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Title:Two-sided markets with pecuniary and participation externalities PDF Logo
Authors:Schmidtke, Richard
Issue Date:2006
Series/Report no.:CESifo working paper 1776
Abstract:The existing literature on two-sided markets addresses participation externalities, but so far it has neglected pecuniary externalities between competing platforms. In this paper we build a model that incorporates both externalities. In our setup differentiated platforms compete in advertising and offer consumers a service free of charge (such as a TV program) that is financed through advertising. We show that advertising can exhibit the properties of a strategic substitute or complement. Surprisingly, there exist cases in which platforms benefit from market entry. Moreover, we show that from a welfare point of view perfect competition is not always desirable.
JEL:D43
L13
L82
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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