Abstract
AbstractPlatforms such as Airbnb, Amazon, Apple iOS, eBay, Microsoft Windows, and Uber are ubiquitous. The two‐sided nature of platform markets, however, requires a reconsideration of the conditions for profit maximization and understanding of how platforms operate. Profit‐maximization in two‐sided markets is characterized as an intuitive extension of the inverse elasticity pricing rule (Lerner index). This is further expressed in terms of the participants' primitives: users' reservation values and the platform's marginal cost. Differences between one‐ and two‐sided markets are demonstrated and discussed.
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