1. Why is Platform Pricing Generally Highly Skewed?
- Author
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Schmalensee, Richard
- Subjects
PROFIT ,PRICING ,ECONOMIC demand ,FINANCE ,PRICES - Abstract
Bolt and Tieman (2008) suggested the prevalence of profit function non-concavity may account for the widespread use of skewed pricing by two-sided platform businesses. In both the Rochet-Tirole (2003) and Armstrong (2006) models, however, skewed pricing may simply reflect substantial differences between side-specific demand functions; non-concavity is not necessary. In the Rochet-Tirole (2003) model, ubiquitous high pass-through rates, which seem implausible, are required for non-concavity to be prevalent. In the Armstrong (2006) model, non-concavity is not sufficient for skewed pricing. In both models, non-concavity is associated with strong indirect network effects; in the Armstrong (2006) model, such effects are also associated with dynamic instability. [ABSTRACT FROM AUTHOR] more...
- Published
- 2011
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