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Homing choice and platform pricing strategy

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  • Shekhar, Shiva

Abstract

We compare a discriminatory pricing regime with a non-discriminatory regime in a competitive bottleneck model where content providers endogenously sort into single or multi-homers. We find that consumer prices rise when the share of single-homers increases in the non-discriminatory case, while they stay constant in the discriminatory pricing regime. A discriminatory pricing regime leads to higher platform profits than the non-discriminatory regime when the share of single-homers are relatively high. When the share of single-homers is relatively high (low), the discriminatory pricing regime leads to higher (lower) consumer surplus and social welfare when compared with the non-discriminatory regime.

Suggested Citation

  • Shekhar, Shiva, 2017. "Homing choice and platform pricing strategy," DICE Discussion Papers 247, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  • Handle: RePEc:zbw:dicedp:247
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    References listed on IDEAS

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    1. Irina Suleymanova & Christian Wey, 2012. "On the role of consumer expectations in markets with network effects," Journal of Economics, Springer, pages 101-127.
    2. Qihong Liu & Konstantinos Serfes, 2013. "Price Discrimination in Two-Sided Markets," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 22(4), pages 768-786, December.
    3. Jean‐Charles Rochet & Jean Tirole, 2006. "Two‐sided markets: a progress report," RAND Journal of Economics, RAND Corporation, pages 645-667.
    4. Jean-Charles Rochet & Jean Tirole, 2014. "Platform Competition in Two-Sided Markets," CPI Journal, Competition Policy International.
    5. Thisse, Jacques-Francois & Vives, Xavier, 1988. "On the Strategic Choice of Spatial Price Policy," American Economic Review, American Economic Association, pages 122-137.
    6. Peitz, Martin & Valletti, Tommaso M., 2008. "Content and advertising in the media: Pay-tv versus free-to-air," International Journal of Industrial Organization, Elsevier, vol. 26(4), pages 949-965, July.
    7. Jay Pil Choi, 2010. "TYING IN TWO-SIDED MARKETS WITH MULTI-HOMING -super-," Journal of Industrial Economics, Wiley Blackwell, vol. 58(3), pages 607-626, September.
    8. Jean-Charles Rochet & Jean Tirole, 2014. "Platform Competition in Two-Sided Markets," CPI Journal, Competition Policy International.
    9. Rasch, Alexander & Wenzel, Tobias, 2013. "Piracy in a two-sided software market," Journal of Economic Behavior & Organization, Elsevier, vol. 88(C), pages 78-89.
    10. Reisinger, Markus, 2014. "Two-part tariff competition between two-sided platforms," European Economic Review, Elsevier, vol. 68(C), pages 168-180.
    11. Thomes, Tim Paul, 2015. "In-house publishing and competition in the video game industry," Information Economics and Policy, Elsevier, vol. 32(C), pages 46-57.
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    Cited by:

    1. Goeddeke, Anna & Haucap, Justus & Herr, Annika & Wey, Christian, 2017. "Flexibility in wage setting under the threat of relocation," DICE Discussion Papers 269, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).

    More about this item

    Keywords

    price discrimination; two-sided markets; platforms; platform competition; network effects;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L82 - Industrial Organization - - Industry Studies: Services - - - Entertainment; Media
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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