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Price Discrimination by a Two-sided Platform: with Applications to Advertising and Privacy Design

Author

Listed:
  • Doh-Shin Jeon

    () (Toulouse School of Economics and CEPR. Manufacture de Tabacs, 21 allees de Brienne - 31000 Toulouse, France.)

  • Byung-Cheol Kim

    () (School of Economics, Georgia Institute of Technology. 221 Bobby Dodd Way, Atlanta, GA 30332, USA.)

  • Domenico Menicucci

    () (Dipartimento di Scienze per l’Economia e l’impresa, Universit`a degli Studi di Firenze. Via delle Pandette 9, I-50127 Firenze (FI), Italy)

Abstract

We study price discrimination by a monopoly two-sided platform who mediates interactions between two different groups of agents. We adapt a canonical model of second-degree price discrimination `a la Mussa and Rosen (1978) to a two-sided platform by focusing on non-responsiveness, a clash between the allocation the platform wants to achieve and the incentive compatible allocations. In this framework we address the key question of when a price discrimination on one side complements or substitutes a price discrimination on the other side. We offer two applications on advertising platforms and also highlight the role of commitment in eliciting personal information for targeted advertising.

Suggested Citation

  • Doh-Shin Jeon & Byung-Cheol Kim & Domenico Menicucci, 2015. "Price Discrimination by a Two-sided Platform: with Applications to Advertising and Privacy Design," Working Papers 15-08, NET Institute.
  • Handle: RePEc:net:wpaper:1508
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    File URL: http://www.netinst.org/Jeon_Kim_Menicucci_15-08.pdf
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    References listed on IDEAS

    as
    1. Alessandro Acquisti & Curtis Taylor & Liad Wagman, 2016. "The Economics of Privacy," Journal of Economic Literature, American Economic Association, vol. 54(2), pages 442-492, June.
    2. Jeon, Doh-Shin & Menicucci, Domenico, 2008. "Money, fame and the allocation of talent: Brain drain and the institution of science," Journal of Economic Behavior & Organization, Elsevier, vol. 66(3-4), pages 558-581, June.
    3. Jay Pil Choi & Byung-Cheol Kim, 2010. "Net neutrality and investment incentives," RAND Journal of Economics, RAND Corporation, vol. 41(3), pages 446-471.
    4. Ettore Damiano & Hao Li, 2007. "Price discrimination and efficient matching," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 30(2), pages 243-263, February.
    5. Ramon Casadesus-Masanell & Andres Hervas-Drane, 2015. "Competing with Privacy," Management Science, INFORMS, vol. 61(1), pages 229-246, January.
    6. Guesnerie, Roger & Laffont, Jean-Jacques, 1984. "A complete solution to a class of principal-agent problems with an application to the control of a self-managed firm," Journal of Public Economics, Elsevier, vol. 25(3), pages 329-369, December.
    7. Byung-Cheol Kim & Jin Yeub Kim, 2015. "The Economics of the Right to be Forgotten," Working Papers 15-02, NET Institute.
    8. Jay Pil Choi & Doh-Shin Jeon & Byung-Cheol Kim, 2015. "Net Neutrality, Business Models, and Internet Interconnection," American Economic Journal: Microeconomics, American Economic Association, vol. 7(3), pages 104-141, August.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    price discrimination; two-sided markets; non-responsiveness; privacy; advertising; positive/negative sorting;

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • M3 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising

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