Two-sided Market Platform Research Articles

Net Neutrality, Broadband Market Coverage and Innovation at the Edge

Net neutrality is a widely debated policy issue that has the potential to alter the dynamics of accessing online content. The focal point of the debate lies in whether broadband service providers should be allowed to charge content providers for the preferential delivery of their digital content. That decision will affect broadband market coverage as well as the issue of long-term competition and innovation in the market for digital content. Our research aims to analyze and address these issues. We propose a game theoretical model with three players – the broadband service provider, the content providers, and the consumers – where the broadband service provider, in its capacity of an intermediary between the content providers and the consumers, is modeled as a two-sided market platform. We find that while abandoning the principle of net neutrality might increase consumer surplus and increase broadband market coverage in the short run, it can also have the insalubrious effect of hindering the ability of startups to compete against established rivals and thus reduce innovation at the edge. The results should be of great interest to policymakers as they debate on this very crucial issue.

Two-Sided Platforms: Pricing and Social Efficiency

This paper models two-sided market platforms, which connect third-party suppliers (developers) of many different products and services to users who demand a variety of these products. From a positive perspective, our model provides a simple explanation for the stark differences in platform pricing structures observed across a range of industries, including software for computers and an increasing number of electronic devices, videogames, digital media, etc. We show that the optimal platform pricing structure shifts towards making a larger share of profits on developers when users have a stronger preference for variety and also when there is uncertainty with respect to the availability, or a limited supply, of third-party (high-quality) products. From a normative perspective, we show that the increasingly popular public policy presumption that open platforms are inherently more efficient than proprietary ones -in terms of induced product diversity, user adoption and total social welfare- is not justified in our framework. The key welfare tradeoff is between the extent to which a proprietary platform internalizes business-stealing, product diversity and indirect network effects and the two-sided deadweight loss it creates through monopoly pricing.