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Pricing and commitment by two‐sided platforms
Author(s) -
Hagiu Andrei
Publication year - 2006
Publication title -
the rand journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.687
H-Index - 108
eISSN - 1756-2171
pISSN - 0741-6261
DOI - 10.1111/j.1756-2171.2006.tb00039.x
Subject(s) - commit , bottleneck , microeconomics , monopoly , business , multihoming , commerce , industrial organization , economics , computer science , the internet , database , operations management , internet protocol , world wide web
I study pricing and commitment by platforms in two‐sided markets with the following characteristics: (i) platforms are essential bottleneck inputs for buyers and sellers transacting with each other; (ii) sellers arrive before buyers; and (iii) platforms can charge both fixed fees and variable fees (royalties). I show that a monopoly platform may prefer not to commit to the price it will charge buyers at the same time it announces its seller price if it faces unfavorable seller expectations. With competing platforms, commitment makes the existence of an exclusive equilibrium (in which sellers register with only one platform) less likely, but it has no impact on multi‐homing equilibria (in which sellers support both platforms) whenever these exist.