scholarly journals Asymmetric Networks in Two-Sided Markets

2009 ◽  
Vol 1 (1) ◽  
pp. 17-52 ◽  
Author(s):  
Attila Ambrus ◽  
Rossella Argenziano
Keyword(s):  
Product Differentiation ◽  
Network Externalities ◽  
The Other ◽  
Side Product ◽  
Coordination Failure ◽  
Pricing Decisions ◽  
Asymmetric Networks ◽  
Network Provider ◽  
Equilibrium Market ◽  
Two Sided Markets

This paper investigates pricing decisions and network choices in two-sided markets with network externalities. Consumers are heterogeneous in how much they value the externality. Imposing restrictions on the extent of coordination failure among consumers generates clear qualitative conclusions about equilibrium market configurations. Multiple asymmetric networks can coexist in equilibrium, both in the case of a monopolist network provider and in the case of competing providers. These equilibria have the property that one network is cheaper and larger on one side, while the other network is cheaper and larger on the other side. Product differentiation is endogenized by consumers' network choices. (JEL D85, L12, L13, L14, D42, D43)

Negative Intra Group Network Externalities in a Monopolistic Two-Sided Market

2018 ◽  
Vol 17 (2) ◽  
pp. 51-73
Author(s):  
Gokce Kurucu
Keyword(s):  
Market Structure ◽  
Network Externalities ◽  
The Other ◽  
Pricing Strategies ◽  
Market Structures ◽  
Asymmetric Pricing ◽  
Profit Maximizing ◽  
Equilibrium Market ◽  
Two Sided Markets

Abstract This paper analyzes the optimal market structures and pricing strategies of a monopolist platform in a two-sided market where the agents on each side prefer the platform to be less competitive on their side; that is, in a market with negative intra-group network externalities. Results show that the equilibrium market structure varies with the extent of negative intra-group network externalities. If the negative network externalities are substantial, that is, if an agent’s disutility due to a larger sized market on his side is high (enough), then the profit-maximizing strategy for the matchmaker will be to match the highest types of one side with all of the agents on the other side. In that case, the matchmaker will charge a high entrance fee from the former side and allow free entrance to the agents of the latter side. However, if the network externalities are not substantial, then the matchmaker will maximize profits by matching an equal number of agents from each side. This paper thus provides an explanation of the asymmetric pricing schedules in two-sided markets when the matchmaker uses a one-program pricing schedule.

scholarly journals A Price Theory of Multi-Sided Platforms

2010 ◽  
Vol 100 (4) ◽  
pp. 1642-1672 ◽  
Author(s):  
E. Glen Weyl
Keyword(s):  
General Theory ◽  
Market Power ◽  
Network Externalities ◽  
Profit Maximization ◽  
Price Regulation ◽  
Coordination Failure ◽  
Price Theory ◽  
General Measure ◽  
Monopoly Pricing ◽  
Two Sided Markets

I develop a general theory of monopoly pricing of networks. Platforms use insulating tariffs to avoid coordination failure, implementing any desired allocation. Profit maximization distorts in the spirit of A. Michael Spence (1975) by internalizing only network externalities to marginal users. Thus the empirical and prescriptive content of the popular Jean-Charles Rochet and Jean Tirole (2006) model of two-sided markets turns on the nature of user heterogeneity. I propose a more plausible, yet equally tractable, model of heterogeneity in which users differ in their income or scale. My approach provides a general measure of market power and helps predict the effects of price regulation and mergers. (JEL D42, D85, L14)

scholarly journals Estimating Platform Market Power in Two-Sided Markets with an Application to Magazine Advertising

2021 ◽  
Vol 13 (2) ◽  
pp. 35-67
Author(s):  
Minjae Song
Keyword(s):  
Market Power ◽  
Structural Model ◽  
Network Externalities ◽  
The Other ◽  
Two Sided Markets

In two-sided markets, two groups of agents interact through platforms. Because agents’ decision to join a platform is affected by the presence of agents on the other side, their interactions create indirect network externalities and make platforms’ strategies different from those of firms in one-sided markets. In this paper, I use a structural model to show that platforms may take a loss on one side of the market to make a profit on the other side and that platform mergers may benefit some agents by lowering prices or attracting more agents on the other side of the market. (JEL D62, G34, L82, M37)

The Analysis of Competition in Banking: Theory and Empirics

2016 ◽  
Author(s):  
Xavier Vives
Keyword(s):  
Industrial Organization ◽  
Asymmetric Information ◽  
Market Structure ◽  
Product Differentiation ◽  
Banking Sector ◽  
Network Externalities ◽  
Core Analysis ◽  
Behavioral Biases ◽  
The Core ◽  
Two Sided Markets

This chapter presents the core analysis of competition in the banking sector based on the industrial organization (IO) approach. It examines both theoretical and empirical aspects as well as at the special problems in analyzing the sector. This includes studying pricing, product differentiation, frictions, network externalities and two-sided markets, market structure, and mergers. The validity of the Structure–Conduct–Performance paradigm for banking is tested and the contributions of the new empirical IO is explained. The effects of asymmetric information and deregulation are also discussed. The chapter concludes with an assessment of behavioral biases of consumers and investors, along with their effects on the strategies of banks, competition, and welfare.

scholarly journals Two-Sided Markets: A Tentative Survey

2005 ◽  
Vol 4 (2) ◽  
Author(s):  
Roberto Roson
Keyword(s):  
Competition Policy ◽  
Recent Literature ◽  
Network Externalities ◽  
Future Research ◽  
Two Sided Markets

