Competition in Two-sided Platform Markets with Direct Network Effect
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In light of recent trends in social networking services that encourage users of platforms to “share,” “recommend,” and “do activities” with others, this work analyzes platform competition in two-sided markets that exhibit direct (or within-) network effect in addition to conven- tional cross-network effect. Introduction of direct network effect to one group (buyer-side) in a two-sided market generates two counter- acting effects: demand-augmenting effect and demand-sensitizing effect. The former allows platforms to raise buyer-side price, thereby incre- asing the sum of prices charged to buyers and sellers, whereas the latter causes platforms to lower them. I show that demand-augmenting effect dominates demand-sensitizing effect under the monopoly plat- form, whereas introducing competition between platforms under suf- ficient direct network effect relatively strengthens the demand- sensitizing effect, which lowers the price charged to buyers.
Abstract
In light of recent trends in social networking services that encourage users of platforms to “share,” “recommend,” and “do activities” with others, this work analyzes platform competition in two-sided markets that exhibit direct (or within-) network effect in addition to conven- tional cross-network effect. Introduction of direct network effect to one group (buyer-side) in a two-sided market generates two counter- acting effects: demand-augmenting effect and demand-sensitizing effect. The former allows platforms to raise buyer-side price, thereby incre- asing the sum of prices charged to buyers and sellers, whereas the latter causes platforms to lower them. I show that demand-augmenting effect dominates demand-sensitizing effect under the monopoly plat- form, whereas introducing competition between platforms under suf- ficient direct network effect relatively strengthens the demand- sensitizing effect, which lowers the price charged to buyers.
참고문헌 (15)
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