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Vertical product differentiation and two-sided markets. (English) Zbl 1292.91070

Summary: We model platform competition in a market where products are characterized by cross network externalities. Consumers differ in their valuation of these externalities. Although the exogenous set-up is entirely symmetric, we show that platform competition induces a vertical differentiation structure that allows for the co-existence of asymmetric platforms in equilibrium. We establish this result in two set-ups: in the first one platforms commit to prices, in the second one they commit to network sizes.

MSC:

91B24 Microeconomic theory (price theory and economic markets)
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References:

[1] Gabszewicz, J.; Thisse, J., Price competition, quality and income disparities, J. Econom. Theory, 20, 340-359 (1979) · Zbl 0421.90012
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[5] Rochet, J.-C.; Tirole, J., Two-sided markets: a progress report, Rand J. Econ., 35, 3, 645-667 (2006)
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