A Search-Matching Model of the Two-Sided Platforms
28 Pages Posted: 23 Sep 2009 Last revised: 30 Oct 2009
Date Written: September 15, 2009
Abstract
Based on the frictional matching framework, the paper provides a theoretical model for the two-sided platform in which the number of participants on both sides of the platform and the source of network externalities are endogenously determined. The platform is shown to exhibit both positive cross-group and negative within-group networks externalities. Moreover, unlike the previous literature, a participant's utility is bounded, even if the number of participants on the other side of the platform goes to infinity. The optimal prices of the platform owner are shown to depend not only on the cost of providing service and the benefits of the participants, but also on how a new entrant (either a buyer or a seller) affects the matching probability. Because of the existence of the negative externalities, the platform never subsidizes the sellers.
Keywords: two-sided platform, search, matching, pricing, network externalities
JEL Classification: D21, D44, D83, L1
Suggested Citation: Suggested Citation
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