' network choices. (JEL D85, L12, L13, L14, D42, D43)

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Article provided by American Economic Association in its journal American Economic Journal: Microeconomics.

Volume (Year): 1 (2009)
Issue (Month): 1 (February)
Pages: 17-52

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Handle: RePEc:aea:aejmic:v:1:y:2009:i:1:p:17-52
Note: DOI: 10.1257/mic.1.1.17
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  1. Glenn Ellison & Drew Fudenberg & Markus Mobius, 2010. "Competing Auctions," Levine's Working Paper Archive 506439000000000092, David K. Levine.
  2. Ettore Damiano & Li Hao, 2008. "Competing Matchmaking," Journal of the European Economic Association, MIT Press, vol. 6(4), pages 789-818, 06.
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  4. Bernheim, B. Douglas & Peleg, Bezalel & Whinston, Michael D., 1987. "Coalition-Proof Nash Equilibria I. Concepts," Journal of Economic Theory, Elsevier, vol. 42(1), pages 1-12, June.
  5. Damiano, Ettore & Li, Hao, 2005. "Price Discrimination and Efficient Matching," working papers damiano-05-03-21-12-21-58, Vancouver School of Economics, revised 22 Mar 2005.
  6. Bental, Benjamin & Spiegel, Menahem, 1995. "Network Competition, Product Quality, and Market Coverage in the Presence of Network Externalities," Journal of Industrial Economics, Wiley Blackwell, vol. 43(2), pages 197-208, June.
  7. Bernheim, B. Douglas & Whinston, Michael D., 1987. "Coalition-Proof Nash Equilibria II. Applications," Journal of Economic Theory, Elsevier, vol. 42(1), pages 13-29, June.
  8. Nicholas Economides & Andrzej Skrzypacz, 2004. "Standards Coalitions Formation and Market Structure in Network Industries," Microeconomics 0407008, EconWPA.
  9. Caillaud, Bernard & Jullien, Bruno, 2003. " Chicken & Egg: Competition among Intermediation Service Providers," RAND Journal of Economics, The RAND Corporation, vol. 34(2), pages 309-28, Summer.
  10. Baumol, William J, 1982. "Contestable Markets: An Uprising in the Theory of Industry Structure," American Economic Review, American Economic Association, vol. 72(1), pages 1-15, March.
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