Establishing a link between behavior ecconomics and two-sided markets

Vitor Miguel Ribeiro ()
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Vitor Miguel Ribeiro: Vitor Miguel Ribeiro - FEP and CEF.UP - Vitor

FEP Working Papers from Universidade do Porto, Faculdade de Economia do Porto

Abstract: We develop a duopoly price competition model that establishes a link between the recent literature of two-sided markets and behavior economics. We fully characterize the subgame perfect Nash equilibrium, which depends on the level of …xed costs. Moreover, introducing discrimination between the two sides of the market in terms of the desutility in time, we demonstrate that divide & conquer strategies are present in equilibrium. Finally, we study entry by an inferior-quality platform and entry by a superior-quality platform to conclude that, in both cases, the entry deterrence strategy can be sustain. We conclude that, under the presence of inter-group externalities, the entry deterrence strategy occurs when price competition is softened but the inter-group externalities do not promote a higher presence of an entry deterrence strategy on the market. Finally, entry deterrence strategies may be conducted by an inferior-quality incumbent although less likely relatively to the case where the incumbent has a superior-quality.

Keywords: Two-sided markets; Horizontal differentiation; Vertical differentiation; Behavior Economics. (search for similar items in EconPapers)
JEL-codes: D42 D43 L13 (search for similar items in EconPapers)
Pages: 78 pages
Date: 2014-06
New Economics Papers: this item is included in nep-com, nep-mic and nep-net
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Persistent link: https://EconPapers.repec.org/RePEc:por:fepwps:538

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