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Vertical product differentiation and two-sided markets

Jean Gabszewicz () and Xavier Wauthy

Economics Letters, 2014, vol. 123, issue 1, 58-61

Abstract: We model platform competition in a market where products are characterized by cross network externalities. Consumers differ in their valuation of these externalities. Although the exogenous set-up is entirely symmetric, we show that platform competition induces a vertical differentiation structure that allows for the co-existence of asymmetric platforms in equilibrium. We establish this result in two set-ups: in the first one platforms commit to prices, in the second one they commit to network sizes.

Keywords: Network externalities; Two-sided market; Vertical differentiation (search for similar items in EconPapers)
JEL-codes: L13 (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1016/j.econlet.2013.12.031

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