Skewed Pricing in Two-Sided Markets: An IO approach
In two-sided markets, one widely observes skewed pricing strategies, in which the price mark-up is much higher on one side of the market than the other. Using a simple model of two-sided markets, we show that, under constant elasticity of demand, skewed pricing is indeed pro?t maximizing. The most elastic side of the market is used to generate maximum demand by providing it with platform services at the lowest possible price. Through the positive network externality, full participation of the high-elasticity, lowprice side of the market increases market participation of the other side. As this side is less price elastic, the platform is able to extract high prices. Our skewed pricing result also carries over when analyzing the socially optimal prices. Interestingly, this leads to below-marginal cost pricing in the social optimum. We motivate the analysis by looking at the Dutch debit card system.
(This abstract was borrowed from another version of this item.)
|Date of creation:||03 Sep 2005|
|Date of revision:|
|Contact details of provider:|| Web page: http://www.essex.ac.uk/afm/mmf/index.html|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jean-Charles Rochet & Jean Triole, 2002.
"Platform competition in two sided markets,"
LSE Research Online Documents on Economics
24929, London School of Economics and Political Science, LSE Library.
- Rochet, Jean-Charles & Tirole, Jean, 2003. "Platform Competition in Two-Sided Markets," IDEI Working Papers 152, Institut d'Économie Industrielle (IDEI), Toulouse.
- Jean-Charles Rochet & Jean Triole, 2002. "Platform Competition in Two Sided Markets," FMG Discussion Papers dp409, Financial Markets Group.
- W. Bolt & A.F. Tieman, 2003.
"Pricing Debit Card Payments Services: An IO approach,"
WO Research Memoranda (discontinued)
735, Netherlands Central Bank, Research Department.
- Alexander F. Tieman & Wilko Bolt, 2003. "Pricing Debit Card Payment Services; An IO Approach," IMF Working Papers 03/202, International Monetary Fund.
- Mark Armstrong, 2006.
"Competition in two‐sided markets,"
RAND Journal of Economics,
RAND Corporation, vol. 37(3), pages 668-691, 09.
- Schmalensee, Richard, 2002.
"Payment Systems and Interchange Fees,"
Journal of Industrial Economics,
Wiley Blackwell, vol. 50(2), pages 103-22, June.
- Wright, Julian, 2003. "Optimal card payment systems," European Economic Review, Elsevier, vol. 47(4), pages 587-612, August.
- Gans Joshua S & King Stephen P, 2003. "The Neutrality of Interchange Fees in Payment Systems," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 3(1), pages 1-18, January.
- W. Bolt, 2003. "Retail Payments in the Netherlands: some Facts and Some Theory," WO Research Memoranda (discontinued) 722, Netherlands Central Bank, Research Department.
When requesting a correction, please mention this item's handle: RePEc:mmf:mmfc05:75. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F. Baum)
If references are entirely missing, you can add them using this form.