No abstract

We study price discrimination strategy of an Incumbent platform that faces competition from an Entrant. We introduce heterogeneous agents on the consumer side, where buyers assign different values to the interaction benefits generated on a platform. We analyse a dominant firm equilibrium, where the incumbent platform offers two versions of its service to the consumers. The results are compared across two scenarios. The first is when sellers are allowed to multi-home and the second is when they can only join a single platform. We find that in case of multi-homing, the platform cannot charge any consumer group more than the marginal cost of the service provided to them. In the singe-homing case, the strength of indirect network effects determines the side from which platform extracts a positive surplus.