Divide and conquer in two‐sided markets: A potential‐game approach

Lester T. Chan

RAND Journal of Economics, 2021, vol. 52, issue 4, 839-858

Abstract: Network effects typically generate multiple equilibria in two‐sided markets. To overcome the methodological challenge of selecting an appropriate equilibrium, this article shows that many two‐sided market models are weighted potential games, and therefore, a refinement of Nash equilibrium justified by many theoretical and experimental studies, potential maximization, pins down an equilibrium. Under potential maximization, platforms often subsidize one side and charge the other, that is, divide and conquer. The primary determinant of which side to subsidize/monetize is cross‐side network effects. This divide‐and‐conquer strategy implies that platforms are often designed to favor the money side much more than the subsidy side.

Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://doi.org/10.1111/1756-2171.12393

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:randje:v:52:y:2021:i:4:p:839-858

Ordering information: This journal article can be ordered from
http://www.blackwell ... al.asp?ref=0741-6261

Access Statistics for this article

RAND Journal of Economics is currently edited by James Hosek

More articles in RAND Journal of Economics from RAND Corporation Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().