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A Price Theory of Multi-Sided Platforms

E. Glen Weyl

Microsoft Research New England; University of Chicago

October 6, 2009

American Economic Review, Forthcoming

I develop a general theory of monopoly pricing of networks. Platforms use insulating tariffs to avoid coordination failure, implementing any desired allocation. Profit-maximization distorts in the spirit of Spence (1975) by internalizing only network externalities to marginal users. Thus the empirical and prescriptive content of the popular Rochet and Tirole (2006) model of two-sided markets turns on the nature of user heterogeneity. I propose a more plausible, yet equally tractable, model of heterogeneity in which users differ in their income or scale. My approach provides a general measure of market power and helps predict the effects of price regulation and mergers.

Number of Pages in PDF File: 40

Keywords: two-sided markets, monopoly quality choice, network effects, multi-product monopoly pricing

JEL Classification: D42, D62, L11, L12, L15, L40, L50

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Date posted: January 8, 2009 ; Last revised: September 5, 2012

Suggested Citation

Weyl, E. Glen, A Price Theory of Multi-Sided Platforms (October 6, 2009). American Economic Review, Forthcoming. Available at SSRN: http://ssrn.com/abstract=1324415

Contact Information

Eric Glen Weyl (Contact Author)
Microsoft Research New England ( email )
One Memorial Drive, 14th Floor
Cambridge, MA 02142
United States
(857) 998-4513 (Phone)
HOME PAGE: http://www.glenweyl.com
University of Chicago ( email )
1126 East 59th Street
Chicago, IL 60637
United States
(773) 702-4862 (Phone)
(773) 702-8490 (Fax)
HOME PAGE: http://www.glenweyl.com
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