Vertizontal Price Competition Between Social Media Platforms

Soumya Kanta Mishra and Sumit Sarkar
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Soumya Kanta Mishra: Indian Institute of Management Sambalpur, Odisha, India
Sumit Sarkar: XLRI - Xavier School of Management, Jamshedpur, India

American Business Review, 2026, vol. 29, issue 1, 56-88

Abstract: We model price competition between two horizontally differentiated social media platforms, each offering basic and premium services. Users are either platform-anchored or quality-anchored. The platforms are two-sided, with users and advertisers as the two sides. We find a unique and symmetric equilibrium in the pricing game, where platforms earn revenue from both sides. As the quality difference increases, premium service prices rise, while basic service prices drop. Users are subsidized under strong network effects, but the platforms do not subsidize users if they are sufficiently differentiated. Vertical differentiation increases platform profits if sufficient quality difference is achieved for a given marginal cost of serving the premium users. Higher differentiation is required if the share of premium-anchored users increases. The extended model examines the effect of advertiser multihoming on subscription fees and profits. This model explains the pricing and service strategies of platforms like LinkedIn, X (Twitter), and Instagram.

Keywords: Pricing; Social Media; Platform Competition; Platform Differentiation; Network Effect (search for similar items in EconPapers)
JEL-codes: D43 L11 L13 L82 (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:ris:ambsrv:022657

DOI: 10.37625/abr.29.1.56-88

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