Price Discrimination in Two-Sided Markets
49 Pages Posted: 19 Oct 2007 Last revised: 17 Sep 2012
Date Written: September 15, 2012
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: Suggested Citation