Asymmetric Network Effects

Estelle Cantillon () and Pai-Ling Yin ()
Additional contact information
Estelle Cantillon: ECARES, Université Libre de Bruxelles
Pai-Ling Yin: MIT Sloan School of Management, http://scripts.mit.edu/~pyin/

No 08-42, Working Papers from NET Institute

Abstract: When platforms compete for consumers, two types of consumer heterogeneity will matter: consumers value the presence of other consumers on a platform differently, and consumers contribute to the value of the platform differently. The optimal discriminatory pricing policy for platforms will depend on whether those two dimensions of consumer heterogeneity are positively or negatively correlated, which is an empirical question. In a companion paper (Cantillon & Yin, 2008), we study membership decisions of trading firms for two competing exchanges: LIFFE and DTB. Our analysis shows that different traders care about liquidity differently. In this paper, we estimate the heterogeneous contribution to liquidity by different types. We combine the estimates from both papers of heterogeneous preferences and contributions to liquidity. We find that valuations of liquidity tend to be correlated with contributions to liquidity in this setting.

Keywords: derivatives exchange; network effects; heterogeneity; entry strategy; adoption; liquidity; platform competition (search for similar items in EconPapers)
JEL-codes: G15 L1 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2008-11
New Economics Papers: this item is included in nep-com, nep-mic and nep-net
References: View references in EconPapers View complete reference list from CitEc
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