Two-Sided Competition and Differentiation (with an Application to Media)

Guillaume Roger

No 2010-27, Discussion Papers from School of Economics, The University of New South Wales

Abstract: We model a duopoly in which two-sided platforms compete on both sides of a two-sided market. Platforms (or intermediaries) select the quality they offer consumers, and the prices they charge to consumers and firms. In this model, non-trivial competition on both sides induces non-quasiconcave payoffs in one subgame. All equilibria are characterized. Under well-defined conditions, the unique equilibrium in pure strategies can be computed. Prices entail a discount on one side, a premium on the other one and the quality offered to consumers is distorted downward. When the pure-strategy equilibrium fails to exist, a mixed-strategy equilibrium is shown to always exist and the distributions are characterized. In this case, the market may be preempted ex post. The model may find applications in the media, internet trading platforms, the software industry or even the health care industry (HMO/PPO).

Keywords: Two-Sided Market; Vertical Differentiation; Industrial Organization; Platform Competition (search for similar items in EconPapers)
JEL-codes: C72 D43 D62 L13 L15 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2010-11
New Economics Papers: this item is included in nep-com, nep-mkt and nep-net
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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