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A Price Theory of Multi-Sided Platforms

E. Glen Weyl

Microsoft Research New York City; Yale University

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: https://ssrn.com/abstract=1324415

Contact Information

Eric Glen Weyl (Contact Author)
Microsoft Research New York City ( email )
641 Avenue of the Americas, 7th Floor
New York, NY 10011
United States
(857) 998-4513 (Phone)
HOME PAGE: http://www.glenweyl.com
Yale University ( email )
28 Hillhouse Ave
New Haven, CT 06520-8268
United States
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