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Price Discrimination in Two-Sided Markets

49 Pages Posted: 19 Oct 2007 Last revised: 17 Sep 2012

Qihong Liu

University of Oklahoma - Department of Economics

Konstantinos Serfes

Drexel University - School of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: September 15, 2012

Abstract

We examine the profitability and welfare implications of targeted price discrimination in two-sided markets. First, we show that equilibrium discriminatory prices exhibit novel features relative to discriminatory prices in one-sided models and uniform prices in two-sided models. Second, we compare the profitability of perfect price discrimination, relative to uniform prices in a two-sided market. The conventional wisdom from one-sided horizontally differentiated markets is that price discrimination hurts the firms and benefits consumers, prisoners' dilemma. We show that price discrimination, in a two-sided market, may actually soften the competition. Our results suggest that the conventional advice that price discrimination is good for competition based on one-sided markets may not carry over to two-sided markets.

Keywords: Price discrimination, Two-sided markets, Indirect network externalities.

JEL Classification: D43, L13

Suggested Citation

Liu, Qihong and Serfes, Konstantinos, Price Discrimination in Two-Sided Markets (September 15, 2012). NET Institute Working Paper No. 07-25. Available at SSRN: https://ssrn.com/abstract=1022422 or http://dx.doi.org/10.2139/ssrn.1022422

Qihong Liu (Contact Author)

University of Oklahoma - Department of Economics ( email )

Norman, OK 73019-2103
United States
405-325-5846 (Phone)

HOME PAGE: http://qliu.oucreate.com

Konstantinos Serfes

Drexel University - School of Economics ( email )

3141 Chestnut St.
Philadelphia, PA 19104
United States
215-895-6816 (Phone)
215-571-4670 (Fax)

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