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Third-Degree Price Discrimination in Two-sided Markets

Author

Listed:
  • Alexandre De Cornière

    (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

  • Andrea Mantovani

    (TBS - Toulouse Business School)

  • Shiva Shekhar

    (TiSEM - Tilburg School of Economics and Management - Tilburg University [Netherlands])

Abstract

We investigate the welfare effects of third-degree price discrimination by a two-sided platform that enables interaction between buyers and sellers. Sellers are heterogenous with respect to their per-interaction benefit, and, under price discrimination, the platform can condition its fee on sellers' type. In a model with linear demand on each side, we show that price discrimination: (i) increases participation on both sides; (ii) enhances total welfare; (iii) may result in a strict Pareto improvement, with both seller types being better-off than under uniform pricing. These results, which are in stark contrast to the traditional analysis of price discrimination, are driven by the existence of cross-group network effects. By improving the firm's ability to monetize seller participation, price discrimination induces the platform to attract more buyers, which then increases seller participation. The Pareto improvement result means that even those sellers who pay a higher price under discrimination can be better-off, due to the increased buyer participation.

Suggested Citation

  • Alexandre De Cornière & Andrea Mantovani & Shiva Shekhar, 2025. "Third-Degree Price Discrimination in Two-sided Markets," Working Papers hal-04965903, HAL.
    • Handle: RePEc:hal:wpaper:hal-04965903
    Note: View the original document on HAL open archive server: https://hal.science/hal-04965903v1
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    References listed on IDEAS

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    1. Belleflamme,Paul & Peitz,Martin, 2021. "The Economics of Platforms," Cambridge Books, Cambridge University Press, number 9781108710749, November.
    2. Schmalensee, Richard, 1981. "Output and Welfare Implications of Monopolistic Third-Degree Price Discrimination," American Economic Review, American Economic Association, vol. 71(1), pages 242-247, March.
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    6. BELLEFLAMME, Paul, & PEITZ, Martin,, 2020. "Network goods, price discrimination, and two-sided platforms," LIDAM Discussion Papers CORE 2020024, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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    Cited by:

    1. Tetsuya Shinkai & Naoshi Doi, 2023. "Price and quality decision of a monopoly platform for transaction with shipping," Discussion Paper Series 252-2, School of Economics, Kwansei Gakuin University, revised Jul 2023.

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    More about this item

    Keywords

    Two-sided Markets; Price Discrimination; Network Effects;
    All these keywords.

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

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