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American Economic Review: Vol. 100 No. 4 (September 2010)

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A Price Theory of Multi-sided Platforms

Article Citation

Weyl, E Glen. 2010. "A Price Theory of Multi-sided Platforms." American Economic Review, 100(4): 1642-72.

DOI: 10.1257/aer.100.4.1642

Abstract

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 effect of price regulation and mergers. (JEL D42, D85, L14)

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Authors

Weyl, E. Glen (Harvard Society of Fellows and Toulouse School of Economics)

JEL Classifications

D42: Market Structure and Pricing: Monopoly
D85: Network Formation and Analysis: Theory
L14: Transactional Relationships; Contracts and Reputation; Networks


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