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Second-Degree Price Discrimination by a Two-Sided Monopoly Platform

Author

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  • Doh-Shin Jeon
  • Byung-Cheol Kim
  • Domenico Menicucci
Abstract
We study second-degree price discrimination by a two-sided monopoly platform. The incentive constraints of the agents on the value creation side may be in conflict with internalizing externalities on the value capture side, which may render pooling optimal. Even without such conflict between the two sides, pooling may be optimal due to type-dependent Spence effects when the preferences of the marginal agents diverge from those of the average agents on the value capture side. We perform a welfare analysis of price discrimination and show that prohibiting price discrimination improves welfare when there is a strong conflict between the two sides.

Suggested Citation

  • Doh-Shin Jeon & Byung-Cheol Kim & Domenico Menicucci, 2022. "Second-Degree Price Discrimination by a Two-Sided Monopoly Platform," American Economic Journal: Microeconomics, American Economic Association, vol. 14(2), pages 322-369, May.
    • Handle: RePEc:aea:aejmic:v:14:y:2022:i:2:p:322-69
    DOI: 10.1257/mic.20190369
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    References listed on IDEAS

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    1. Jeon, Doh-Shin & Menicucci, Domenico, 2008. "Money, fame and the allocation of talent: Brain drain and the institution of science," Journal of Economic Behavior & Organization, Elsevier, vol. 66(3-4), pages 558-581, June.
    2. Böhme Enrico, 2016. "Second-Degree Price Discrimination on Two-Sided Markets," Review of Network Economics, De Gruyter, vol. 15(2), pages 91-115, June.
    3. Caillaud, Bernard & Jullien, Bruno, 2003. "Chicken & Egg: Competition among Intermediation Service Providers," RAND Journal of Economics, The RAND Corporation, vol. 34(2), pages 309-328, Summer.
    4. Guesnerie, Roger & Laffont, Jean-Jacques, 1984. "A complete solution to a class of principal-agent problems with an application to the control of a self-managed firm," Journal of Public Economics, Elsevier, vol. 25(3), pages 329-369, December.
    5. Andrei Hagiu & Bruno Jullien, 2011. "Why do intermediaries divert search?," RAND Journal of Economics, RAND Corporation, vol. 42(2), pages 337-362, June.
    6. Jay Pil Choi & Doh-Shin Jeon & Byung-Cheol Kim, 2015. "Net Neutrality, Business Models, and Internet Interconnection," American Economic Journal: Microeconomics, American Economic Association, vol. 7(3), pages 104-141, August.
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    Cited by:

    1. Kohei Kawaguchi & Toshifumi Kuroda & Susumu Sato, 2021. "Merger Analysis in the App Economy: An Empirical Model of Ad-Sponsored Media," HKUST CEP Working Papers Series 202103, HKUST Center for Economic Policy.
    2. Shota Ichihashi & Byung-Cheol Kim, 2023. "Addictive Platforms," Management Science, INFORMS, vol. 69(2), pages 1127-1145, February.
    3. Renato Gomes & Alessandro Pavan, 2024. "Price customization and targeting in matching markets," RAND Journal of Economics, RAND Corporation, vol. 55(2), pages 230-265, June.
    4. Christian Bach & Robert Edwards & Christian Jaag, 2023. "Postal Platform Pricing with Limited Consumer Attention," Working Papers 202318, University of Liverpool, Department of Economics.
    5. Neaketa Chawla & Debasis Mondal, 2022. "Platform competition and price discrimination," Indian Economic Review, Springer, vol. 57(1), pages 1-21, June.
    6. E. Carroni & D. Paolini, 2019. "The business model of a streaming platform," Working Paper CRENoS 201902, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
    7. Sato, Susumu, 2019. "Freemium as optimal menu pricing," International Journal of Industrial Organization, Elsevier, vol. 63(C), pages 480-510.
    8. Martin Peitz, 2024. "The Economic Theory of Two-Sided Platforms," CRC TR 224 Discussion Paper Series crctr224_2024_584, University of Bonn and University of Mannheim, Germany.
    9. Carroni, Elias & Paolini, Dimitri, 2020. "Business models for streaming platforms: Content acquisition, advertising and users," Information Economics and Policy, Elsevier, vol. 52(C).
    10. Soo Jin Kim & Pallavi Pal, 2021. "Quality Differentiation and Optimal Pricing Strategy in Multi-Sided Markets," CESifo Working Paper Series 9267, CESifo.
    11. D’Annunzio, Anna & Russo, Antonio, 2024. "Platform Transaction Fees and Freemium Pricing," TSE Working Papers 24-1569, Toulouse School of Economics (TSE).
    12. Song Lin, 2020. "Two-Sided Price Discrimination by Media Platforms," Marketing Science, INFORMS, vol. 39(2), pages 317-338, March.
    13. Yonghong Sun, 2020. "Optimal service versioning for dating platforms," Information Technology and Management, Springer, vol. 21(4), pages 217-226, December.
    14. Zennyo, Yusuke, 2020. "Freemium competition among ad-sponsored platforms," Information Economics and Policy, Elsevier, vol. 50(C).

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    More about this item

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L82 - Industrial Organization - - Industry Studies: Services - - - Entertainment; Media

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