Two-Sided Markets with Negative Externalities

Reisinger, Markus (December 2004): Two-Sided Markets with Negative Externalities. Discussion Papers in Economics 2004-27

Abstract

This paper analyses a two-sided market in which two platforms compete against each other. One side, the advertisers, exerts a negative externality on the ther side, the users. It is shown that if platforms can charge advertisers only, a higher degree of competition for users can lead to higher profits because competition on the advertisers' side is reduced. If platforms can charge users as well, profits might increase or decrease, the latter because of increased competition through the additional instrument of the user fee. Nevertheless the equilibrium with user fee is more efficient.

• Item Type: Paper (Discussion Paper)
• Keywords: Negative Externalities ; Price Competition ; Two-Sided Markets
• Subjects: Economics; Economics > Discussion Papers in Economics; Economics > Discussion Papers in Economics > Industrial Organization
• Dewey Classification: 300 Social sciences; 300 Social sciences > 330 Wirtschaft
• Journal of Economic Literature classification: D43, D62, L13
• Language: English