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NESTING VERTICAL AND HORIZONTAL DIFFERENTIATION IN TWO‐SIDED MARKETS
Author(s) -
Ribeiro Vitor Miguel,
CorreiadaSilva João,
Resende Joana
Publication year - 2016
Publication title -
bulletin of economic research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.227
H-Index - 29
eISSN - 1467-8586
pISSN - 0307-3378
DOI - 10.1111/boer.12084
Subject(s) - merge (version control) , duopoly , horizontal and vertical , market share , economics , nesting (process) , consumer market , microeconomics , quality (philosophy) , business , mathematics , computer science , marketing , physics , geometry , materials science , finance , quantum mechanics , cournot competition , metallurgy , information retrieval
We merge the two‐sided markets duopoly model of Armstrong (2006) with the nested vertical and horizontal differentiation model of Gabszewicz and Wauthy (2012), which consists of a linear city with different consumer densities on the left and on the right side of the city. In equilibrium, the high‐quality platform sells at a higher price and captures a greater market share than the low‐quality platform, despite the indifferent consumer being closer to the high‐quality platform. The difference between market shares is lower than socially optimal. A perturbation that introduces a negligible difference between the consumer density on the left and on the right side of the city may disrupt existence of equilibrium in the model of Armstrong (2006).