Why is Platform Pricing Generally Highly Skewed?

11 Pages Posted: 6 Apr 2011

See all articles by Richard Schmalensee

Richard Schmalensee

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Date Written: April 4, 2011

Abstract

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

Schmalensee, Richard, Why is Platform Pricing Generally Highly Skewed? (April 4, 2011). Available at SSRN: https://ssrn.com/abstract=1802838 or http://dx.doi.org/10.2139/ssrn.1802838

Richard Schmalensee (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

Room E62-525
Cambridge, MA 02142
United States
617-253-2957 (Phone)
617-258-6617 (Fax)

Register to save articles to
your library

Register

Paper statistics

Downloads
127
Abstract Views
666
rank
220,431
PlumX Metrics