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Competition in Multi-sided Markets: Divide and Conquer

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  • Bruno Jullien

Abstract

This paper studies Stackelberg price competition in a multi-sided market. The second-mover can engage in divide-and-conquer strategies, which involve cross-subsidies between sides. The paper recovers bounds on profits, and refines the results with a selection criteria whereby consumers resolve coordination failure in favor of a focal platform. It then analyzes perfect price discrimination with network effects, and two-sided market, shedding light on inefficiencies and strategic choices by platforms. A leading platform may refrain from selling to some side in order to soften competition, it tends to favor excessively balanced market shares and may prefer compatibility to reduce price competition. (JEL D43, D85)

Suggested Citation

  • Bruno Jullien, 2011. "Competition in Multi-sided Markets: Divide and Conquer," American Economic Journal: Microeconomics, American Economic Association, vol. 3(4), pages 186-220, November.
  • Handle: RePEc:aea:aejmic:v:3:y:2011:i:4:p:186-220
    Note: DOI: 10.1257/mic.3.4.186
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    References listed on IDEAS

    as
    1. Amelio, Andrea & Jullien, Bruno, 2012. "Tying and freebies in two-sided markets," International Journal of Industrial Organization, Elsevier, vol. 30(5), pages 436-446.
    2. Jean‐Charles Rochet & Jean Tirole, 2006. "Two‐sided markets: a progress report," RAND Journal of Economics, RAND Corporation, vol. 37(3), pages 645-667, September.
    3. repec:rje:randje:v:37:y:2006:3:p:645-667 is not listed on IDEAS
    4. Luís Cabral, 2011. "Dynamic Price Competition with Network Effects," Review of Economic Studies, Oxford University Press, vol. 78(1), pages 83-111.
    5. Ettore Damiano & Hao Li, 2007. "Price discrimination and efficient matching," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 30(2), pages 243-263, February.
    6. Rossella Argenziano, 2008. "Differentiated networks: equilibrium and efficiency," RAND Journal of Economics, RAND Corporation, vol. 39(3), pages 747-769.
    7. Bensaid, Bernard & Lesne, Jean-Philippe, 1996. "Dynamic monopoly pricing with network externalities," International Journal of Industrial Organization, Elsevier, vol. 14(6), pages 837-855, October.
    8. repec:rje:randje:v:37:y:2006:3:p:668-691 is not listed on IDEAS
    9. Segal, Ilya, 2003. "Coordination and discrimination in contracting with externalities: divide and conquer?," Journal of Economic Theory, Elsevier, vol. 113(2), pages 147-181, December.
    10. Alexander White & E. Glen Weyl, 2010. "Imperfect Platform Competition: A General Framework," Working Papers 10-17, NET Institute, revised Nov 2010.
    11. Innes, Robert & Sexton, Richard J., 1993. "Customer coalitions, monopoly price discrimination and generic entry deterrence," European Economic Review, Elsevier, vol. 37(8), pages 1569-1597, December.
    12. 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.
    13. David, Paul A, 1985. "Clio and the Economics of QWERTY," American Economic Review, American Economic Association, vol. 75(2), pages 332-337, May.
    14. 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.
    15. Katz, Michael L & Shapiro, Carl, 1986. "Technology Adoption in the Presence of Network Externalities," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 822-841, August.
    16. repec:rje:randje:v:37:y:2006:3:p:720-737 is not listed on IDEAS
    17. Katz, Michael L & Shapiro, Carl, 1992. "Product Introduction with Network Externalities," Journal of Industrial Economics, Wiley Blackwell, vol. 40(1), pages 55-83, March.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Amelio, Andrea & Jullien, Bruno, 2012. "Tying and freebies in two-sided markets," International Journal of Industrial Organization, Elsevier, vol. 30(5), pages 436-446.
    2. Chen, Ying-Ju & Zenou, Yves & Zhou, Junjie, 2015. "Competitive pricing strategies in social networks," CEPR Discussion Papers 10857, C.E.P.R. Discussion Papers.
    3. Tim Brühn & Georg Götz, 2015. "Exclusionary Practices in Two-Sided Markets: The Effect of Radius Clauses on Competition Between Shopping Centers," MAGKS Papers on Economics 201518, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    4. Karle, Heiko & Peitz, Martin & Reisinger, Markus, 2017. "Segmentation versus Agglomeration: Competition between Platforms with Competitive Sellers," CEPR Discussion Papers 12435, C.E.P.R. Discussion Papers.
    5. Renato Gomes & Alessandro Pavan, 2013. "Cross-Subsidization and Matching Design," Discussion Papers 1559, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    6. Emilio Calvano & Bruno Jullien, 2012. "Issues in Online Advertising and Competition Policy: A Two-sided Market Perspective," Chapters,in: Recent Advances in the Analysis of Competition Policy and Regulation, chapter 9 Edward Elgar Publishing.
    7. Miklós-Thal, Jeanine & Shaffer, Greg, 2017. "Private contracting with externalities: Divide and conquer?," International Journal of Industrial Organization, Elsevier, vol. 50(C), pages 460-472.
    8. Bloch, Francis & Quérou, Nicolas, 2013. "Pricing in social networks," Games and Economic Behavior, Elsevier, vol. 80(C), pages 243-261.
    9. Demange, Gabrielle, 2017. "Optimal targeting strategies in a network under complementarities," Games and Economic Behavior, Elsevier, vol. 105(C), pages 84-103.
    10. Christoph March & Robert K. von Weizsäcker, 2016. "Coordinating Intergenerational Redistribution and the Repayment of Public Debt," CESifo Working Paper Series 6075, CESifo Group Munich.
    11. Jeon, Doh-Shin & Menicucci, Domenico, 2014. "Buyer Group and Buyer Power When Sellers Compete," TSE Working Papers 14-543, Toulouse School of Economics (TSE), revised Nov 2017.
    12. Hanna Halaburda & Yaron Yehezkel, 2013. "Platform Competition under Asymmetric Information," American Economic Journal: Microeconomics, American Economic Association, vol. 5(3), pages 22-68, August.
    13. Reisinger, Markus, 2014. "Two-part tariff competition between two-sided platforms," European Economic Review, Elsevier, vol. 68(C), pages 168-180.
    14. Hanna Halaburda & Bruno Jullien & Yaron Yehezkel, 2013. "Dynamic Network Competition," Working Papers 13-10, NET Institute.

    More about this item

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation

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