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Nesting Vertical and Horizontal Differentiation in Two-Sided Markets

Author

Listed:
  • Vitor Miguel Ribeiro

    (CEF.UP and Faculdade de Economia do Porto)

  • João Correia-da-Silva

    (CEF.UP and Faculdade de Economia do Porto)

  • Joana Resende

    (CEF.UP and Faculdade de Economia do Porto)

Abstract

We develop a model that is a synthesis of the two-sided markets duopoly model of Armstrong (2006) with the nested vertical and horizontal di erentiation model of Gabszewicz and Wauthy (2012), which consists of a linear city with di erent consumer densities on the left and on the right side of the city. In equilibrium, the high-quality platform sells at a higher price and captures a greater market share than the low-quality platform, despite the indiff erent consumer being closer to the high-quality platform. The di fference between market shares is lower than socially optimal, because of the inter-group externality and because the high-quality platform sells at a higher price. We conclude that a perturbation that introduces a negligible di erence between the consumer density on the left and on the right side of the city may disrupt the existence of equilibrium in the model of Armstrong (2006). Finally, we show that inter-group externalities make it easier to deter an inferior-quality entrant and make it easier for a superior-quality entrant to conquer the market.

Suggested Citation

  • Vitor Miguel Ribeiro & João Correia-da-Silva & Joana Resende, 2014. "Nesting Vertical and Horizontal Differentiation in Two-Sided Markets," FEP Working Papers 535, Universidade do Porto, Faculdade de Economia do Porto.
    • Handle: RePEc:por:fepwps:535
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    References listed on IDEAS

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    Cited by:

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    2. Maria Rosa Battaggion & Serena Marianna Drufuca, 2020. "Quality competition and entry: a media market case," Journal of Economics, Springer, vol. 130(1), pages 1-36, June.
    3. Man Wang & Honghui Deng & Keong G. Leong, 2023. "Innovation investment and subsidy strategy in two-sided market," Information Technology and Management, Springer, vol. 24(4), pages 337-351, December.
    4. Di Gioacchino, Debora & Verashchagina, Alina, 2020. "Mass media and preferences for redistribution," European Journal of Political Economy, Elsevier, vol. 63(C).
    5. Ribeiro, Vitor Miguel & Soares, Isabel, 2025. "A primer on verti-zontally differentiated peer-to-peer energy intraday trading platforms with and without customization," Energy, Elsevier, vol. 320(C).
    6. Nestor Duch-Brown, 2017. "Quality discrimination in online multi-sided markets," JRC Working Papers on Digital Economy 2017-06, Joint Research Centre.
    7. Luigi Serio & Piero Tedeschi & Giovanni Ursino, 2018. "Making Sense of (Ultra) Low-Cost Flights Vertical Differentiation in Two-Sided Markets," Management Science, INFORMS, vol. 64(1), pages 401-420, January.
    8. Sangita Poddar & Tanmoyee Banerjee (Chatterjee) & Swapnendu Banerjee, 2024. "A theoretical analysis on two‐sided duopoly platforms and tax regimes," International Journal of Economic Theory, The International Society for Economic Theory, vol. 20(1), pages 88-119, March.

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    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • 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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