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Price Discrimination in Two-Sided Markets

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Abstract

We examine the profitability and the welfare implications of price discrimination in two-sided markets. Platforms have information about the preferences of the agents that allows them to price discriminate within each group. The conventional wisdom from one-sided horizontally differentiated markets is that price discrimination hurts the firms and benefits consumers, prisoners' dilemma. Moreover, it is well-known that the presence of indirect externalities in two-sided markets can intensify the competition. Despite all these, we show that the possibility of price discrimination, in a two-sided market, may actually soften the competition. Therefore, the implications of price discrimination from one-sided markets may not carry over to two-sided markets. This is the case regardless of whether prices are public or private, although private prices boost profits. Our analysis also sheds light on the welfare properties of price discrimination in intermediate goods markets, such as Business-to-Business (B2B) markets.

Suggested Citation

  • Qihong Liu & Konstantinos Serfes, 2007. "Price Discrimination in Two-Sided Markets," Working Papers 07-25, NET Institute, revised Sep 2007.
  • Handle: RePEc:net:wpaper:0725
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    References listed on IDEAS

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    8. repec:rje:randje:v:37:y:2006:3:p:645-667 is not listed on IDEAS
    9. McAfee, R Preston & Schwartz, Marius, 1994. "Opportunism in Multilateral Vertical Contracting: Nondiscrimination, Exclusivity, and Uniformity," American Economic Review, American Economic Association, vol. 84(1), pages 210-230, March.
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    Citations

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    Cited by:

    1. Shekhar, Shiva, 2017. "Homing choice and platform pricing strategy," DICE Discussion Papers 247, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    2. Marc Bourreau & Frago Kourandi & Tommaso Valletti, 2015. "Net Neutrality with Competing Internet Platforms," Journal of Industrial Economics, Wiley Blackwell, vol. 63(1), pages 30-73, March.
    3. Lapo Filistrucchi & Tobias J. Klein, 2013. "Price Competition in Two-Sided Markets with Heterogeneous Consumers and Network Effects," Working Papers 13-20, NET Institute.
    4. repec:kap:jeczfn:v:125:y:2018:i:2:d:10.1007_s00712-017-0591-z is not listed on IDEAS
    5. repec:bla:jindec:v:65:y:2017:i:1:p:136-182 is not listed on IDEAS
    6. Jooyong Jun, 2015. "Entry of Non-financial Firms and Competition in the Retail Payments Market," Working Papers 2015-19, Economic Research Institute, Bank of Korea.
    7. Reisinger, Markus, 2014. "Two-part tariff competition between two-sided platforms," European Economic Review, Elsevier, vol. 68(C), pages 168-180.
    8. Charles Angelucci & Julia Cage, 2015. "Newspapers in Times of Low Advertising Revenues," Sciences Po publications info:hdl:2441/26t617gatp8, Sciences Po.
    9. Hans Jarle Kind & Lars Sørgard, 2013. "Market Segmentation in Two-Sided Markets: TV Rights for Premier League," CESifo Working Paper Series 4060, CESifo Group Munich.
    10. Elias Carroni, 2018. "Behaviour-based price discrimination with cross-group externalities," Journal of Economics, Springer, vol. 125(2), pages 137-157, October.
    11. Charles Angelucci & Julia Cage & Romain de Nijs, 2013. "Price Discrimination in a Two-Sided Market: Theory and Evidence from the Newspaper Industry," Working Papers 13-13, NET Institute.
    12. Gil, Ricard & Riera-Crichton, Daniel & Ruzzier, Christian, 2016. "As Seen on TV: Price Discrimination and Competition in Television Advertising," MPRA Paper 75993, University Library of Munich, Germany.
    13. Böhme Enrico, 2016. "Second-Degree Price Discrimination on Two-Sided Markets," Review of Network Economics, De Gruyter, vol. 15(2), pages 91-115, June.
    14. Andre Boik, 2018. "Prediction and Identification in Two-Sided Markets," CESifo Working Paper Series 6857, CESifo Group Munich.
    15. Liu, Qihong & Shuai, Jie, 2013. "Multi-dimensional price discrimination," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 417-428.
    16. Reisinger, Markus, 2010. "Unique Equilibrium in Two-Part Tariff Competition between Two-Sided Platforms," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 308, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.

    More about this item

    Keywords

    Price discrimination; Two-sided markets; Indirect network externalities; Market segmentation.;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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