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Market shares and profits in two-sided markets

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  • Sato, Susumu

Abstract

Using a logit demand model of asymmetric oligopoly in two-sided markets, I analyze the relationship between the market shares of platforms and their profits. In line with previous studies, I show that large market shares do not necessarily imply high profits. Decomposing a platform’s market shares on two sides of markets into the size (i.e., the sum of shares) and the structure (i.e., the ratio between shares), I find that, conditional on the size, profits are U-shaped in structure, and that, conditional on the structure, size is positively related to profits. This implies that the change in the structure on the two sides is critical to the understanding of the non-monotonic relationship between market shares and profits and that overall size can still be used as an indicator of the profitability of platforms as long as the structure is controlled.

Suggested Citation

  • Sato, Susumu, 2021. "Market shares and profits in two-sided markets," Economics Letters, Elsevier, vol. 207(C).
    • Handle: RePEc:eee:ecolet:v:207:y:2021:i:c:s0165176521003190
    DOI: 10.1016/j.econlet.2021.110042
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    References listed on IDEAS

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    1. Volker Nocke & Nicolas Schutz, 2018. "Multiproduct‐Firm Oligopoly: An Aggregative Games Approach," Econometrica, Econometric Society, vol. 86(2), pages 523-557, March.
    2. Belleflamme, Paul & Peitz, Martin & Toulemonde, Eric, 2022. "The tension between market shares and profit under platform competition," International Journal of Industrial Organization, Elsevier, vol. 81(C).
    3. Nocke, Volker & Schutz, Nicolas, 2018. "An Aggregative Games Approach to Merger Analysis in Multiproduct-Firm Oligopoly," CEPR Discussion Papers 12905, C.E.P.R. Discussion Papers.
    4. Nocke, Volker & Schutz, Nicolas, 2018. "An Aggregative Games Approach to Merger Analysis in Multiproduct-Firm Oligopoly," CEPR Discussion Papers 12905, C.E.P.R. Discussion Papers.
    5. Simon P. Anderson & Nisvan Erkal & Daniel Piccinin, 2020. "Aggregative games and oligopoly theory: short‐run and long‐run analysis," RAND Journal of Economics, RAND Corporation, vol. 51(2), pages 470-495, June.
    6. Belleflamme, Paul & Peitz, Martin & Toulemonde, Eric, 2020. "The tension between market shares and profit under platform competition," LIDAM Discussion Papers CORE 2020027, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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    Cited by:

    1. Belleflamme, Paul & Peitz, Martin & Toulemonde, Eric, 2022. "The tension between market shares and profit under platform competition," International Journal of Industrial Organization, Elsevier, vol. 81(C).

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    More about this item

    Keywords

    Market share; Market power; Two-sided markets;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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