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Second-Degree Price Discrimination by a Two-Sided Monopoly Platform

50 Pages Posted: 6 Sep 2016  

Doh-Shin Jeon

Toulouse School of Economics (TSE); Centre for Economic Policy Research (CEPR)

Byung-Cheol Kim

Georgia Institute of Technology

Domenico Menicucci

Universita' degli Studi di Firenze

Date Written: September 2016

Abstract

In this article we study second-degree price discrimination by a two-sided monopoly platform. We find novel distortions that arise due to the two-sidedness of the market. They make the standard result "no distortion at top and downward distortion at bottom" not holding. They generate a new type of non-responsiveness, different from the one found by Guesnerie and Laffont (1984). We also show that the platform may mitigate or remove non-responsiveness at one side by properly designing price discrimination on the other side. These findings help to address our central question, i.e., when price discrimination on one side substitutes for or complements price discrimination on the other side. As an application, we study the optimal mechanism design for an advertising platform mediating advertisers and consumers.

Keywords: (second-degree) price discrimination, advertising, non-responsiveness, Two-sided markets, type reversal

JEL Classification: D4, D82, L5, M3

Suggested Citation

Jeon, Doh-Shin and Kim, Byung-Cheol and Menicucci, Domenico, Second-Degree Price Discrimination by a Two-Sided Monopoly Platform (September 2016). CEPR Discussion Paper No. DP11488. Available at SSRN: https://ssrn.com/abstract=2834825

Doh-Shin Jeon (Contact Author)

Toulouse School of Economics (TSE) ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Byung-Cheol Kim

Georgia Institute of Technology ( email )

Atlanta, GA 30332
United States

Domenico Menicucci

Universita' degli Studi di Firenze ( email )

via delle pandette 9
Firenze, 50127
Italy
+39-055-4374666 (Phone)
+39-055-4374913 (Fax)

HOME PAGE: http://www.dmd.unifi.it/index.php?loc=personal&id=d.menicucci

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