Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/129545
Authors: 
Peitz, Martin
Rady, Sven
Trepper, Piers
Year of Publication: 
2013
Series/Report no.: 
Working Paper Series, Department of Economics, University of Mannheim 13-03
Abstract: 
We study optimal experimentation by a monopolistic platform in a two-sided mar- ket. The platform provider faces uncertainty about the strength of the externality each side is exerting on the other. It maximizes the expected present value of its profit stream in a continuous-time infinite-horizon framework by setting participation fees or quantities on both sides. We show that a price-setting platform provider sets a fee lower than the myopically optimal level on at least one side of the market, and on both sides if the two sides are approximately symmetric. If the externality that one side exerts is sufficiently well known and weaker than the externality it experiences, the optimal fee on this side exceeds the myopically optimal level. We obtain analogous results for expected prices when the platform provider chooses quantities. While the optimal pol- icy does not admit closed-form representations in general, we identify special cases in which the undiscounted limit of the model can be solved in closed form.
Subjects: 
Two-Sided Market
Network Effects
Monopoly Experimentation
Bayesian Learning
Optimal Control
JEL: 
D42
D83
L12
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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