Nesting Vertical and Horizontal Differentiation in Two-Sided Markets

Vitor Miguel Ribeiro (), Joao Correia-da-Silva and Joana Resende
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Vitor Miguel Ribeiro: CEF.UP and Faculdade de Economia do Porto

FEP Working Papers from Universidade do Porto, Faculdade de Economia do Porto

Abstract: We develop a model that is a synthesis of the two-sided markets duopoly model of Armstrong (2006) with the nested vertical and horizontal di erentiation model of Gabszewicz and Wauthy (2012), which consists of a linear city with di erent consumer densities on the left and on the right side of the city. In equilibrium, the high-quality platform sells at a higher price and captures a greater market share than the low-quality platform, despite the indiff erent consumer being closer to the high-quality platform. The di fference between market shares is lower than socially optimal, because of the inter-group externality and because the high-quality platform sells at a higher price. We conclude that a perturbation that introduces a negligible di erence between the consumer density on the left and on the right side of the city may disrupt the existence of equilibrium in the model of Armstrong (2006). Finally, we show that inter-group externalities make it easier to deter an inferior-quality entrant and make it easier for a superior-quality entrant to conquer the market.

Keywords: Two-sided markets; Horizontal differentiation; Vertical differentiation (search for similar items in EconPapers)
JEL-codes: D42 D43 L13 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2014-05
New Economics Papers: this item is included in nep-com, nep-mic and nep-net
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: NESTING VERTICAL AND HORIZONTAL DIFFERENTIATION IN TWO-SIDED MARKETS (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:por:fepwps:535

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