Literature on Two-sided markets (selective)

==seminal papers==

  • Rochet, Jean‐Charles, and Jean Tirole. “Platform competition in two‐sided markets." Journal of the european economic association 1.4 (2003): 990-1029. (link to PDF)
  • Armstrong, Mark. “Competition in two‐sided markets." The RAND Journal of Economics 37.3 (2006): 668-691. (link to PDF)
  • Rochet, Jean‐Charles, and Jean Tirole. “Two‐sided markets: a progress report." The RAND journal of economics 37.3 (2006): 645-667. (link to PDF)


  • Rysman, Marc. “The economics of two-sided markets." Journal of economic perspectives 23.3 (2009): 125-43. (link to PDF)

Collective Commitment

Date: 2016-07
By: Christian Roessler
Sandro Shelegia
Bruno Strulovici
We consider collective decisions made by agents whose preferences and power depend on past events and decisions. Faced with an inecient equilibrium and an opportunity to commit to a policy, can the agents reach an agreement on such a policy? We provide a consistency condition linking power structures in the dynamic setting and at the commitment stage. When the condition holds, commitment has no value: any agreement that may be reached at the outset coincides with the equilibrium without commitment. When the condition fails, as in the case of time-inconsistent preferences, commitment can improve outcomes. We discuss several applications.
JEL: D70 H41 C70

Monetization Strategies for Internet Companies

Date: 2016
By: Voigt, Sebastian
Many Internet service companies such as providers of two-sided markets, social networks, or online games rely on the social interaction between their user base and thus capitalize from positive network effects. For such companies, a common strategy is to offer (basic) services for free (and thereby abolish entry barrier of a one-off or recurring price) and to charge their users for premium services. Companies such as eBay, PayPal, LinkedIn, or Skype added paid services to their originally free business models, either via subscriptions, PAYG, or direct sales of virtual items. Their strategy how to make money and whom to bill however differs widely. In the Internet business, ‘monetization’ has become a frequently used buzzword for all aspects of a company’s revenue strategy which includes the decision who should be billed (e.g., for a two-sided market: seller vs. buyer vs. advertisers only), with which price model (e.g., mandatory subscription vs. optional subscriptions vs. selling virtual currency or items) and price level (e.g., differentiated between user groups), and – in case of a freemium strategy – how a new (free) user can be converted most efficiently into a paying and remunerative customer (e.g., via effective CRM measures). The overarching objective of all monetization measures is to maximize the company’s revenue and/or profit. The field of monetization offers a wide field of research opportunities. Four of these are covered in this dissertation: The Name-your-own-price model, users’ spending behavior in virtual communities, the monetization of network effects in social networks, and the legal boundaries of social network usage. As a result, this dissertation solves a series of questions currently being worked on by practitioners and uses a wide range of methods from various disciplines such as economic, psychological, and game theory.

Reimbursing Consumers’ Switching Costs in Network Industries

Date: 2016-09
By: Jiawei Chen (Department of Economics, University of California, Irvine, 3151 Social Science Plaza, Irvine, CA 92697, USA)
Michael Sacks (Department of Economics, West Virginia University, 1601 University Ave., PO Box 6025, Morgantown, WV 26506-6025, USA)
This paper investigates firms’ decisions to reimburse consumers’ switching costs in network industries. Prior literature finds that switching costs incentivize firms to harvest their locked-in consumers rather than price aggressively for market dominance, resulting in a lower market concentration. Using a dynamic duopoly model, we show that this result is reversed if firms have the option to reimburse consumers’ switching costs. In that case the larger firm offers a bigger reimbursement to switching consumers than the smaller firm does, as an additional instrument to propel itself to market dominance. Consequently, an increase in switching cost increases market concentration. Compared to the case without reimbursements, allowing firms the option to reimburse results in greater consumer welfare despite having a much higher market concentration. Consumers’ benefits from a larger network and switching cost reimbursement outweigh the higher price charged by a dominant firm.
Keywords: network goods, price discrimination, reimbursement, switching costs
JEL: L11 L13
By yinung Posted in network 已加上的標籤

Effectiveness of Paid Search Advertising: Experimental Evidence

Date: 2016-10
By: Weijia (Daisy) Dai (Lehigh University)
Michael Luca (Harvard Business School, Negotiation, Organizations & Markets Unit)
Paid search has become an increasingly common form of advertising, comprising about half of all online advertising expenditures. To shed light on the effectiveness of paid search, we design and analyze a large-scale field experiment on the review platform The experiment consists of roughly 18,000 restaurants and 24 million advertising exposures – randomly assigning paid search advertising packages to more than 7,000 restaurants for a three-month period, with randomization done at the restaurant level to assess the overall impact of advertisements. We find that advertising increases a restaurant’s Yelp page views by 25% on average. Advertising also increases the number of purchase intentions – including getting directions, browsing the restaurant’s website, and calling the restaurant – by 18%, 9%, and 13% respectively, and raises the number of reviews by 5%, suggesting that advertising also affects the number of restaurant-goers. All advertising effects drop to zero immediately after the advertising period. A back of the envelope calculation suggests that advertising would produce a positive return on average for restaurants in our sample.

