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Citations (9)



Insulated Platform Competition

Alexander White

Tsinghua University - School of Economics & Management

E. Glen Weyl

Microsoft Research; Yale University

April 18, 2016

Does competition promote efficient platform pricing and market structures? We model imperfect platform competition using a new approach, Insulated Equilibrium (IE). Building on the observation that platforms often charge low prices to build a "critical mass", IE assumes platforms use "penetration pricing" to simplify the role of user beliefs. We show that competition’s impact on efficiency depends crucially on heterogeneity in users' valuations for network effects. The standard Flat Pricing approach (FP) cannot tractably incorporate such heterogeneity. We show that IE's sharp, general predictions are economically similar to FP's, when FP is tractable, and we show how the nature of product differentiation determines the welfare consequences of competition in calibrated models of the video game and newspaper industries.

The appendices for this paper are available at the following URL: http://ssrn.com/abstract=2601836.

Number of Pages in PDF File: 56

Keywords: platform competition, insulating tariffs, Spence distortion, user coordination, penetration pricing, excessive entry

JEL Classification: D21, D43, D85, L13

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Date posted: October 20, 2010 ; Last revised: April 19, 2016

Suggested Citation

White, Alexander and Weyl, E. Glen, Insulated Platform Competition (April 18, 2016). Available at SSRN: https://ssrn.com/abstract=1694317 or http://dx.doi.org/10.2139/ssrn.1694317

Contact Information

Alexander White (Contact Author)
Tsinghua University - School of Economics & Management ( email )
Mailbox A-44
Weilun Building
Beijing, 100084
HOME PAGE: http://alex-white.net
Eric Glen Weyl
Microsoft Research ( 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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