Tipping in Two-Sided Markets with Asymmetric Platforms

Alex Gold and Christiaan Hogendorn ()
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Alex Gold: Bipartisan Policy Center

No 2015-001, Wesleyan Economics Working Papers from Wesleyan University, Department of Economics

Abstract: This paper examines tipping in the Armstrong (2006) two-sided market model. By adding simple cost asymmetries to the original model, we show that the model is quite robust to di erences in network size and deviations from 50-50 market share. It well represents situations where asymmetries compensate for one another; for example, one platform might incur marginal costs to court developers and make up for it with lower costs to users. Our tests also make clear that there is an implicit stand-alone utility in the Armstrong model even when it is not specifically modeled. These results improve interpretation of the many studies that use the Armstrong model for policy analysis.

Pages: 15 pages
Date: 2015-02
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Journal Article: Tipping in two-sided markets with asymmetric platforms (2016)
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