Negative Intra-Group Externalities in Two-Sided Markets

28 Pages Posted: 29 Jan 2009

See all articles by Paul Belleflamme

Paul Belleflamme

CORE and Louvain School of Management, UCL (Université Catholique de Louvain); CESifo (Center for Economic Studies and Ifo Institute)

Eric Toulemonde

IZA Institute of Labor Economics; Facultés Universitaires Notre-Dame de la Paix (FUNDP) - Faculty of Economics, Management and Social Sciences

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Abstract

Two types of agents interact on a pre-existing free platform. Agents value positively the presence of agents of the other type but may value negatively the presence of agents of their own type. We ask whether a new platform can find fees and subsidies so as to divert agents from the existing platform and make a profit. We show that this might be impossible if intra-group negative externalities are sufficiently (but not too) strong with respect to positive inter-group externalities.

Suggested Citation

Belleflamme, Paul and Toulemonde, Eric, Negative Intra-Group Externalities in Two-Sided Markets. International Economic Review, Vol. 50, Issue 1, pp. 245-272, February 2009. Available at SSRN: https://ssrn.com/abstract=1333891 or http://dx.doi.org/10.1111/j.1468-2354.2008.00529.x

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Eric Toulemonde

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