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Tipping in two-sided markets with asymmetric platforms

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  • Gold, Alex
  • Hogendorn, Christiaan

Abstract

This paper examines tipping in the Armstrong (2006) two-sided market model. By adding simple cost asymmetries, we show that the model is quite robust to differences in network size and deviations from 50–50 market share. It well represents situations where asymmetries compensate for one another; for example, one platform might incur marginal costs to court developers and make up for it with lower costs to users. Our tests also make clear that the Armstrong model implicitly contains an intrinsic utility–a value intrinsic to the platform and not its complementary goods–even when no model parameter explicitly expresses it. These results improve interpretation of the many studies that use the Armstrong model for policy analysis.

Suggested Citation

  • Gold, Alex & Hogendorn, Christiaan, 2016. "Tipping in two-sided markets with asymmetric platforms," Economic Analysis and Policy, Elsevier, vol. 50(C), pages 85-90.
  • Handle: RePEc:eee:ecanpo:v:50:y:2016:i:c:p:85-90
    DOI: 10.1016/j.eap.2016.02.005
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    2. Hildebrandt, Christian & Arnold, René, 2018. "Marktbeobachtung in der digitalen Wirtschaft – Ein Modell zur Analyse von Online-Plattformen," WIK Discussion Papers 427, WIK Wissenschaftliches Institut für Infrastruktur und Kommunikationsdienste GmbH.
    3. Kroon, Peter & Arnold, René, 2018. "Die Bedeutung von Interoperabilität in der digitalen Welt – Neue Herausforderungen in der interpersonellen Kommunikation," WIK Discussion Papers 437, WIK Wissenschaftliches Institut für Infrastruktur und Kommunikationsdienste GmbH.
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    5. Maruyama, Masayoshi & Zennyo, Yusuke, 2017. "Process innovation, application compatibility, and welfare," Information Economics and Policy, Elsevier, vol. 40(C), pages 1-12.

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