Competition in Multi-sided Markets: Divide and Conquer

Jullien, Bruno

doi:10.1257/mic.3.4.186

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American Economic Journal: Microeconomics: Vol. 3 No. 4 (November 2011)

AEJ: Micro Volume. 3, Issue 4 | left

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Competition in Multi-sided Markets: Divide and Conquer

Article Citation

Jullien, Bruno. 2011. "Competition in Multi-sided Markets: Divide and Conquer." American Economic Journal: Microeconomics, 3(4): 186-220.

DOI: 10.1257/mic.3.4.186

Abstract

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, shedding light 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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Authors

Jullien, Bruno (Toulouse School of Economics)

JEL Classifications

D43: Market Structure and Pricing: Oligopoly and Other Forms of Market Imperfection
D85: Network Formation and Analysis: Theory

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