The Effects of Competition and Entry in Multi-sided Markets

Abstract

Abstract We study price competition and entry of platforms in multi-sided markets. Utilizing the simplicity of the equilibrium pricing formula in our setting with heterogeneity of customers’ membership benefits, we demonstrate that in the presence of externalities, the standard effects of competition can be reversed: as platform competition increases, prices, and platform profits can go up and consumer surplus can go down. We identify economic forces that jointly determine the social inefficiency of the free-entry equilibrium and provide conditions under which free entry is socially excessive as well as an example in which free entry is socially insufficient.

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 84 citations exist upstream.

Papers that cite the same references — the relational fallback while embeddings are still backfilling.