The Role of Negative Intra-Side Externalities in Two-Sided Markets

Helmut Dietl, Markus Lang and Panlang Lin ()

No 121, Working Papers from University of Zurich, Institute for Strategy and Business Economics (ISU)

Abstract: This paper presents a theoretical model of two-sided markets with both positive inter-side externalities and negative intra-side externalities. It analyzes the net impact of negative intra-side externalities on platform prices, demands and profits in three scenarios: (i) monopoly platforms, (ii) competing platforms with two-sided single-homing, and (iii) competitive bottlenecks. The paper shows that a monopoly platform will produce lower equilibrium profits in the presence of negative intra-side externalities. By contrast, competing platforms with two-sided single-homing enjoy a higher equilibrium profit, whereas the net impact of negative intra-side externalities on the equilibrium profit of competing platforms with one-sided multi-homing (competitive bottlenecks) remains ambiguous. Based on the analysis, we derive implications for platform owners on how to manage negative intra-side externalities.

Keywords: Two-sided market; platform competition; network externalities (search for similar items in EconPapers)
JEL-codes: D42 D62 L11 L12 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2010-03
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Persistent link: https://EconPapers.repec.org/RePEc:iso:wpaper:0121

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