Asymmetric Network Effects

34 Pages Posted: 21 Nov 2008 Last revised: 4 Sep 2014

See all articles by Estelle Cantillon

Estelle Cantillon

Free University of Brussels (VUB/ULB) - ECARES; Centre for Economic Policy Research (CEPR)

Pai-Ling Yin

Marshall School of Business, University of Southern California

Date Written: March 27, 2009

Abstract

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.

Keywords: derivatives exchange, network effects, heterogeneity, entry

JEL Classification: L1, G15

Suggested Citation

Cantillon, Estelle and Yin, Pai-Ling, Asymmetric Network Effects (March 27, 2009). NET Institute Working Paper No. 08-42. Available at SSRN: https://ssrn.com/abstract=1303624 or http://dx.doi.org/10.2139/ssrn.1303624

Estelle Cantillon

Free University of Brussels (VUB/ULB) - ECARES ( email )

Ave. Franklin D Roosevelt, 50 - C.P. 114
B-1050 Brussels
Belgium
+32 2 650 3840 (Phone)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Pai-Ling Yin (Contact Author)

Marshall School of Business, University of Southern California ( email )

United States

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