On the Receiver Pays Principle

Multi-sided platform markets have two or more different groups of customers that businesses have to get and keep on board to succeed. These industries range from dating clubs (men and women), to video game consoles (game developers and users), to payment cards (cardholders and merchants), to operating system software (application developers and users). They include some of the most important industries in the economy. A survey of businesses in these industries shows that multi-sided platform businesses devise entry strategies to get multiple sides of the market on board and devise pricing, product, and other competitive strategies to keep multiple customer groups on a common platform that internalizes externalities across members of these groups. IntroductionMulti-sided platforms coordinate the demand of distinct groups of customers who need each other in some way. Dating clubs, for example, enable men and women to meet each other; yellow pages provide a way for buyers and sellers to find each other; and computer operating system vendors provide software that applications users, applications developers, and hardware providers can use together. When devising pricing and investment strategies, multi-sided platforms must account for interactions between the demands of multiple groups of customers. In theory, the optimal price to customers on one side of the platform is not based on a markup formula such as that given by the Lerner condition, and price does not track marginal cost. Competition among platforms takes place when seemingly distinct customer groups are connected through interdependent demand and a platform that, acting as an intermediary, internalizes the resulting indirect network externalities (Rochet and Tirole, 2003). Platforms are central to many key industries including computer games, information technology, many internet-based industries, media, mobile telephony and other telecommunications industries, and payment systems.

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“…As a consequence, the choice of termination charge is not neutral. See Jeon, et al (2001) for more detail. (Wong, 1998).…”

Section: Getting Both Sides On Boardmentioning

confidence: 99%

Some Empirical Aspects of Multi-sided Platform Industries

Evans¹

2003

Review of Network Economics

439

258

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“…In this paper we have shown that the stark prediction in Jeon et al (2004) of a strategic connectivity breakdown under RPP (receiving party pays, i.e. subscribers also pay for receiving calls) and discrimination between on-and o¤-net prices does not hold up once more than two networks are considered in the model.…”

Section: Discussionmentioning

confidence: 97%

Going Beyond Duopoly: Connectivity Breakdowns Under Receiving Party Pays

Hoernig¹

2014

SSRN Journal

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We show that the prediction of strategic connectivity breakdowns under a receiving-party-pays system and discrimination between onand o¤-net prices does not hold up once more than two mobile networks are considered. Indeed, if there are at least three competing networks and enough utility is obtained from receiving calls, only equilibria with …nite call prices and receiving prices exist. Private negotiations over access charges then achieve the e¢ cient outcome. Bill & keep (zero access charges) and free outgoing and incoming calls are e¢ cient if and only marginal costs of calls are zero.

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“…For our purposes we need to extend our theoretical model in all three directions simultaneously. The general model will be constructed as follows: (i) to consider an arbitrary number of networks and imperfect competition we will use the Logit model, (ii) to introduce asymmetries in market shares we will allow for a brand loyalty parameter (as in Wright [1999, 2003]), (iii) …nally, we will introduce call externality by assuming that receivers obtain utility from receiving a call, as in Jeon et al (2004), Berger (2004Berger ( , 2005, and López (2011).…”

Section: The Modelmentioning

confidence: 99%