Two-sided platforms, heterogeneous tastes, and coordination

Shun Tsukamoto ()
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Shun Tsukamoto: Graduate School of Economics, Nagoya University

Economics Bulletin, 2020, vol. 40, issue 1, 388-406

Abstract: This paper studies duopolistic price competition in a two-sided market with positive and negative indirect network externalities on both sides. I develop a model in which the externality is positive for some agents and negative for the others on each side. The paper shows that (i) a platform in equilibrium attracts a larger number of agents on both sides if the proportion of agents who incur a negative externality is small and (ii) each platform in equilibrium obtains a larger market share on one side and a lower market share on the other side if the proportion is large. Social welfare is not maximized in these equilibria because the platform with the lower market share on each side attracts too many agents in the former case while each platform attracts too many agents on the side with a lower market share in the latter case.

Keywords: Two-Sided Platform; Negative Indirect Network Externality; Horizontal Differentiation; Coordination (search for similar items in EconPapers)
JEL-codes: L1 L4 (search for similar items in EconPapers)
Date: 2020-02-05
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