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TWO-SIDED MARKETS WITH PECUNIARY AND PARTICIPATION EXTERNALITIES -super-

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  • MARKUS REISINGER
  • LUDWIG RESSNER
  • RICHARD SCHMIDTKE

Abstract

The existing literature on two-sided markets addresses participation externalities, but it has neglected pecuniary externalities between platforms. In this paper we build a model that incorporates both externalities. In our set-up, differentiated platforms compete in advertising levels and offer consumers a service free of charge that is financed through advertising. We show that advertising can exhibit the properties of a strategic substitute or complement. Surprisingly, we find that platform profits can increase with market entry and that there are cases in which the level of advertising rises with entry. We also consider endogenous entry and provide a welfare analysis. Copyright 2009 The Authors. Journal compilation 2009 Blackwell Publishing Ltd. and the Editorial Board of The Journal of Industrial Economics.

Suggested Citation

  • Markus Reisinger & Ludwig Ressner & Richard Schmidtke, 2009. "TWO-SIDED MARKETS WITH PECUNIARY AND PARTICIPATION EXTERNALITIES -super-," Journal of Industrial Economics, Wiley Blackwell, vol. 57(1), pages 32-57, March.
  • Handle: RePEc:bla:jindec:v:57:y:2009:i:1:p:32-57
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    References listed on IDEAS

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    1. Choi, Jay Pil, 2006. "Broadcast competition and advertising with free entry: Subscription vs. free-to-air," Information Economics and Policy, Elsevier, vol. 18(2), pages 181-196, June.
    2. Jean-Charles Rochet & Jean Tirole, 2014. "Platform Competition in Two-Sided Markets," CPI Journal, Competition Policy International, vol. 10.
    3. Volker Nocke & Martin Peitz & Konrad Stahl, 2007. "Platform Ownership," Journal of the European Economic Association, MIT Press, vol. 5(6), pages 1130-1160, December.
    4. Jean J. Gabszewicz & Didier Laussel & Nathalie Sonnac, 2004. "Programming and Advertising Competition in the Broadcasting Industry," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(4), pages 657-669, December.
    5. Esther Gal-Or & Anthony Dukes, 2006. "On the Profitability of Media Mergers," The Journal of Business, University of Chicago Press, vol. 79(2), pages 489-526, March.
    6. Hans Jarle Kind & Tore Nilssen & Lars Sørgard, 2007. "Competition for Viewers and Advertisers in a TV Oligopoly," Journal of Media Economics, Taylor & Francis Journals, vol. 20(3), pages 211-233.
    7. Peitz, Martin & Valletti, Tommaso M., 2008. "Content and advertising in the media: Pay-tv versus free-to-air," International Journal of Industrial Organization, Elsevier, vol. 26(4), pages 949-965, July.
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    Cited by:

    1. Stühmeier, Torben & Wenzel, Tobias, 2011. "Getting beer during commercials: Adverse effects of ad-avoidance," Information Economics and Policy, Elsevier, vol. 23(1), pages 98-106, March.
    2. Rennhoff, Adam D. & Wilbur, Kenneth C., 2012. "Local media ownership and media quality," Information Economics and Policy, Elsevier, vol. 24(3), pages 231-242.
    3. Dewenter, Ralf & Haucap, Justus & Wenzel, Tobias, 2011. "Semi-collusion in media markets," International Review of Law and Economics, Elsevier, vol. 31(2), pages 92-98, June.
    4. Dietl Helmut & Duschl Tobias & Franck Egon & Lang Markus, 2012. "A Contest Model of a Professional Sports League with Two-Sided Markets," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 232(3), pages 336-359, June.
    5. Stühmeier Torben & Wenzel Tobias, 2012. "Regulating Advertising in the Presence of Public Service Broadcasting," Review of Network Economics, De Gruyter, vol. 11(2), pages 1-23, June.
    6. Andre Boik, 2018. "Prediction and Identification in Two-Sided Markets," CESifo Working Paper Series 6857, CESifo Group Munich.
    7. Reisinger, Markus, 2012. "Platform competition for advertisers and users in media markets," International Journal of Industrial Organization, Elsevier, vol. 30(2), pages 243-252.
    8. Thöne, Miriam & Rasch, Alexander & Wenzel, Tobias, 2016. "Business models in commercial media markets: Bargaining, advertising, and mixing," Annual Conference 2016 (Augsburg): Demographic Change 145785, Verein für Socialpolitik / German Economic Association.

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