Cornière, Alexandre de, Mantovani, Andrea and Shekhar, Shiva (2023) Third-Degree Price Discrimination in Two-Sided Markets. TSE Working Paper, n. 23-1464, Toulouse

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We investigate the welfare effects of third-degree price discrimination by a two-sided platform that enables interaction between buyers and sellers. Sellers are heterogenous with respect to their per-interaction benefit, and, under price discrimination, the platform can condition its fee on sellers’ type. In a model with linear demand on each side, we show that price discrimination: (i) increases participation on both sides; (ii) enhances total welfare; (iii) may result in a strict Pareto improvement, with both seller types being better-off than under uniform pricing. These results, which are in stark contrast to the traditional analysis of price discrimination, are driven by the existence of cross-group network effects. By improving the firm’s ability to monetize seller participation, price discrimination induces the platform to attract more buyers, which then increases seller participation. The Pareto improvement result means that even those sellers who pay a higher price under discrimination can be better-off, due to the increased buyer participation.

Item Type: Monograph (Working Paper)
Language: English
Date: August 2023
Place of Publication: Toulouse
Uncontrolled Keywords: Two-sided Markets, Price Discrimination, Network Effects
JEL Classification: D42 - Monopoly
D62 - Externalities
L11 - Production, Pricing, and Market Structure; Size Distribution of Firms
L12 - Monopoly; Monopolization Strategies
Divisions: TSE-R (Toulouse)
Institution: Université Toulouse Capitole
Site: UT1
Date Deposited: 15 Sep 2023 14:29
Last Modified: 16 Feb 2024 14:56
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