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Location Decisions of Competing Platforms

Konstantinos Serfes () and Eleftherios Zacharias ()

No 09-18, Working Papers from NET Institute

Abstract: There are examples of entry in two-sided markets, where first entrants occupy a `central location' and serve agents with `intermediate tastes', while later entrants are niche players. Why would the first entrant choose to become a `general' platform, given that later entrants will not have enough room for differentiation, resulting in an intense price competition? This one-sided market logic may not apply in a two-sided market. A key difference in a two-sided market, stemming from the presence of cross-group network externalities, is stronger demand creation. We develop a model which can deliver the above mentioned empirical observation, when the network externalities are intermediate. On the other hand, when externalities are low, our model predicts that differentiation will be maximum, as it would be in a one-sided market. Finally, for strong externalities only one platform is active and locates at the center.

Keywords: Product Selection; Two-sided markets; Endogenous Locations; Cross-group Network Externalities. (search for similar items in EconPapers)
JEL-codes: D43 L13 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com and nep-net
Date: 2009-08, Revised 2009-08
References: View references in EconPapers View complete reference list from CitEc
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