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Second-degree price discrimination by a two-sided monopoly platform

Author

Listed:
  • Jeon, Doh-Shin
  • Kim, Byung-Cheol
  • Menicucci, Domenico

Abstract

In this article we study second-degree price discrimination by a two-sided monopoly platform. We find novel distortions that arise due to the two-sidedness of the market. They make the standard result "no distortion at top and downward distortion at bottom" not holding. They generate a new type of non-responsiveness, different from the one found by Guesnerie and Laffont (1984). We also show that the platform may mitigate or remove non-responsiveness at one side by properly designing price discrimination on the other side. These findings help to address our central question, i.e., when price discrimination on one side substitutes for or complements price discrimination on the other side. As an application, we study the optimal mechanism design for an advertising platform mediating advertisers and consumers.

Suggested Citation

  • Jeon, Doh-Shin & Kim, Byung-Cheol & Menicucci, Domenico, 2016. "Second-degree price discrimination by a two-sided monopoly platform," CEPR Discussion Papers 11488, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:11488
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    References listed on IDEAS

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    1. Böhme Enrico, 2016. "Second-Degree Price Discrimination on Two-Sided Markets," Review of Network Economics, De Gruyter, vol. 15(2), pages 91-115, June.
    2. Jeon, Doh-Shin & Menicucci, Domenico, 2008. "Money, fame and the allocation of talent: Brain drain and the institution of science," Journal of Economic Behavior & Organization, Elsevier, vol. 66(3-4), pages 558-581, June.
    3. Jay Pil Choi & Doh-Shin Jeon & Byung-Cheol Kim, 2015. "Net Neutrality, Business Models, and Internet Interconnection," American Economic Journal: Microeconomics, American Economic Association, vol. 7(3), pages 104-141, August.
    4. Guesnerie, Roger & Laffont, Jean-Jacques, 1984. "A complete solution to a class of principal-agent problems with an application to the control of a self-managed firm," Journal of Public Economics, Elsevier, vol. 25(3), pages 329-369, December.
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    Cited by:

    1. Sato, Susumu, 2017. "Freemium as Optimal Menu Pricing," MPRA Paper 81599, University Library of Munich, Germany.

    More about this item

    Keywords

    (second-degree) price discrimination; advertising; non-responsiveness; Two-sided markets; type reversal;

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • M3 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising

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