Second-Degree Price Discrimination by a Two-Sided Monopoly Platform

Abstract

We study second-degree price discrimination by a two-sided monopoly platform. The incentive constraints of the agents on the value creation side may be in conflict with internalizing externalities on the value capture side, which may render pooling optimal. Even without such conflict between the two sides, pooling may be optimal due to type-dependent Spence effects when the preferences of the marginal agents diverge from those of the average agents on the value capture side. We perform a welfare analysis of price discrimination and show that prohibiting price discrimination improves welfare when there is a strong conflict between the two sides. (JEL D42, D62, D82, L12, L82)

Two-sided markets, pricing, and network effects

“…102 . For models of price discrimination in two-sided markets, see Halaburda and Yehezkel (2013), Reisinger (2014), Gomes and Pavan (2016), and Jeon, Kim, and Menicucci (2021.…”

Evolutionary game analysis of data sharing among large and medium-sized enterprises in the perspective of platform empowerment

“…According to the Market Failure Model, the market mechanism may sometimes fail to achieve the effective allocation of resources, necessitating government intervention to correct market failures 47 . For SMEs, they often struggle to secure sufficient resources for digital activities through the market mechanism due to constraints in capital, technology, and market access 48 . Although large enterprises have strong comprehensive strength, they are generally reluctant to share data with SMEs because doing so can increase their costs and potentially undermine their competitiveness.…”

Platform competition and price discrimination

“…However, it primarily incorporates insights from the standard literature of two-sided markets that examine pricing decisions in the presence of indirect network effects (Armstrong, 2006;Rochet & Tirole, 2003). Much of the two-sided market literature examine price discrimination on a monopoly platform (Böhme, 2016;Jeon et al, 2022;Lin, 2020;Liu & Serfes, 2013;Sato, 2019). In contrast we study the pricing and non-pricing decision of an incumbent platform that faces competition from an Entrant.…”

“…Reisinger (2014) also characterises a unique symmetric equilibrium in the presence of user heterogeneity with respect to membership and interaction values. Jeon et al (2022) study second degree price discrimination in the context of a monopoly platform, where one side of users negatively value the participation of users on the other side. They specifically consider an example of a newspaper platform that connects readers and advertisers.…”