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Platform pricing redux

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  • Daniel G. Arce

Abstract

Platforms such as Airbnb, Amazon, Apple iOS, eBay, Microsoft Windows, and Uber are ubiquitous. The two‐sided nature of platform markets, however, requires a reconsideration of the conditions for profit maximization and understanding of how platforms operate. Profit‐maximization in two‐sided markets is characterized as an intuitive extension of the inverse elasticity pricing rule (Lerner index). This is further expressed in terms of the participants' primitives: users' reservation values and the platform's marginal cost. Differences between one‐ and two‐sided markets are demonstrated and discussed.

Suggested Citation

  • Daniel G. Arce, 2020. "Platform pricing redux," Southern Economic Journal, John Wiley & Sons, vol. 87(2), pages 732-740, October.
    • Handle: RePEc:wly:soecon:v:87:y:2020:i:2:p:732-740
    DOI: 10.1002/soej.12462
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    References listed on IDEAS

    as
    1. Gawer, Annabelle, 2014. "Bridging differing perspectives on technological platforms: Toward an integrative framework," Research Policy, Elsevier, vol. 43(7), pages 1239-1249.
    2. Schmalensee Richard, 2011. "Why is Platform Pricing Generally Highly Skewed?," Review of Network Economics, De Gruyter, vol. 10(4), pages 1-13, December.
    3. A. Michael Spence, 1975. "Monopoly, Quality, and Regulation," Bell Journal of Economics, The RAND Corporation, vol. 6(2), pages 417-429, Autumn.
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