Why is Platform Pricing Generally Highly Skewed?
11 Pages Posted: 6 Apr 2011
Date Written: April 4, 2011
Bolt and Tieman (2008) suggested that profit function non-concavities may account for the prevalence of skewed pricing by two-sided platform businesses. In the Rochet-Tirole (2003) model, however non-concavity is not necessary for highly skewed pricing. Ubiquitous high pass-through rates are sufficient but implausible. In the Armstrong (2006) model, non-concavity is neither necessary nor sufficient for skewed pricing. In both models, non-concavity is associated with strong indirect network effects; in the Armstrong (2006) model such effects are also associated with dynamic instability. It seems most plausible that the prevalence of skewed platform pricing reflects the prevalence of substantial differences between side-specific demand functions.
Keywords: network, two-sided, pricing, skewed, stability
JEL Classification: L10
Suggested Citation: Suggested Citation