The Effects of Competition and Entry in Multi-sided Markets

Guofu Tan and Junjie Zhou

The Review of Economic Studies, 2021, vol. 88, issue 2, 1002-1030

Abstract: We study price competition and entry of platforms in multi-sided markets. Utilizing the simplicity of the equilibrium pricing formula in our setting with heterogeneity of customers’ membership benefits, we demonstrate that in the presence of externalities, the standard effects of competition can be reversed: as platform competition increases, prices, and platform profits can go up and consumer surplus can go down. We identify economic forces that jointly determine the social inefficiency of the free-entry equilibrium and provide conditions under which free entry is socially excessive as well as an example in which free entry is socially insufficient.

Keywords: Multi-sided markets; Cross-side externalities; Cross subsidization; Platform competition; Discrete choice models; Free entry; L13; L4 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (24)

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Persistent link: https://EconPapers.repec.org/RePEc:oup:restud:v:88:y:2021:i:2:p:1002-1030.

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