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Asymmetric Networks in Two-Sided Markets

Asymmetric Networks in Two-Sided Markets Abstract This paper investigates pricing decisions and network choices in two-sided markets with network externalities. Consumers are heterogeneous in how much they value the externality. Imposing restrictions on the extent of coordination failure among consumers generates clear qualitative conclusions about equilibrium market configurations. Multiple asymmetric networks can coexist in equilibrium, both in the case of a monopolist network provider and in the case of competing providers. These equilibria have the property that one network is cheaper and larger on one side, while the other network is cheaper and larger on the other side. Product differentiation is endogenized by consumers' network choices. (JEL D85 , L12 , L13 , L14 , D42 , D43 ) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal: Microeconomics American Economic Association

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Publisher
American Economic Association
Copyright
Copyright © 2009 by the American Economic Association
Subject
Articles
ISSN
1945-7685
eISSN
1945-7685
DOI
10.1257/mic.1.1.17
Publisher site
See Article on Publisher Site

Abstract

Abstract This paper investigates pricing decisions and network choices in two-sided markets with network externalities. Consumers are heterogeneous in how much they value the externality. Imposing restrictions on the extent of coordination failure among consumers generates clear qualitative conclusions about equilibrium market configurations. Multiple asymmetric networks can coexist in equilibrium, both in the case of a monopolist network provider and in the case of competing providers. These equilibria have the property that one network is cheaper and larger on one side, while the other network is cheaper and larger on the other side. Product differentiation is endogenized by consumers' network choices. (JEL D85 , L12 , L13 , L14 , D42 , D43 )

Journal

American Economic Journal: MicroeconomicsAmerican Economic Association

Published: Feb 1, 2009

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