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Two-sided markets and price competition with multi-homing

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  • GABSZEWICZ, Jean
  • WAUTHY, Xavier

Abstract

We model duopoly competition between two platforms.They operate in a two-sided market where agents are heterogeneous on both sides of the market and are allowed to mulithome. Network effects are captured within a vertical differentiation framework.Under single-homing there exists an interior equilibrium where networks exhibit asymmetric sizes and both firms enjoy positive profits.When all agents are allowed to patronize the two platforms, we show that in equilibrium multi-homing takes place on one side of the market only. Moreover, the only equilibrium exhibiting positive profits for both platforms replicates the collusive outcome.

Suggested Citation

  • GABSZEWICZ, Jean & WAUTHY, Xavier, 2004. "Two-sided markets and price competition with multi-homing," CORE Discussion Papers 2004030, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:2004030
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    File URL: https://uclouvain.be/en/research-institutes/immaq/core/dp-2004.html
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    References listed on IDEAS

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    1. Graeme Guthrie & Julian Wright, 2003. "Competing Payment Schemes," Departmental Working Papers wp0311, National University of Singapore, Department of Economics.
    2. Hausman, Jerry A & Leonard, Gregory K & Tirole, Jean, 2003. " On Nonexclusive Membership in Competing Joint Ventures," RAND Journal of Economics, The RAND Corporation, vol. 34(1), pages 43-62, Spring.
    3. Wauthy, Xavier, 1996. "Quality Choice in Models of Vertical Differentiation," Journal of Industrial Economics, Wiley Blackwell, vol. 44(3), pages 345-353, September.
    4. Mark Armstrong, 2006. "Competition in two‐sided markets," RAND Journal of Economics, RAND Corporation, vol. 37(3), pages 668-691, September.
    5. Jean J. Gabszewicz & Xavier Y. Wauthy, 2003. "The option of joint purchase in vertically differentiated markets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 22(4), pages 817-829, November.
    6. Evans David S., 2003. "Some Empirical Aspects of Multi-sided Platform Industries," Review of Network Economics, De Gruyter, vol. 2(3), pages 1-19, September.
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    Citations

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    Cited by:

    1. Viecens, María Fernanda, 2006. "Two-sided platforms with endogenous quality differentiation," UC3M Working papers. Economics we061204, Universidad Carlos III de Madrid. Departamento de Economía.
    2. Griva, Krina & Vettas, Nikolaos, 2011. "Price competition in a differentiated products duopoly under network effects," Information Economics and Policy, Elsevier, vol. 23(1), pages 85-97, March.
    3. Galeotti, Andrea & Moraga-González, José Luis, 2009. "Platform intermediation in a market for differentiated products," European Economic Review, Elsevier, vol. 53(4), pages 417-428, May.
    4. repec:hal:cesptp:hal-00980363 is not listed on IDEAS
    5. Anderson, Simon P. & Gabszewicz, Jean J., 2006. "The Media and Advertising: A Tale of Two-Sided Markets," Handbook of the Economics of Art and Culture, Elsevier.
    6. D'Orlando, Fabio, 2010. "Swinger economics," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 39(2), pages 295-305, April.
    7. Kind, Hans Jarle & Nilssen, Tore & Sørgard, Lars, 2005. "Financing of Media Firms: Does Competition Matter?," Memorandum 01/2005, Oslo University, Department of Economics.
    8. Nestor Duch-Brown, 2017. "Quality discrimination in online multi-sided markets," JRC Working Papers on Digital Economy 2017-06, Joint Research Centre (Seville site).
    9. Henseler, Marco, 2006. "Horizontal versus Vertical Electronic Business-to-Business Marketplaces," MPRA Paper 40853, University Library of Munich, Germany.
    10. Beschorner, Patrick Frank Ernst, 2008. "Do Consumers Benefit from Concentration in the New Economy? A Review of Google's Mergers, Acquisitions, and Arrangements," ZEW Discussion Papers 08-121, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    11. Rattanasuda Poolsombat & Gianluigi Vernasca, 2006. "Partial Multihoming in Two-sided Markets," Discussion Papers 06/10, Department of Economics, University of York.
    12. Mark Armstrong & Julian Wright, 2007. "Two-sided Markets, Competitive Bottlenecks and Exclusive Contracts," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 32(2), pages 353-380, August.
    13. Alexander Rasch, 2007. "Platform competition with partial multihoming under differentiation: a note," Economics Bulletin, AccessEcon, vol. 12(7), pages 1-8.
    14. Bruno Jullien, 2005. "Two-sided Markets and Electronic Intermediaries," CESifo Economic Studies, CESifo, vol. 51(2-3), pages 233-260.
    15. Yuan, Michael Y., 2008. "The effects of barriers to entry on monopolistic intermediary online services: The case of a digital library," Socio-Economic Planning Sciences, Elsevier, vol. 42(1), pages 56-73, March.
    16. Zhang, Nan & Levä, Tapio & Hämmäinen, Heikki, 2014. "Value networks and two-sided markets of Internet content delivery," Telecommunications Policy, Elsevier, vol. 38(5), pages 460-472.
    17. Jonathan Bainée, 2012. "Les opérateurs de mobilité électrique et la problématique de la diffusion du véhicule électrique (VE)," Post-Print hal-00980363, HAL.
    18. Ramon Casadesus-Masanell & Feng Zhu, 2010. "Strategies to Fight Ad-Sponsored Rivals," Management Science, INFORMS, vol. 56(9), pages 1484-1499, September.
    19. BELLEFLAMME, Paul & TOULEMONDE, Eric, 2004. "B2B marketplaces : Emergence and entry," CORE Discussion Papers 2004078, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    20. Roberto Roson, 2005. "Platform Competition with Endogenous Multihoming," Working Papers 2005.20, Fondazione Eni Enrico Mattei.
    21. Susan Athey & Emilio Calvano & Joshua S. Gans, 2014. "The Impact of Consumer Multi-homing on Advertising Markets and Media Competition," CSEF Working Papers 379, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 27 Apr 2016.
    22. Anderson, Simon P. & Jullien, Bruno, 2016. "The advertising-financed business model in two-sided media markets," TSE Working Papers 16-632, Toulouse School of Economics (TSE).
    23. repec:ebl:ecbull:v:12:y:2007:i:7:p:1-8 is not listed on IDEAS
    24. Audrey Boilley, 2013. "Duopoly Competition and Regulation in a Two-Sided Health Care Insurance Market with Product Differentiation," Working Papers 2013-02, CRESE.
    25. Gabszewicz, Jean J. & Wauthy, Xavier Y., 2014. "Vertical product differentiation and two-sided markets," Economics Letters, Elsevier, vol. 123(1), pages 58-61.

    More about this item

    Keywords

    two-sided markets; networks; vertical di?erentiation;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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