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Insulated Platform Competition

Alexander White

Tsinghua University - School of Economics & Management

E. Glen Weyl

Microsoft Research New England; University of Chicago

May 5, 2015

NET Institute Working Paper No. 10-17

Platforms often charge low prices until they have built up a "critical mass" to smooth user coordination. Such "insulating tariffs" dampen the ability of one platform to undermine another's market position through aggressive competition, thereby increasing equilibrium profits and excessive entry. We propose a general static model incorporating such realistic pricing and show how it improves the tractability of platforms' optimization problems, allowing us to analyze richer user heterogeneity. We illustrate this by characterizing the impact of competition on the social efficiency of network effect provision in stylized but calibrated models of the US video game and newspaper industries.

The appendices for this paper are available at the following URL: http://ssrn.com/abstract=2601836

Number of Pages in PDF File: 51

Keywords: Two-Sided Markets, Platform Competition, Insulating Tariffs, Spence Distortion, Excessive Entry, User Coordination, Dominant Strategy Implementation

JEL Classification: D21, D43, D85, L13

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Date posted: October 20, 2010 ; Last revised: May 15, 2015

Suggested Citation

White, Alexander and Weyl, E. Glen, Insulated Platform Competition (May 5, 2015). NET Institute Working Paper No. 10-17. Available at SSRN: http://ssrn.com/abstract=1694317 or http://dx.doi.org/10.2139/ssrn.1694317

Contact Information

Alexander White (Contact Author)
Tsinghua University - School of Economics & Management ( email )
Mailbox A-44
Weilun Building
Beijing, 100084
HOME PAGE: http://alex-white.net
Eric Glen Weyl
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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