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The Role of Negative Intra-Side Externalities in Two-Sided Markets

  • Helmut Dietl

    ()

    (Institute for Strategy and Business Economics, University of Zurich)

  • Markus Lang

    ()

    (Institute for Strategy and Business Economics, University of Zurich)

  • Panlang Lin

    ()

    (Institute for Strategy and Business Economics, University of Zurich)

This paper presents a theoretical model of two-sided markets with both positive inter-side externalities and negative intra-side externalities. It analyzes the net impact of negative intra-side externalities on platform prices, demands and profits in three scenarios: (i) monopoly platforms, (ii) competing platforms with two-sided single-homing, and (iii) competitive bottlenecks. The paper shows that a monopoly platform will produce lower equilibrium profits in the presence of negative intra-side externalities. By contrast, competing platforms with two-sided single-homing enjoy a higher equilibrium profit, whereas the net impact of negative intra-side externalities on the equilibrium profit of competing platforms with one-sided multi-homing (competitive bottlenecks) remains ambiguous. Based on the analysis, we derive implications for platform owners on how to manage negative intra-side externalities.

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Paper provided by University of Zurich, Institute for Strategy and Business Economics (ISU) in its series Working Papers with number 0121.

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Length: 26 pages
Date of creation: Mar 2010
Date of revision:
Handle: RePEc:iso:wpaper:0121
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