A Search-Matching Model of the Two-Sided Platforms

28 Pages Posted: 23 Sep 2009 Last revised: 30 Oct 2009

See all articles by Kong-Pin Chen

Kong-Pin Chen

Academia Sinica - Research Center for Humanities and Social Sciences; National Taiwan University - Department of Economics

Yen-Chi Huang

National Central University at Taiwan

Date Written: September 15, 2009

Abstract

Based on the frictional matching framework, the paper provides a theoretical model for the two-sided platform in which the number of participants on both sides of the platform and the source of network externalities are endogenously determined. The platform is shown to exhibit both positive cross-group and negative within-group networks externalities. Moreover, unlike the previous literature, a participant's utility is bounded, even if the number of participants on the other side of the platform goes to infinity. The optimal prices of the platform owner are shown to depend not only on the cost of providing service and the benefits of the participants, but also on how a new entrant (either a buyer or a seller) affects the matching probability. Because of the existence of the negative externalities, the platform never subsidizes the sellers.

Keywords: two-sided platform, search, matching, pricing, network externalities

JEL Classification: D21, D44, D83, L1

Suggested Citation

Chen, Kong-Pin and Huang, Yen-Chi, A Search-Matching Model of the Two-Sided Platforms (September 15, 2009). Available at SSRN: https://ssrn.com/abstract=1477203 or http://dx.doi.org/10.2139/ssrn.1477203

Kong-Pin Chen (Contact Author)

Academia Sinica - Research Center for Humanities and Social Sciences ( email )

RCHSS
Academia Sinica
Nankang, Taipei, 11529
Taiwan
886 2 2789 8160 (Phone)
886 2 2785 4160 (Fax)

HOME PAGE: http://idv.sinica.edu.tw/kongpin/

National Taiwan University - Department of Economics

21 Hsiu Chow Rd
Taipei, 10020
Taiwan

Yen-Chi Huang

National Central University at Taiwan ( email )

No. 300, Zhongda Road
Chung-Li Taiwan, 32054
Taiwan

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