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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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Length: 0
Date of creation: 15 Oct 2009
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Handle: RePEc:col:000092:005937
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  1. Alan B. Krueger, 2003. "Economic Considerations and Class Size," Economic Journal, Royal Economic Society, vol. 113(485), pages F34-F63, February.
  2. 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, 06.
  3. David Bardey & Jean-Charles Rochet, 2009. "Competition among health plans: a two-sided market approach," DOCUMENTOS DE TRABAJO 005217, UNIVERSIDAD DEL ROSARIO.
  4. David Card & Alan Krueger, 1990. "Does School Quality Matter? Returns to Education and the Characteristics of Public Schools in the United States," NBER Working Papers 3358, National Bureau of Economic Research, Inc.
  5. Kurucu, Gokce, 2007. "Negative Network Externalities in Two-Sided Markets: A Competition Approach," MPRA Paper 9746, University Library of Munich, Germany.
  6. Bernard Fortin & Nicolas Jacquemet & Bruce Shearer, 2008. "Policy Analysis in the Health-Services Market: Accounting for Quality and Quantity," Cahiers de recherche 0807, CIRPEE.
  7. Paul Belleflamme & Eric Toulemonde, 2007. "Negative Intra-Group Externalities in Two-Sided Markets," CESifo Working Paper Series 2011, CESifo Group Munich.
  8. Ching-to Albert Ma, 1994. "Health Care Payment Systems: Cost and Quality Incentives," Papers 0047, Boston University - Industry Studies Programme.
  9. Troy Quast & David E. M. Sappington & Elizabeth Shenkman, 2008. "Does the quality of care in Medicaid MCOs vary with the form of physician compensation?," Health Economics, John Wiley & Sons, Ltd., vol. 17(4), pages 545-550.
  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, Oxford University Press, vol. 114(2), pages 533-575.
  11. Wright Julian, 2004. "One-sided Logic in Two-sided Markets," Review of Network Economics, De Gruyter, vol. 3(1), pages 1-21, March.
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  13. 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.
  14. Mark Armstrong, 2006. "Competition in two‐sided markets," RAND Journal of Economics, RAND Corporation, vol. 37(3), pages 668-691, 09.
  15. repec:rje:randje:v:37:y:2006:3:p:668-691 is not listed on IDEAS
  16. repec:hal:journl:halshs-00305309 is not listed on IDEAS
  17. repec:rje:randje:v:37:y:2006:3:p:645-667 is not listed on IDEAS
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