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Price Discrimination in Two‐Sided Markets

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  • Qihong Liu
  • Konstantinos Serfes

Abstract

We examine the profitability and welfare implications of targeted price discrimination (PD) in two‐sided markets. First, we show that equilibrium discriminatory prices exhibit novel features relative to discriminatory prices in one‐sided models and uniform prices in two‐sided models. Second, we compare the profitability of perfect PD, relative to uniform prices in a two‐sided market. The conventional wisdom from one‐sided horizontally differentiated markets is that PD hurts the firms and benefits consumers, prisoners' dilemma. We show that PD, in a two‐sided market, may actually soften the competition. Our results suggest that the conventional advice that PD is good for competition based on one‐sided markets may not carry over to two‐sided markets.

Suggested Citation

  • Qihong Liu & Konstantinos Serfes, 2013. "Price Discrimination in Two‐Sided Markets," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 22(4), pages 768-786, December.
  • Handle: RePEc:bla:jemstr:v:22:y:2013:i:4:p:768-786
    DOI: 10.1111/jems.12038
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    Cited by:

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    2. Song Lin, 2020. "Two-Sided Price Discrimination by Media Platforms," Marketing Science, INFORMS, vol. 39(2), pages 317-338, March.
    3. Jullien, Bruno & Reisinger, Markus & Rey, Patrick, 2019. "Personalized Pricing and Distribution Strategies," TSE Working Papers 19-995, Toulouse School of Economics (TSE), revised Sep 2020.
    4. Shekhar, Shiva, 2017. "Homing choice and platform pricing strategy," DICE Discussion Papers 247, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    5. Charles Angelucci & Julia Cagé, 2019. "Newspapers in Times of Low Advertising Revenues," American Economic Journal: Microeconomics, American Economic Association, vol. 11(3), pages 319-364, August.
    6. Elias Carroni, 2018. "Behaviour-based price discrimination with cross-group externalities," Journal of Economics, Springer, vol. 125(2), pages 137-157, October.
    7. Andre Boik, 2018. "Prediction and Identification in Two-Sided Markets," CESifo Working Paper Series 6857, CESifo.
    8. Yonghong Sun, 2020. "Optimal service versioning for dating platforms," Information Technology and Management, Springer, vol. 21(4), pages 217-226, December.
    9. Böhme Enrico, 2016. "Second-Degree Price Discrimination on Two-Sided Markets," Review of Network Economics, De Gruyter, vol. 15(2), pages 91-115, June.
    10. Liu, Qihong & Shuai, Jie, 2013. "Multi-dimensional price discrimination," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 417-428.
    11. 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.
    12. Carroni, Elias & Paolini, Dimitri, 2020. "Business models for streaming platforms: Content acquisition, advertising and users," Information Economics and Policy, Elsevier, vol. 52(C).
    13. Charles Angelucci & Julia Cage & Romain de Nijs, 2013. "Price Discrimination in a Two-Sided Market: Theory and Evidence from the Newspaper Industry," Working Papers 13-13, NET Institute.
    14. Wing Man Wynne Lam, 2017. "Switching Costs in Two-Sided Markets," Journal of Industrial Economics, Wiley Blackwell, vol. 65(1), pages 136-182, March.
    15. Reisinger, Markus, 2010. "Unique Equilibrium in Two-Part Tariff Competition between Two-Sided Platforms," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 308, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    16. Gil, Ricard & Riera-Crichton, Daniel & Ruzzier, Christian, 2016. "As Seen on TV: Price Discrimination and Competition in Television Advertising," MPRA Paper 75993, University Library of Munich, Germany.
    17. Jooyong Jun, 2015. "Entry of Non-financial Firms and Competition in the Retail Payments Market," Working Papers 2015-19, Economic Research Institute, Bank of Korea.
    18. Hans Jarle Kind & Lars Sørgard, 2013. "Market Segmentation in Two-Sided Markets: TV Rights for Premier League," CESifo Working Paper Series 4060, CESifo.
    19. Reisinger, Markus, 2014. "Two-part tariff competition between two-sided platforms," European Economic Review, Elsevier, vol. 68(C), pages 168-180.
    20. Johannes Johnen & Robert Somogyi, 2019. "Deceptive Products on Platforms," Working Papers 19-13, NET Institute.
    21. Lapo Filistrucchi & Tobias J. Klein, 2013. "Price Competition in Two-Sided Markets with Heterogeneous Consumers and Network Effects," Working Papers 13-20, NET Institute.

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    More about this item

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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