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Vertizontal Price Competition Between Social Media Platforms

Author

Listed:
  • Soumya Kanta Mishra

    (Indian Institute of Management Sambalpur, Odisha, India)

  • Sumit Sarkar

    (XLRI - Xavier School of Management, Jamshedpur, India)

Abstract

We model price competition between two horizontally differentiated social media platforms, each offering basic and premium services. Users are either platform-anchored or quality-anchored. The platforms are two-sided, with users and advertisers as the two sides. We find a unique and symmetric equilibrium in the pricing game, where platforms earn revenue from both sides. As the quality difference increases, premium service prices rise, while basic service prices drop. Users are subsidized under strong network effects, but the platforms do not subsidize users if they are sufficiently differentiated. Vertical differentiation increases platform profits if sufficient quality difference is achieved for a given marginal cost of serving the premium users. Higher differentiation is required if the share of premium-anchored users increases. The extended model examines the effect of advertiser multihoming on subscription fees and profits. This model explains the pricing and service strategies of platforms like LinkedIn, X (Twitter), and Instagram.

Suggested Citation

  • Soumya Kanta Mishra & Sumit Sarkar, 2026. "Vertizontal Price Competition Between Social Media Platforms," American Business Review, Pompea College of Business, University of New Haven, vol. 29(1), pages 56-88, May.
    • Handle: RePEc:ris:ambsrv:022657
    DOI: 10.37625/abr.29.1.56-88
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    Keywords

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    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L82 - Industrial Organization - - Industry Studies: Services - - - Entertainment; Media
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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