Heavily skewed pricing in two-sided markets

Wilko Bolt*, Alexander F. Tieman

*Corresponding author for this work

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

A common feature in two-sided markets is the prevalence of heavily skewed pricing strategies in which price markups are much higher on one side of the market than the other. We show that maximal skewed pricing is profit maximizing under constant elasticity of demand. The most elastic side of the market is used to generate maximum demand by providing it with platform services at the lowest possible price. Full participation of the high-elasticity, low-price side of the market attracts the other side. As this side is less price elastic, the platform is able to extract high prices.

Original languageEnglish
Pages (from-to)1250-1255
Number of pages6
JournalInternational Journal of Industrial Organization
Volume26
Issue number5
DOIs
Publication statusPublished - Sep 2008

Keywords

  • Corner solution
  • G21
  • L10
  • L41
  • Skewed pricing
  • Two-sided markets

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