Competition in Two-Sided Markets ¤
TL;DR: In this article, the authors survey recent theoretical work on two-sided markets and the main questions are (i) what determines which side of the market is subsidized (if either) in order to attract the other side, and (ii) is the resulting outcome socially e¢cient?
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Abstract: There are many examples of markets involving two groups of participants who need to interact via intermediaries. Moreover, these intermediaries usually have to compete for business from both groups. Examples include academic publishing (where journals facilitate the interaction between authors and readers), advertising in media markets (where newspapers or TV channels enable adverts from producers to reach consumers), payment systems (where credit cards can be a convenient method of transaction between consumers and retailers), and telecommunications networks (where networks are used to provide links between callers and those who receive calls). The paper surveys recent theoretical work on these two-sided markets. The main questions are (i) what determines which side of the market is subsidized (if either) in order to attract the other side, and (ii) is the resulting outcome socially e¢cient?
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TL;DR: In this article, the authors provide a framework for analyzing two-sided markets that allows for different degrees of product differentiation on each side of the market and show that competitive bottlenecks arise endogenously.