Why Is Platform Pricing Generally Highly Skewed?
Name
Schmalensee -- skewed pricing.pdf
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95.46 KB
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Adobe PDF
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Author(s)
Schmalensee, Richard
Date Issued
December 2011
Journal
Review of Network Economics
Publisher
Walter de Gruyter
Citation
Schmalensee, Richard. “Why Is Platform Pricing Generally Highly Skewed?” Review of Network Economics 10.4 (2011).
Version
Author's final manuscript
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.
MIT Department
Sloan School of Management
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Creative Commons Attribution-Noncommercial-Share Alike 3.0
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DOI of Published Version
https://doi.org/10.2202/1446-9022.1274
