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Platform Pricing In Mixed Two‐Sided Markets

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  • Ming Gao

Abstract

When a consumer can appear on both sides of a two‐sided market, such as a user who both buys and sells on eBay, the platform may want to bundle the services it provides to two sides. I develop a general model for such “mixed” two‐sided markets and show that a monopolist platform's incentive to bundle and its optimal pricing strategy are determined by simple formulas using familiar price elasticities of demand, which embody the bundling effect, and price‐cost margins adjusted for network externalities, which incorporate “two‐sidedness.” The optimal pricing rule in such markets generalizes the familiar Lerner formula.

Suggested Citation

  • Ming Gao, 2018. "Platform Pricing In Mixed Two‐Sided Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 59(3), pages 1103-1129, August.
    • Handle: RePEc:wly:iecrev:v:59:y:2018:i:3:p:1103-1129
    DOI: 10.1111/iere.12298
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    Cited by:

    1. Mohammed Mardan & Mark J. Tremblay, 2022. "Network Effects: Betwixt and Between," CESifo Working Paper Series 10082, CESifo.
    2. Jan Frederic Nerbel & Markus Kreutzer, 2023. "Digital platform ecosystems in flux: From proprietary digital platforms to wide-spanning ecosystems," Electronic Markets, Springer;IIM University of St. Gallen, vol. 33(1), pages 1-20, December.
    3. Wu, Tian & Zhang, Mengbo & Tian, Xin & Wang, Shouyang & Hua, Guowei, 2020. "Spatial differentiation and network externality in pricing mechanism of online car hailing platform," International Journal of Production Economics, Elsevier, vol. 219(C), pages 275-283.
    4. Tang, Hua & Chen, Jing & Ai, Xingzheng & Li, Xiaojing & He, Haojia, 2023. "First-party content decision under competitive hardware/software platforms: Free vs. charge," European Journal of Operational Research, Elsevier, vol. 311(3), pages 1068-1083.
    5. Wei, Wanying & Liu, Weihua & Tang, Ou & Dong, Chuanwen & Liang, Yanjie, 2023. "CSR investment for a two-sided platform: Network externality and risk aversion," European Journal of Operational Research, Elsevier, vol. 307(2), pages 694-712.
    6. Xueke Du & Rui Dong & Wenli Li & Yibo Jia & Lirong Chen, 2019. "Online Reviews Matter: How Can Platforms Benefit from Online Reviews?," Sustainability, MDPI, vol. 11(22), pages 1-20, November.
    7. Zennyo, Yusuke, 2020. "Freemium competition among ad-sponsored platforms," Information Economics and Policy, Elsevier, vol. 50(C).
    8. Lin, Xiaogang & Zhou, Yong-Wu & Xie, Wei & Zhong, Yuanguang & Cao, Bin, 2020. "Pricing and Product-bundling Strategies for E-commerce Platforms with Competition," European Journal of Operational Research, Elsevier, vol. 283(3), pages 1026-1039.
    9. Bajo-Buenestado, Raúl & Kinateder, Markus, 2019. "Armstrong meets Rochet–Tirole: On the equivalence of different pricing structures in two-sided markets," Economics Letters, Elsevier, vol. 177(C), pages 43-46.

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