Pricing of Platforms in Two-Sided Markets with Heterogeneous Agents and Limited Market Size

  • Zhenhua Feng Institute of Economics Tsinghua University
  • Таосин Лиу Institute of Economics Tsinghua University
  • Владимир Мазалов Institute of Applied Mathematical Research Karelian Research Center of RAS
  • Vladimir Mazalov Institute of Applied Mathematical Research Karelian Research Center of RAS
  • Jie Zheng School of Economics and Management Tsinghua University
DOI: https://doi.org/10.17076/mgta1_5
Keywords: network externalities, monopoly and duopoly platforms, social optimum, heterogeneous agents, two-sided markets, Hotelling model

Abstract

We study a two-sided market represented by network platforms and heterogeneous agents. Our setup departs from Armstrong (2006)’s monopoly model by assuming both (1) a continuum of agents of limited size on each side of the market and (2) heterogeneous utility of agents with Hotelling specification. We show that the monopoly’s optimal pricing strategy always results in a corner solution in terms of the equilibrium market share. We also solve for the social planner’s optimization problem and obtain a similar corner solution result. In addition, the exact values for the equilibrium in the case of duopoly for a two-sided market on two platforms are obtained.

Published
2019-01-28
How to Cite
Feng, Z., Лиу, Т., Мазалов, В., Mazalov, V., & Zheng, J. (2019). Pricing of Platforms in Two-Sided Markets with Heterogeneous Agents and Limited Market Size. Mathematical Game Theory and Applications, 10(1), 83-98. https://doi.org/10.17076/mgta1_5
Issue
Vol 10 No 1 (2018): Mathematical Game Theory and Applications
Section
Статьи
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