A recent literature, dealing with special markets characterized by bilateral network externalities, is summarized and critically assessed. Specific features of these markets, in terms of pricing principles and externalities, are discussed first. Afterwards, several issues related to competition between platforms are considered. Finally, implications for competition policy and prospects for future research are briefly discussed.

scholarly journals Competitive Effects of Mass Customization

2012 ◽  
Vol 10 (1) ◽  
Author(s):  
Oksana Loginova
Keyword(s):  
Product Differentiation ◽  
Mass Customization ◽  
Operations Management ◽  
Price Competition ◽  
Comparative Statics ◽  
Consumer Involvement ◽  
The Other ◽  
Fixed Cost ◽  
Competitive Effects ◽  
Customized Products

Abstract The existing theoretical literature on mass customization maintains that customization reduces product differentiation and intensifies price competition. In contrast, operations management studies argue that customization serves primarily to differentiate a company from its competitors. Interactive involvement of the customer in product design creates an affective relationship with the firm, relaxing price competition. This paper provides a model that incorporates consumer involvement to explain the phenomena described in the operations management literature.Two firms on the Hotelling line compete for a continuum of consumers with heterogeneous brand preferences. An exogenously given fraction of consumers is potentially interested in customization. Consumer benefits from customization are the rewards from a special shopping experience and the value of product customization (a better fitting product); these benefits are higher for consumers located closer to the customizing brand. When a consumer purchases a customized product, he/she incurs waiting costs. Each firm simultaneously decides whether to offer standard products, customized products, or both, and then engage in price competition. I show that customization increases product differentiation, leading to less intense price competition. Depending on the parameter values, in equilibrium either both firms offer customized products, one firm offers customized products and the other standard and customized products, or one firm offers customized products and the other standard products. I perform comparative statics analysis with respect to the fraction of consumers interested in customization, the waiting costs, and the fixed cost of customization.

scholarly journals Platform Competition in Two-Sided Markets: The Case of Payment Networks

2006 ◽  
Vol 5 (1) ◽  
Author(s):  
Sujit Chakravorti ◽  
Roberto Roson
Keyword(s):  
Consumer Preferences ◽  
Differentiated Products ◽  
Platform Competition ◽  
Market Structures ◽  
Payment Instruments ◽  
Asymmetric Networks ◽  
Market Equilibria ◽  
Duopolistic Competition ◽  
Two Sided Markets

In this article, we construct a model to study competing payment networks, where networks offer differentiated products in terms of benefits to consumers and merchants. We study market equilibria for a variety of market structures: duopolistic competition and cartel, symmetric and asymmetric networks, and alternative assumptions about consumer preferences. We find that competition unambiguously increases consumer and merchant welfare. We extend this analysis to competition among payment networks providing different payment instruments and find similar results.

scholarly journals Competition, Product Safety, and Product Liability

2017 ◽  
Vol 33 (2) ◽  
pp. 237-267 ◽  
Author(s):  
Yongmin Chen ◽  
Xinyu Hua
Keyword(s):  
Product Differentiation ◽  
Spatial Model ◽  
Product Liability ◽  
Product Safety ◽  
The Other ◽  
Market Environment ◽  
Other Hand ◽  
Potential Gain ◽  
Safety Investment ◽  
The Relationship

Abstract A firm’s incentive to invest in product safety is affected by both market environment and product liability. We investigate the relationship between competition and product liability in a spatial model of oligopoly, where reputation provides a market incentive for safety investment and higher liability may distort consumers’ incentive for product care. We find that partial liability, together with reputation concerns, can motivate firms to make safety investment. Increased competition due to less product differentiation diminishes a firm’s gain from maintaining reputation and raises the socially desired product liability. On the other hand, an increase in the number of competitors reduces the benefit from maintaining reputation, but has a non-monotonic effect on the potential gain from cutting back safety investment; consequently, the optimal liability may vary non-monotonically with the number of competitors. In general, therefore, the relationship between competition and product liability is subtle, depending on how competition is measured. (JEL L13, L15, K13)

scholarly journals Firms’ Strategic Pricing and Network Externalities

2020 ◽  
Vol 2020 ◽  
pp. 1-11
Author(s):  
Jianheng Zhou ◽  
Rongfei Xu
Keyword(s):  
Decision Making ◽  
Network Externalities ◽  
Strategic Decision ◽  
Strategic Consumers ◽  
Strategic Customers ◽  
Strategic Pricing ◽  
Pricing Decisions ◽  
Maximum Profit ◽  
The Impact

For the sale of a product with network externalities, a Stackelberg model involving an incumbent and an entrant is developed considering the impact of three strategic decision-making modes of the incumbent and consumers on the pricing, market share, and profit of firms. In addition, the impact of consumers’ strategic behaviours on firms’ pricing decisions and how firms respond to strategic customers is discussed. The results show that, in the SS (strategic firm facing strategic consumers) decision-making mode, the incumbent will implement long-term pricing and finally obtain the maximum profit, while as a follower of the incumbent, the entrant will also obtain the maximum profit in the SS mode. In the NS (nonstrategic firm facing strategic consumers) decision-making mode, the strategy of consumers seriously weakens the decision-making behaviour of the incumbent and causes the incumbent to obtain the lowest profit, but at the same time, the competitiveness of the entrant is enhanced to a certain extent, thereby rendering its profit higher than that in the NN (nonstrategic firm facing nonstrategic consumers) decision-making mode.

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