Price Discrimination in Two-Sided Markets

Qihong Liu () and Konstantinos Serfes ()

No 07-25, Working Papers from NET Institute

Abstract: We examine the profitability and the welfare implications of price discrimination in two-sided markets. Platforms have information about the preferences of the agents that allows them to price discriminate within each group. The conventional wisdom from one-sided horizontally differentiated markets is that price discrimination hurts the firms and benefits consumers, prisoners' dilemma. Moreover, it is well-known that the presence of indirect externalities in two-sided markets can intensify the competition. Despite all these, we show that the possibility of price discrimination, in a two-sided market, may actually soften the competition. Therefore, the implications of price discrimination from one-sided markets may not carry over to two-sided markets. This is the case regardless of whether prices are public or private, although private prices boost profits. Our analysis also sheds light on the welfare properties of price discrimination in intermediate goods markets, such as Business-to-Business (B2B) markets.

Keywords: Price discrimination; Two-sided markets; Indirect network externalities; Market segmentation. (search for similar items in EconPapers)
JEL-codes: D43 L13 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2007-09, Revised 2007-09
New Economics Papers: this item is included in nep-com, nep-ind, nep-mic, nep-mkt and nep-net
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Related works:
Journal Article: Price Discrimination in Two‐Sided Markets (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:net:wpaper:0725

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