IDEAS home Printed from https://ideas.repec.org/p/ipt/decwpa/202014.html
   My bibliography  Save this paper

Two-sided platforms: dynamic pricing and multiple equilibria

Author

Listed:

Abstract

The static model of two sided markets proposed by Rochet and Tirole analyses optimal pricing of a monopolistic platform at the equilibrium point. Their framework implicitly assumes that for each prices set by the platform, the equilibrium number of users on each side will be unique. However, under general conditions, the uniqueness of market equilibrium is not guaranteed. Optimal static prices do not ensure convergence to the preferred full market outcome, as platform may face failure-to-launch or failure-to-grow problems. Hence, to study problems around multiplicity of equilibria, a different framework is required. We propose a dynamic model of monopolistic platform and demonstrate the effects of different dynamic pricing strategies for equilibrium selection and convergence. The main conclusion from the study is that emerging platform can reach the preferred equilibrium by using tariffs with subsidies for early stage users. We give examples of dynamically adjusting tariffs that minimize subsidies. Finally, the dynamic setting reveals a trade-off between the platform profits and social welfare, related to the speed of user base growth.

Suggested Citation

  • Przemyslaw Rys & Maciej Sobolewski, 2020. "Two-sided platforms: dynamic pricing and multiple equilibria," JRC Working Papers on Digital Economy 2020-14, Joint Research Centre.
    • Handle: RePEc:ipt:decwpa:202014
    as

    Download full text from publisher

    File URL: https://publications.jrc.ec.europa.eu/repository/handle/JRC123533
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Mark Armstrong, 2006. "Competition in two‐sided markets," RAND Journal of Economics, RAND Corporation, vol. 37(3), pages 668-691, September.
    2. Jean‐Charles Rochet & Jean Tirole, 2006. "Two‐sided markets: a progress report," RAND Journal of Economics, RAND Corporation, vol. 37(3), pages 645-667, September.
    3. Jean-Charles Rochet & Jean Tirole, 2003. "Platform Competition in Two-Sided Markets," Journal of the European Economic Association, MIT Press, vol. 1(4), pages 990-1029, June.
    4. Caillaud, Bernard & Jullien, Bruno, 2003. "Chicken & Egg: Competition among Intermediation Service Providers," RAND Journal of Economics, The RAND Corporation, vol. 34(2), pages 309-328, Summer.
    5. Andrei Hagiu, 2006. "Pricing and Commitment by Two-Sided Platforms," RAND Journal of Economics, The RAND Corporation, vol. 37(3), pages 720-737, Autumn.
    6. Evans David S. & Schmalensee Richard, 2010. "Failure to Launch: Critical Mass in Platform Businesses," Review of Network Economics, De Gruyter, vol. 9(4), pages 1-28, December.
    7. Andrei Hagiu, 2006. "Pricing and commitment by two‐sided platforms," RAND Journal of Economics, RAND Corporation, vol. 37(3), pages 720-737, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jullien, Bruno & Pavan, Alessandro & Rysman, Marc, 2021. "Two-sided Markets, Pricing, and Network Effects," TSE Working Papers 21-1238, Toulouse School of Economics (TSE).
    2. Carrillo, Juan D. & Tan, Guofu, 2021. "Platform competition with complementary products," International Journal of Industrial Organization, Elsevier, vol. 77(C).
    3. Jeon, Doh-Shin & Jullien, Bruno & Klimenko, Mikhail, 2021. "Language, internet and platform competition," Journal of International Economics, Elsevier, vol. 131(C).
    4. Jingtao Yi & Jinqiu He & Lihong Yang, 2019. "Platform heterogeneity, platform governance and complementors’ product performance: an empirical study of the mobile application industry," Frontiers of Business Research in China, Springer, vol. 13(1), pages 1-20, December.
    5. Anil K. Jain & Robert M. Townsend, 2021. "The economics of platforms in a Walrasian framework," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 71(3), pages 877-924, April.
    6. Liu, He & Li, Xuerong & Wang, Shouyang, 2021. "A bibliometric analysis of 30 years of platform research: Developing the research agenda for platforms, the associated technologies and social impacts," Technological Forecasting and Social Change, Elsevier, vol. 169(C).
    7. Frank Stähler & Leander Stähler, 2022. "Copyright Protection in the Digital Single Market," CESifo Working Paper Series 9597, CESifo.
    8. Jørgen Veisdal, 2020. "The dynamics of entry for digital platforms in two-sided markets: a multi-case study," Electronic Markets, Springer;IIM University of St. Gallen, vol. 30(3), pages 539-556, September.
    9. Frank Stähler & Leander Stähler, 2022. "Copyright Protection in the Digital Single Market: Potential Consequences for Content Platform Competition," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 61(1), pages 73-94, August.
    10. Carmen Leong & Silvia Lin & Felix Tan & Jie Yu, 2024. "Coordination in a Digital Platform Organization," Information Systems Research, INFORMS, vol. 35(1), pages 363-393, March.
    11. Wang, Jin, 2021. "Do birds of a feather flock together? Platform’s quality screening and end-users’ choices theory and empirical study of online trading platforms," International Journal of Industrial Organization, Elsevier, vol. 75(C).
    12. Jan Frederic Nerbel & Markus Kreutzer, 2023. "Digital platform ecosystems in flux: From proprietary digital platforms to wide-spanning ecosystems," Electronic Markets, Springer;IIM University of St. Gallen, vol. 33(1), pages 1-20, December.
    13. Jacobides, Michael G. & Cennamo, Carmelo & Gawer, Annabelle, 2024. "Externalities and complementarities in platforms and ecosystems: From structural solutions to endogenous failures," Research Policy, Elsevier, vol. 53(1).
    14. Doh-Shin Jeon & Nikrooz Nasr, 2016. "News Aggregators and Competition among Newspapers on the Internet," American Economic Journal: Microeconomics, American Economic Association, vol. 8(4), pages 91-114, November.
    15. Etro, Federico, 2023. "Platform competition with free entry of sellers," International Journal of Industrial Organization, Elsevier, vol. 89(C).
    16. Galeotti, Andrea & Moraga-González, José Luis, 2009. "Platform intermediation in a market for differentiated products," European Economic Review, Elsevier, vol. 53(4), pages 417-428, May.
    17. Rong, Ke & Sun, Hui & Li, Dun & Zhou, Di, 2021. "Matching as Service Provision of Sharing Economy Platforms: An Information Processing Perspective," Technological Forecasting and Social Change, Elsevier, vol. 171(C).
    18. Doh-Shin Jeon & Jean-Charles Rochet, 2010. "The Pricing of Academic Journals: A Two-Sided Market Perspective," American Economic Journal: Microeconomics, American Economic Association, vol. 2(2), pages 222-255, May.
    19. Jiri Chod & Nikolaos Trichakis & S. Alex Yang, 2022. "Platform Tokenization: Financing, Governance, and Moral Hazard," Management Science, INFORMS, vol. 68(9), pages 6411-6433, September.
    20. Andreas Hein & Maximilian Schreieck & Tobias Riasanow & David Soto Setzke & Manuel Wiesche & Markus Böhm & Helmut Krcmar, 2020. "Digital platform ecosystems," Electronic Markets, Springer;IIM University of St. Gallen, vol. 30(1), pages 87-98, March.

    More about this item

    Keywords

    two-sided markets; dynamic pricing; multiplicity of equilibria; dynamic system; online platforms;
    All these keywords.

    JEL classification:

    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ipt:decwpa:202014. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Publication Officer (email available below). General contact details of provider: https://edirc.repec.org/data/ipjrces.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.