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Asymmetric Networks in Two-Sided Markets

  • Ambrus, Attila
  • Argenziano, Rossella

This paper investigates pricing decisions and network choices in two-sided markets with network externalities. Consumers are heterogeneous in how much they value the externality. Imposing restrictions on the extent of coordination failure among consumers generates clear qualitative conclusions about equilibrium market configurations. Multiple asymmetric networks can coexist in equilibrium, both in the case of a monopolist network provider and in the case of competing providers. These equilibria have the property that one network is cheaper and larger on one side, while the other network is cheaper and larger on the other side. Product differentiation is endogenized by consumers' network choices.

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File URL: http://dash.harvard.edu/bitstream/handle/1/3204916/ambrus_asymmetric.pdf
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Paper provided by Harvard University Department of Economics in its series Scholarly Articles with number 3204916.

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Date of creation: 2009
Date of revision:
Publication status: Published in American Economic Journal: Microeconomics
Handle: RePEc:hrv:faseco:3204916
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Web page: http://www.economics.harvard.edu/

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  1. Caillaud, Bernard & Jullien, Bruno, 2001. "Competing cybermediaries," European Economic Review, Elsevier, vol. 45(4-6), pages 797-808, May.
  2. Bernheim, B. Douglas & Peleg, Bezalel & Whinston, Michael D., 1987. "Coalition-Proof Nash Equilibria I. Concepts," Journal of Economic Theory, Elsevier, vol. 42(1), pages 1-12, June.
  3. Damiano, Ettore & Li, Hao, 2005. "Competing Matchmaking," Microeconomics.ca working papers damiano-05-01-25-10-08-07, Vancouver School of Economics, revised 18 Oct 2005.
  4. Bernheim, B. Douglas & Whinston, Michael D., 1987. "Coalition-Proof Nash Equilibria II. Applications," Journal of Economic Theory, Elsevier, vol. 42(1), pages 13-29, June.
  5. Glenn Allison & Drew Fudenberg, 2002. "Competing Auctions," Harvard Institute of Economic Research Working Papers 1960, Harvard - Institute of Economic Research.
  6. Nicholas Economides & Andrzej Skrzypacz, 2004. "Standards Coalitions Formation and Market Structure in Network Industries," Microeconomics 0407008, EconWPA.
  7. Bental, Benjamin & Spiegel, Menahem, 1995. "Network Competition, Product Quality, and Market Coverage in the Presence of Network Externalities," Journal of Industrial Economics, Wiley Blackwell, vol. 43(2), pages 197-208, June.
  8. Caillaud, Bernard & Jullien, Bruno, 2003. " Chicken & Egg: Competition among Intermediation Service Providers," RAND Journal of Economics, The RAND Corporation, vol. 34(2), pages 309-28, Summer.
  9. Ettore Damiano & Hao Li, 2007. "Price discrimination and efficient matching," Economic Theory, Springer, vol. 30(2), pages 243-263, February.
  10. Baumol, William J, 1982. "Contestable Markets: An Uprising in the Theory of Industry Structure," American Economic Review, American Economic Association, vol. 72(1), pages 1-15, March.
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