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Tipping in Two-Sided Markets with Asymmetric Platforms

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  • Alex Gold

    (Bipartisan Policy Center)

  • Christiaan Hogendorn

    (Economics Department, Wesleyan University)

Abstract

This paper examines tipping in the Armstrong (2006) two-sided market model. By adding simple cost asymmetries to the original model, we show that the model is quite robust to di erences in network size and deviations from 50-50 market share. It well represents situations where asymmetries compensate for one another; for example, one platform might incur marginal costs to court developers and make up for it with lower costs to users. Our tests also make clear that there is an implicit stand-alone utility in the Armstrong model even when it is not specifically modeled. These results improve interpretation of the many studies that use the Armstrong model for policy analysis.

Suggested Citation

  • Alex Gold & Christiaan Hogendorn, 2015. "Tipping in Two-Sided Markets with Asymmetric Platforms," Wesleyan Economics Working Papers 2015-001, Wesleyan University, Department of Economics.
  • Handle: RePEc:wes:weswpa:2015-001
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    References listed on IDEAS

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    Cited by:

    1. Hildebrandt, Christian & Arnold, René, 2018. "Marktbeobachtung in der digitalen Wirtschaft – Ein Modell zur Analyse von Online-Plattformen," WIK Discussion Papers 427, WIK Wissenschaftliches Institut für Infrastruktur und Kommunikationsdienste GmbH.
    2. Kroon, Peter & Arnold, René, 2018. "Die Bedeutung von Interoperabilität in der digitalen Welt – Neue Herausforderungen in der interpersonellen Kommunikation," WIK Discussion Papers 437, WIK Wissenschaftliches Institut für Infrastruktur und Kommunikationsdienste GmbH.
    3. Maruyama, Masayoshi & Zennyo, Yusuke, 2017. "Process innovation, application compatibility, and welfare," Information Economics and Policy, Elsevier, vol. 40(C), pages 1-12.
    4. Wenqing Wu & Xuan Huang & Yue Li & Chien-Chi Chu, 2018. "Optimal Quality Strategy and Matching Service on Crowdfunding Platforms," Sustainability, MDPI, Open Access Journal, vol. 10(4), pages 1-17, April.
    5. Mei Lin & Xiajun Amy Pan & Quan Zheng, 2020. "Platform Pricing with Strategic Buyers: The Impact of Future Production Cost," Production and Operations Management, Production and Operations Management Society, vol. 29(5), pages 1122-1144, May.

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