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Competition in two-sided markets with common network externalities

  • Helmuth Cremer

    ()

  • David Bardey
  • Jean-Marie Lozachmeur

    ()

We study competition in two sided markets with common network externality rather than with the standard inter-group e¤ects. This type of externality occurs when both groups bene�t, possibly with di¤erent intensities, from an increase in the size of one group and from a decrease in the size of the other. We explain why common externalityis relevant for the health and education sectors. We focus on the symmetric equilibrium and show that when the externality itself satis�es an homogeneity condition then platforms� pro�ts and price structure have some speci�c properties. Our results reveal how the rents coming from network externalities are shifted by platforms from one side to other, according to the homogeneity degree. In the speci�c but realistic case where the common network externality is homogeneous of degree zero, platform�s pro�t do not depend on the intensity of the (common) network externality. This is in sharp contrast to conventional results stating that the presence of network externalities in a two-sided market structure increases the intensity of competition when the externality is positive (and decreases it when the externality is negative). Prices are a¤ected but in such a way that platforms only transfer rents from consumers to providers

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Paper provided by UNIVERSIDAD DEL ROSARIO in its series DOCUMENTOS DE TRABAJO with number 005937.

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Date of creation: 15 Oct 2009
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Handle: RePEc:col:000092:005937
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  1. BELLEFLAMME, Paul & TOULEMONDE, Eric, . "Negative intra-group externalities in two-sided markets," CORE Discussion Papers RP -2119, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. David Card & Alan Krueger, 1990. "Does School Quality Matter? Returns to Education and the Characteristics of Public Schools in the United States," Working Papers 645, Princeton University, Department of Economics, Industrial Relations Section..
  3. Kurucu, Gokce, 2007. "Negative Network Externalities in Two-Sided Markets: A Competition Approach," MPRA Paper 9746, University Library of Munich, Germany.
  4. repec:rje:randje:v:37:y:2006:3:p:668-691 is not listed on IDEAS
  5. Gaynor, Martin & Pauly, Mark V, 1990. "Compensation and Productive Efficiency of Partnerships: Evidence from Medical Group Practice," Journal of Political Economy, University of Chicago Press, vol. 98(3), pages 544-73, June.
  6. Alan B. Krueger, 2002. "Economic Considerations and Class Size," NBER Working Papers 8875, National Bureau of Economic Research, Inc.
  7. Jean-Charles Rochet & Jean Triole, 2002. "Platform Competition in Two Sided Markets," FMG Discussion Papers dp409, Financial Markets Group.
  8. Mark Armstrong, 2005. "Competition in Two-Sided Markets," Industrial Organization 0505009, EconWPA.
  9. Ching-to Albert Ma, 1994. "Health Care Payment Systems: Cost and Quality Incentives," Papers 0047, Boston University - Industry Studies Programme.
  10. Joshua D. Angrist & Victor Lavy, 1999. "Using Maimonides' Rule To Estimate The Effect Of Class Size On Scholastic Achievement," The Quarterly Journal of Economics, MIT Press, vol. 114(2), pages 533-575, May.
  11. repec:rje:randje:v:37:y:2006:3:p:645-667 is not listed on IDEAS
  12. David Bardey & Jean-Charles Rochet, 2009. "Competition among health plans: a two-sided market approach," DOCUMENTOS DE TRABAJO 005217, UNIVERSIDAD DEL ROSARIO.
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