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Competition in two sided markets with congestion

Author

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  • Swapnil Sharma

    (Indira Gandhi Institute of Development Research)

Abstract

Two sided markets involve two groups of agents who interact via "platforms". This paper analyses competition in a two sided market with congestion. The existing literature's on pricing mechanisms of two-sided markets has concluded that pricing mechanism depends on the following three factors: relative size of cross group externalities, fixed price or per transaction charge by platform, and single homing or multiple homing of agents. This paper extends the analysis by including the effect of congestion on pricing mechanisms in a two sided market. It concludes that in the case of single homing of agents, profits of the platform increase due to congestion if the agents have a low tolerance level, whereas in the case of multi homing, profits of the platform increase due to congestion if the agents have a high tolerance level.

Suggested Citation

  • Swapnil Sharma, 2018. "Competition in two sided markets with congestion," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2018-024, Indira Gandhi Institute of Development Research, Mumbai, India.
    • Handle: RePEc:ind:igiwpp:2018-024
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    File URL: http://www.igidr.ac.in/pdf/publication/WP-2018-024.pdf
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    More about this item

    Keywords

    Network externalities; Congestion;

    JEL classification:

    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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