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Competition in two-sided markets with common network externalities

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  • Helmuth Cremer
  • David Bardey
  • Jean-Marie Lozachmeur

Abstract

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, platforms 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

Suggested Citation

  • Helmuth Cremer & David Bardey & Jean-Marie Lozachmeur, 2009. "Competition in two-sided markets with common network externalities," Documentos de Trabajo 005937, Universidad del Rosario.
  • Handle: RePEc:col:000092:005937
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    File URL: http://repository.urosario.edu.co/bitstream/handle/10336/10964/5937.pdf
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    References listed on IDEAS

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    Cited by:

    1. Wenqing Wu & Xuan Huang & Yue Li & Chien-Chi Chu, 2018. "Optimal Quality Strategy and Matching Service on Crowdfunding Platforms," Sustainability, MDPI, Open Access Journal, vol. 10(4), pages 1-17, April.
    2. Belleflamme, Paul & Toulemonde, Eric, 2016. "Who benefits from increased competition among sellers on B2C platforms?," Research in Economics, Elsevier, vol. 70(4), pages 741-751.
    3. David Bardey & Luigi Siciliani, 2018. "Nursing Homes’ Competition and Distributional Implications when the Market is Two-Sided," Documentos CEDE 016426, Universidad de los Andes - CEDE.
    4. David Bardey & Luigi Siciliani, 2021. "Nursing‐homes' competition and distributional implications when the market is two‐sided," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 30(2), pages 472-500, May.
    5. Guillaume Roger, 2017. "Two-sided competition with vertical differentiation," Journal of Economics, Springer, vol. 120(3), pages 193-217, April.
    6. Annika Herr, 2011. "Quality and Welfare in a Mixed Duopoly with Regulated Prices: The Case of a Public and a Private Hospital," German Economic Review, Verein für Socialpolitik, vol. 12(4), pages 422-437, November.
    7. Damien Besancenot & Karine Lamiraud & Radu Vranceanu, 2020. "A Model for Dual Healthcare Market with Congestion Differentiation," Working Papers hal-03028437, HAL.

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    More about this item

    Keywords

    Two-Sided markets; Common Network Externality; Health; Education;
    All these keywords.

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

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