Price Discrimination in Two-Sided Markets

We examine the profitability and the welfare implications of price discrimination in two-sided markets. Platforms have information about the preferences of the agents that allows them to price discriminate within each group. The conventional wisdom from one-sided horizontally differentiated markets is that price discrimination hurts the firms and benefits consumers, prisoners' dilemma. Moreover, it is well-known that the presence of indirect externalities in two-sided markets can intensify the competition. Despite all these, we show that the possibility of price discrimination, in a two-sided market, may actually soften the competition. Therefore, the implications of price discrimination from one-sided markets may not carry over to two-sided markets. This is the case regardless of whether prices are public or private, although private prices boost profits. Our analysis also sheds light on the welfare properties of price discrimination in intermediate goods markets, such as Business-to-Business (B2B) markets

Location Decisions of Competing Platforms

There are examples of entry in two-sided markets, where first entrants occupy a 'central location' and serve agents with 'intermediate tastes', while later entrants are niche players. Why would the first entrant choose to become a 'general' platform, given that later entrants will not have enough room for differentiation, resulting in an intense price competition? This one-sided market logic may not apply in a two-sided market. A key difference in a two-sided market, stemming from the presence of cross-group network externalities, is stronger demand creation. We develop a model which can deliver the above mentioned empirical observation, when the network externalities are intermediate. On the other hand, when externalities are low, our model predicts that differentiation will be maximum, as it would be in a one-sided market. Finally, for strong externalities only one platform is active and locates at the center