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Optimal location in two-sided markets

Author

Listed:
  • Chang, Chih-Wei
  • Lin, Yan-Shu
  • Ohta, Hiroshi

Abstract

As the network externality in an industrial organization has been widely discussed in recent years, many researchers in the field have noted a particular type of market, the so-called two-sided market. In a two-sided market, two or more groups of agents such as buyers and sellers interact while exerting cross-group externalities upon each other. They interact with each other via some sort of medium, called the “platform” of interaction. This paper integrates the concept of two-sided markets into the optimal location problem for two platform providers. We show that when the two groups of customers' cross-side network externalities are equal, the duopoly platforms will agglomerate at the market center with no undercutting. However, disparate conditions exist under which the duopoly platforms will stay apart at the market endpoints, or agglomerate at either endpoint, with no undercutting.

Suggested Citation

  • Chang, Chih-Wei & Lin, Yan-Shu & Ohta, Hiroshi, 2013. "Optimal location in two-sided markets," Economic Modelling, Elsevier, vol. 35(C), pages 743-750.
  • Handle: RePEc:eee:ecmode:v:35:y:2013:i:c:p:743-750
    DOI: 10.1016/j.econmod.2013.08.028
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    References listed on IDEAS

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    Cited by:

    1. Aloui, Chokri & Jebsi, Khaïreddine, 2016. "Platform optimal capacity sharing: Willing to pay more does not guarantee a larger capacity share," Economic Modelling, Elsevier, vol. 54(C), pages 276-288.

    More about this item

    Keywords

    Two-sided markets; Optimal locations; Network externalities;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L4 - Industrial Organization - - Antitrust Issues and Policies
    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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