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[ Article ] | |
Seoul Journal of Economics - Vol. 29, No. 3, pp. 331-377 | |
Abbreviation: SJE | |
ISSN: 1225-0279 (Print) | |
Print publication date 31 Aug 2016 | |
Received 27 May 2015 Revised 09 Jun 2016 Accepted 11 Jul 2016 | |
Competition in Two-sided Platform Markets with Direct Network Effect | |
Jungsik Hyun
| |
Jungsik Hyun, Master’s Graduate of Seoul National University and Ph. D. student in Economics, Columbia University (jh3632@columbia.edu) | |
Funding Information ▼ | |
JEL Classification: D43, D85, L82, L86 |
In light of recent trends in social networking services that encourage users of platforms to “share,” “recommend,” and “do activities” with others, this work analyzes platform competition in two-sided markets that exhibit direct (or within-) network effect in addition to conventional cross-network effect. Introduction of direct network effect to one group (buyer-side) in a two-sided market generates two counteracting effects: demand-augmenting effect and demand-sensitizing effect. The former allows platforms to raise buyer-side price, thereby increasing the sum of prices charged to buyers and sellers, whereas the latter causes platforms to lower them. I show that demand-augmenting effect dominates demand-sensitizing effect under the monopoly platform, whereas introducing competition between platforms under sufficient direct network effect relatively strengthens the demandsensitizing effect, which lowers the price charged to buyers.
Keywords: Two-sided markets, Platform competition, Social networking services, Network effects |
This work is based on my Master’s thesis at Seoul National University. I am grateful to Professor In Ho Lee for his thoughtful guidance and suggestions. I also wish to thank Professor Jinwoo Kim and Professor Jihong Lee for their valuable comments. This work was supported by the Brain Korea 21 Program for Leading University & Students (BK 21 PLUS).
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