Asymmetric Network Effects
Free University of Brussels (VUB/ULB) - ECARES; Centre for Economic Policy Research (CEPR)
Massachusetts Institute of Technology (MIT) - Sloan School of Management
March 27, 2009
NET Institute Working Paper No. 08-42
When platforms compete for consumers, two types of consumer heterogeneity will matter: consumers value the presence of other consumers on a platform differently, and consumers contribute to the value of the platform differently. The optimal discriminatory pricing policy for platforms will depend on whether those two dimensions of consumer heterogeneity are positively or negatively correlated, which is an empirical question. In a companion paper (Cantillon & Yin, 2008), we study membership decisions of trading firms for two competing exchanges: LIFFE and DTB. Our analysis shows that different traders care about liquidity differently. In this paper, we estimate the heterogeneous contribution to liquidity by different types. We combine the estimates from both papers of heterogeneous preferences and contributions to liquidity.
Number of Pages in PDF File: 34
Keywords: derivatives exchange, network effects, heterogeneity, entry
JEL Classification: L1, G15working papers series
Date posted: November 21, 2008 ; Last revised: March 30, 2009
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