American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
A Price Theory of Multi-sided Platforms
American Economic Review
vol. 100,
no. 4, September 2010
(pp. 1642–72)
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)Citation
Weyl, E Glen. 2010. "A Price Theory of Multi-sided Platforms." American Economic Review 100 (4): 1642–72. DOI: 10.1257/aer.100.4.1642Additional Materials
JEL Classification
- D42 Market Structure and Pricing: Monopoly
- D85 Network Formation and Analysis: Theory
- L14 Transactional Relationships; Contracts and Reputation; Networks