“Platform Competition in Multi-sided Markets” by Dr. Junjie Zhou
Shanghai University of Finance and Economics
University of Southern California
This paper provides a general model of platform competition allowing for more than two platforms, more than two sides/groups and discrete choices of agents. Platform providers simultaneously choose their prices first, followed by agents simultaneously deciding which platform to participate/join. We develop analytical tools to analyze this general model (existence and uniqueness of participation equilibrium and comparative statics). In the symmetric model under full market coverage, we derive a simple equilibrium pricing rule: price equals cost plus product differentiation effect minus cross subsidies. Group-specific price accounts for different degree of total externalities of a group on all the other groups. Both product differentiation effect and cross subsidies are decreasing in the number of platforms. The net effect depends on the degree of product differentiation and the size of externalities. Furthermore, we provide comparative static analysis with respect to number of sides, number of platforms and different noise distributions. Last, we compare uniform pricing with discriminatory pricing, and also explore impact of outside options by releasing full market coverage assumption.