Price Competition in Two-Sided Markets with Heterogeneous Consumers and Network Effects

Abstract The objective of our approach is to develop a model that captures horizontal product differentiation under environmental awareness with price competition whereby environmentally friendly products are costlier to produce. As an example, we refer to automobile producers offering cars with a gasoline-powered engine and one with a natural gas-powered engine. The network of petrol stations provides the complementary good. We use a two-stage game in prices and characteristics to analyse the market structure. In order to find out whether a private decision on the type of engine coincides with a socially optimal product differentiation, we determine the position of the two types of engine by a welfaremaximizing authority.

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Competition in Multi-Sided Markets: Divide and Conquer

American Economic Journal Microeconomics ◽

10.1257/mic.3.4.186 ◽

2011 ◽

Vol 3 (4) ◽

pp. 186-219 ◽

Cited By ~ 52

Author(s):

Bruno Jullien

Keyword(s):

Price Discrimination ◽

Price Competition ◽

Selection Criteria ◽

Network Effects ◽

Divide And Conquer ◽

Coordination Failure ◽

Strategic Choices ◽

Market Shares

This paper studies Stackelberg price competition in a multi-sided market. The second-mover can engage in divide-and-conquer strategies, which involve cross-subsidies between sides. The paper recovers bounds on profits, and refines the results with a selection criteria whereby consumers resolve coordination failure in favor of a focal platform. It then analyzes perfect price discrimination with network effects, and two-sided market, sheding lights on inefficiencies and strategic choices by platforms. A leading platform may refrain from selling to some side in order to soften competition, it tends to favor excessively balanced market shares and may prefer compatibility to reduce price competition. (JEL D43, D85)

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The "Waterbed" Effect and Price Regulation

Review of Network Economics ◽

10.2202/1446-9022.1155 ◽

2008 ◽

Vol 7 (3) ◽

Cited By ~ 13

Author(s):

Aaron Schiff

Keyword(s):

Price Competition ◽

Welfare Analysis ◽

Nonlinear Pricing ◽

Price Regulation ◽

Market Definition ◽

Price Cap ◽

Marginal Costs ◽

Multiproduct Firm ◽

Mobile Termination ◽

Two Sided Markets

This paper investigates conditions that generate the so-called "waterbed" effect under price regulation. This is the effect whereby regulation of one price of a multiproduct firm causes one or more of its unregulated prices to change as a result of the firm's profit-maximizing behavior. A waterbed effect is shown to arise when demands and/or marginal costs are interdependent, firms use nonlinear pricing, or there is a zero-profit constraint or global price cap. Some implications for market definition, welfare analysis of regulation, non-price competition, collusion and two-sided markets are also discussed, as well as specific applications to fixed-to-mobile termination and bank overcharges.

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