4.0 Article

PRICE DISCRIMINATION IN TWO-SIDED MARKETS

Publisher

AOSIS

Keywords

price discrimination; two-sided market; cross-network externality; price discrimination threshold

Funding

  1. Natural Science Foundation of China [71102173]
  2. China Postdoctoral Science Foundation [2013M530890]
  3. China Postdoctoral Science Special Foundation [2014T70232]
  4. Program for the Outstanding Innovative Teams of Higher Learning Institutions of Shanxi [2015052005]
  5. Scientific Research Foundation for the Returned Overseas Chinese Scholars, Shanxi [2015-024]

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The use of a price discrimination strategy is an important tool in competition. It can hurt firms and benefit consumers in a one-sided market. However, in two-sided markets, its primary goal is to attract more agents or increase profits. Here, the performance of a second-degree price discrimination strategy in the context of duopoly two-sided platforms is analysed. Two exogenous variables, which include the discount rate and the price discrimination threshold, are used in order to examine whether the price discrimination strategy could help two-sided platforms achieve their objective, which is to maximise their market value. Three cases are considered, and we demonstrate that the price discrimination strategy cannot attract more agents and at the same time increase the profits; a lower price discrimination threshold cannot ensure larger markets shares; a higher discount rate is detrimental to the profit of a platform. However, this is good for its market shares. Moreover, discriminative pricing increases the competition.

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