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Competition in Two-sided Platform Markets with Direct Network Effect
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- Authors
- Issue Date
- 2016-08-07
- Citation
- Seoul Journal of Economics, Vol.29 No.3, pp. 331-377
- Abstract
- In light of recent trends in social networking services that encourage users of platforms to share, recommend, and do activities with others, this work analyzes platform competition in two-sided markets that exhibit direct (or within-) network effect in addition to conventional cross-network effect. Introduction of direct network effect to one group (buyer-side) in a two-sided market generates two counteracting effects: demand-augmenting effect and demand-sensitizing effect.
The former allows platforms to raise buyer-side price, thereby increasing the sum of prices charged to buyers and sellers, whereas the latter causes platforms to lower them. I show that demand-augmenting effect dominates demand-sensitizing effect under the monopoly platform, whereas introducing competition between platforms under sufficient direct network effect relatively strengthens the demandsensitizing effect, which lowers the price charged to buyers.
- ISSN
- 1225-0279
- Language
- English
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