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Pricing distortions in multi-sided platforms

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  • Tan, Hongru
  • Wright, Julian

Abstract

We consider the reasons why a monopoly multi-sided platform may price differently from a social planner. The existing literature has focused only on the classical market power distortion and a distortion in the spirit of Spence. We show two additional distortions appear in the presence of cross-group network effects, which we call the displacement distortion and the scale distortion. We show conditions under which the displacement distortion exactly offsets the Spence distortion, and provide an example in which the total of these different distortions results in monopoly prices per user that are lower than the social planner’s on both sides. Our results have implications for regulatory policy, which we briefly discuss.

Suggested Citation

  • Tan, Hongru & Wright, Julian, 2021. "Pricing distortions in multi-sided platforms," International Journal of Industrial Organization, Elsevier, vol. 79(C).
    • Handle: RePEc:eee:indorg:v:79:y:2021:i:c:s0167718721000254
    DOI: 10.1016/j.ijindorg.2021.102732
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    References listed on IDEAS

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    1. Veiga, André, 2018. "A note on how to sell a network good," International Journal of Industrial Organization, Elsevier, vol. 59(C), pages 114-126.
    2. Julian Wright, 2012. "Why payment card fees are biased against retailers," RAND Journal of Economics, RAND Corporation, vol. 43(4), pages 761-780, December.
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    5. Jonathan D. Levin, 2011. "The Economics of Internet Markets," NBER Working Papers 16852, National Bureau of Economic Research, Inc.
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    7. Hongru Tan & Julian Wright, 2018. "A Price Theory of Multi-sided Platforms: Comment," American Economic Review, American Economic Association, vol. 108(9), pages 2758-2760, September.
    8. ?zlem Bedre-Defolie & Emilio Calvano, 2013. "Pricing Payment Cards," American Economic Journal: Microeconomics, American Economic Association, vol. 5(3), pages 206-231, August.
    9. Jean-Charles Rochet & Jean Tirole, 2003. "Platform Competition in Two-Sided Markets," Journal of the European Economic Association, MIT Press, vol. 1(4), pages 990-1029, June.
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    11. Jean-Charles Rochet & Jean Tirole, 2002. "Cooperation Among Competitors: Some Economics Of Payment Card Associations," RAND Journal of Economics, The RAND Corporation, vol. 33(4), pages 549-570, Winter.
    12. Jean‐Charles Rochet & Jean Tirole, 2011. "Must‐Take Cards: Merchant Discounts And Avoided Costs," Journal of the European Economic Association, European Economic Association, vol. 9(3), pages 462-495, June.
    13. A. Michael Spence, 1975. "Monopoly, Quality, and Regulation," Bell Journal of Economics, The RAND Corporation, vol. 6(2), pages 417-429, Autumn.
    14. Michael L. Katz, 2019. "Platform economics and antitrust enforcement: A little knowledge is a dangerous thing," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 28(1), pages 138-152, January.
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    Cited by:

    1. Martin Peitz, 2023. "Governance and Regulation of Platforms," CRC TR 224 Discussion Paper Series crctr224_2023_480, University of Bonn and University of Mannheim, Germany.

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