Economics at your fingertips  

Two-sided platforms: dynamic pricing and multiple equilibria

Przemyslaw Rys () and Maciej Sobolewski ()

No 2020-14, JRC Working Papers on Digital Economy from Joint Research Centre (Seville site)

Abstract: The static model of two sided markets proposed by Rochet and Tirole analyses optimal pricing of a monopolistic platform at the equilibrium point. Their framework implicitly assumes that for each prices set by the platform, the equilibrium number of users on each side will be unique. However, under general conditions, the uniqueness of market equilibrium is not guaranteed. Optimal static prices do not ensure convergence to the preferred full market outcome, as platform may face failure-to-launch or failure-to-grow problems. Hence, to study problems around multiplicity of equilibria, a different framework is required. We propose a dynamic model of monopolistic platform and demonstrate the effects of different dynamic pricing strategies for equilibrium selection and convergence. The main conclusion from the study is that emerging platform can reach the preferred equilibrium by using tariffs with subsidies for early stage users. We give examples of dynamically adjusting tariffs that minimize subsidies. Finally, the dynamic setting reveals a trade-off between the platform profits and social welfare, related to the speed of user base growth.

Keywords: two-sided markets; dynamic pricing; multiplicity of equilibria; dynamic system; online platforms (search for similar items in EconPapers)
JEL-codes: L12 C61 D42 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2020-12
New Economics Papers: this item is included in nep-mic and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link) (application/pdf)

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:

Access Statistics for this paper

More papers in JRC Working Papers on Digital Economy from Joint Research Centre (Seville site) Contact information at EDIRC.
Bibliographic data for series maintained by Publication Officer ().

Page updated 2021-06-16
Handle: RePEc:ipt:decwpa:202014