Heavily skewed pricing in two-sided markets

Wilko Bolt; Alexander F. Tieman

doi:10.1016/j.ijindorg.2007.11.003

Heavily skewed pricing in two-sided markets

Wilko Bolt^*, Alexander F. Tieman

^*Corresponding author for this work

Finance

Research output: Contribution to Journal › Article › Academic › peer-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 language	English
Pages (from-to)	1250-1255
Number of pages	6
Journal	International Journal of Industrial Organization
Volume	26
Issue number	5
DOIs	https://doi.org/10.1016/j.ijindorg.2007.11.003
Publication status	Published - Sept 2008

Keywords

Corner solution
G21
L10
L41
Skewed pricing
Two-sided markets

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

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10.1016/j.ijindorg.2007.11.003

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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.",

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AB - 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.

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KW - L10

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KW - Two-sided markets

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Heavily skewed pricing in two-sided markets

Abstract

Keywords

UN SDGs

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