Risk and punishment revisited Errors in variables and in the lab

Date: 2016-07-26
By: Christoph Engel (MPI for Research on Collective Goods, Bonn)
Oliver Kirchkamp (School of Economics and Business Administration, Friedrich-Schiller-University Jena)
We provide an example for an errors in variables problem which might be often neglected but which is quite common in lab experimental practice: In one task, attitude towards risk is measured, in another task participants behave in a way that can possibly be explained by their risk attitude. How should we deal with inconsistent behaviour in the risk task? Ignoring these observations entails two biases: An errors in variables bias and a selection bias. We argue that inconsistent observations should be exploited to address the errors in variables problem, which can easily be done within a Bayesian framework.
Keywords: Risk, lab experiment, public good, errors in variables, Bayesian inference
JEL: C91 D43 L41

A Note on Shapley Ratings in Brain Networks

Date: 2016
By: Musegaas, Marieke (Tilburg University, Center For Economic Research)
Dietzenbacher, Bas (Tilburg University, Center For Economic Research)
Borm, Peter (Tilburg University, Center For Economic Research)
We consider the problem of computing the in uence of a neuronal structure in a brain network. Abraham, Kotter, Krumnack, and Wanke (2006) computed this influence by using the Shapley value of a coalitional game corresponding to a directed network as a rating. Kotter, Reid, Krumnack, Wanke, and Sporns (2007) applied this rating to large-scale brain networks, in particular to the macaque visual cortex and the macaque prefrontal cortex. We introduce an alternative coalitional game that is more intuitive from a game theoretical point of view. We use the Shapley value of this game as an alternative rating to analyze the macaque brain networks and corroborate the findings of Kotter et al. (2007). Moreover, we show how missing information on the existence of certain connections can readily be incorporated into this game and the corresponding Shapley rating.
Keywords: brain networks; coalitional games; Shapley value
JEL: C71

Laboratory experiments on the regulation of European network industries

Date: 2016
By: Henze, B. (Tilburg University, School of Economics and Management)
The main objective of this thesis is to use economic laboratory experiments in order to evaluate the performance of regulatory schemes and market designs in addressing challenges encountered in the regulation of European network industries. Chapter 2 assesses whether regulatory holidays and Long Term Financial Transportation Rights (LTFTR) can provide a network operator with incentives for optimal network expansion. However, in the studied environment which captures essential features of gas transportation networks, neither of the two schemes generates improvements over a baseline of price cap regulation. Chapter 3 investigates whether auctions can be used to successfully implement two-part tariff Incremental Surplus Subsidy (ISS) schemes under aggregate demand uncertainty. Depending on the method used for determining the network users’ individual contributions to the subsidy, multi-unit Vickrey auctions yield promising results. Chapter 4 finally studies the effects of providing varying degrees of transparency in a duopolistic market for experience goods. Under full transparency, the two sellers are found not to maximally differentiate the quality of their products as theory would predict but to rather engage in fierce price competition at high quality levels. Moreover, even intermediate levels of transparency result in significantly higher consumer surplus and total welfare when compared to a situation without any transparency

Financial Contagion in the Laboratory: Does Network Structure Matter?

Date: 2016-06
By: John Duffy (Department of Economics, University of California-Irvine)
Aikaterini Karadimitropoulou (School of Economics, University of East Anglia)
Melanie Parravano (Business School, Newcastle University)
We design and report on laboratory experiments exploring the role of interbank network structure for the likelihood of a financial contagion. The laboratory provides us with the control necessary to precisely explore the role of different network configurations for the fragility of the financial system. Specifically, we study the likelihood of financial contagion in complete and incomplete networks of banks who are linked in terms of interbank deposits as in the model of Allen and Gale (2000). Subjects play the role of depositors who must decide whether or not to withdraw their funds from their bank. We find that financial contagions are possible under both network structures. While such contagions always occur under an incomplete interbank network structure, they are significantly less likely to occur under a complete interbank network structure where interbank linkages can effectively provide insurance against shocks to the system, and localize damage from the financial shock.
Keywords: Contagion; Networks; Experiments; Bank runs,; Interbank seposits; Financial fragility
JEL: C92 E44 G21