Price Discrimination by a Two-Sided Platform: With Applications to Advertising and Privacy Design

Abstract

We study price discrimination by a monopoly two-sided platform who mediates interactions between two different groups of agents. We adapt a canonical model of second degree price discrimination a la Mussa and Rosen (1978) to a two-sided platform by focusing on non-responsiveness, a clash between the allocation the platform wants to achieve and the incentive compatible allocations. In this framework we address the key question of when a price discrimination on one side complements or substitutes a price discrimination on the other side. We offer two applications on advertising platforms and also highlight the role of commitment in eliciting personal information for targeted advertising.

Keywords: price discrimination, two-sided markets, non-responsiveness, privacy, advertising, positive/negative sorting

JEL Classification: D4, D62, D82, M3