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Two-Sided Markets with Negative Externalities

  • Reisinger, Markus
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    This paper analyses a two-sided market in which two platforms compete against each other. One side, the advertisers, exerts a negative externality on the ther side, the users. It is shown that if platforms can charge advertisers only, a higher degree of competition for users can lead to higher profits because competition on the advertisers' side is reduced. If platforms can charge users as well, profits might increase or decrease, the latter because of increased competition through the additional instrument of the user fee. Nevertheless the equilibrium with user fee is more efficient.

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    File URL: https://epub.ub.uni-muenchen.de/478/1/munichtwsi.pdf
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    Paper provided by University of Munich, Department of Economics in its series Discussion Papers in Economics with number 478.

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    Date of creation: Dec 2004
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    Handle: RePEc:lmu:muenec:478
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    1. Michael L. Katz & Carl Shapiro, 1994. "Systems Competition and Network Effects," Journal of Economic Perspectives, American Economic Association, vol. 8(2), pages 93-115, Spring.
    2. Hamilton, J.H. & Macleod, W.P. & Thisse, J.F., 1988. "Spatial Competition And The Core," Papers 88-6, Florida - College of Business Administration.
    3. Jean-Charles Rochet & Jean Triole, 2002. "Platform Competition in Two Sided Markets," FMG Discussion Papers dp409, Financial Markets Group.
    4. Barros Pedro P & Kind Hans Jarle & Nilssen Tore & Sørgard Lars, 2005. "Media Competition on the Internet," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 4(1), pages 1-20, January.
    5. Esther Gal-Or & Anthony Dukes, 2006. "On the Profitability of Media Mergers," The Journal of Business, University of Chicago Press, vol. 79(2), pages 489-526, March.
    6. Jorge A, Ferrando & Jean J, Gabszewicz & Didier Laussel & Nathalie Sonnac, 2004. "Two-Sided Network Effects and Competition : An Application to Media Industries," Working Papers 2004-09, Centre de Recherche en Economie et Statistique.
    7. THISSE, Jacques-François & VIVES, Xavier, . "On the strategic choice of spatial price policy," CORE Discussion Papers RP 793, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    8. Joseph Farrell & Paul Klemperer, 2006. "Co-ordination and Lock-in: Competition with Switching Costs and Network Effects," Economics Papers 2006-W07, Economics Group, Nuffield College, University of Oxford.
    9. Michael R. Baye & John Morgan, 2001. "Information Gatekeepers on the Internet and the Competitiveness of Homogeneous Product Markets," American Economic Review, American Economic Association, vol. 91(3), pages 454-474, June.
    10. Simon P. Anderson & Stephen Coate, 2003. "Market Provision of Broadcasting: A Welfare Analysis," Virginia Economics Online Papers 358, University of Virginia, Department of Economics.
    11. Kind, Hans Jarle & Nilssen, Tore & Sørgard, Lars, 2005. "Advertising on TV: Under- or Overprovision?," Memorandum 15/2005, Oslo University, Department of Economics.
    12. Mark Armstrong, 2006. "Competition in two‐sided markets," RAND Journal of Economics, RAND Corporation, vol. 37(3), pages 668-691, 09.
    13. Wright, Julian, 2003. "Optimal card payment systems," European Economic Review, Elsevier, vol. 47(4), pages 587-612, August.
    14. Anderson, Simon P. & Leruth, Luc, 1993. "Why firms may prefer not to price discriminate via mixed bundling," International Journal of Industrial Organization, Elsevier, vol. 11(1), pages 49-61, March.
    15. Anthony Dukes & Esther Gal–Or, 2003. "Negotiations and Exclusivity Contracts for Advertising," Marketing Science, INFORMS, vol. 22(2), pages 222-245, November.
    16. Bagwell, Kyle, 2007. "The Economic Analysis of Advertising," Handbook of Industrial Organization, Elsevier.
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