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 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)

Pricing Strategies of Unbundling and Mixed-Bundling in a Two-Sided Market Under Stochastic Demand

2020 ◽  
Vol 37 (03) ◽  
pp. 2050016
Author(s):  
Xiaogang Lin ◽  
Yong-Wu Zhou ◽  
Qiang Lin
Keyword(s):  
Stochastic Demand ◽  
Sharp Contrast ◽  
The Other ◽  
Network Effect ◽  
Pricing Strategy ◽  
Pricing Strategies ◽  
Royalty Rate ◽  
Mixed Bundling ◽  
The Impact ◽  
Two Sided Markets

We investigate the pricing strategies of unbundling and mixed-bundling for a firm that produces both a product and a compatible integrated content, respectively. The firm can be viewed as a two-sided transaction platform between sellers and customers, and decides whether to sell the product and the integrated content separately or jointly. Sellers develop independent content and are charged a per-unit royalty rate for each transaction on the platform, and customers are required to pay the prices for the product and the contents. With the consideration of stochastic demand, we study the impacts of cross-side network effect on the pricing strategies of unbundling and mixed-bundling, respectively. Moreover, we compare the impact of unbundling and mixed-bundling on the pricing strategy of the platform. Compared with no cross-side network effect, we show that the firm (with unbundling and mixed-bundling) need not subsidize customers and sellers in the presence of the effect under certain conditions, indicating that it can extract the most surplus from both sides to maximize the profit. This stands in sharp contrast to the finding of the literature on two-sided markets that the platform should subsidize one side of the market in order to make profit from the other side. Moreover, our result suggests that mixed-bundling can help the firm make more profit with fewer products by subsidizing one side of the market compared with the unbundling.

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.

Understanding & Serving Readers: The Problem of Fuzzy Market Structure

1993 ◽  
Vol 14 (2) ◽  
pp. 55-67 ◽  
Author(s):  
Stephen Lacy
Keyword(s):  
Market Structure ◽  
Market Structures

Newspapers exist in markets that are difficult to define and serve. Market structures are beyond their control, but not beyond their understanding – and their survival will depend on how well newspapers understand.

Economics of Immediate Gratification in Mobile Commerce

2011 ◽  
pp. 206-226
Author(s):  
Kerem Tomak
Keyword(s):  
Behavioral Economics ◽  
Network Externalities ◽  
Hyperbolic Discounting ◽  
Mobile Commerce ◽  
Low Levels ◽  
Profit Maximizing ◽  
The Impact ◽  
Second Period ◽  
Exponential Discounting

In this chapter we attempt to build a bridge between mobile commerce and the emerging field of behavioral economics. We first provide examples from mobile commerce and link them to behavioral economics. We then build a stylized model to assess the impact of hyperbolic discounting on the profit-maximizing behavior of a monopolist firm. We find that the monopolist makes lower profits compared to exponential discounting consumers for low levels of (positive) network externalities. As the network externalities increase, first-period prices increase, second period prices decrease and the profits increase in equilibrium.

scholarly journals Morphology, Modes of Behavior, and Measures of Market Power: A Framework for Evaluating the Impact of Industrialization of Southern Agriculture on Markets and Market Structure

1970 ◽  
Vol 2 (1) ◽  
pp. 41-45
Author(s):  
Richard A. King
Keyword(s):  
Market Structure ◽  
Market Power ◽  
Empirical Analysis ◽  
Present State ◽  
Model Building ◽  
The Other ◽  
Agricultural Industrialization ◽  
The Arts ◽  
New Ideas ◽  
The Impact

In spite of the volume of literature produced over the years reflecting concern over the present state of the arts, the situation is likely to continue. However, there are several new ideas that offer some promise for improving our understanding and ability to project new relationships in the agribusiness sector of the Southern region.Although the title of this article implies a one-way set of forces working from agricultural industrialization to market structure, some of our colleagues regard this relationship as a two way process with forces at work in each sector having strong impacts on the other. It is these interdependencies that make the task of model building so difficult and empirical analysis so complex.

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