Optimal Pricing of a Duopoly Platform with Two-Sided Congestion Effect

Journal of Research in Industrial Organization

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Chokri Aloui1 and Khaïreddine Jebsi2

1 Faculté de Droit et des Sciences Economiques et Politiques, Sousse,    Tunisia,
2 Institut supérieur de Gestion, Sousse, Tunisia

Volume 2011 (2011), Article ID 290274, Journal of Research in Industrial Organization, 10 pages, DOI: 10.5171/2011.290274

Received date : ; Accepted date : ; Published date : 15 June 2011

Copyright © 2011 Chokri Aloui, Khaïreddine Jebsi. This is an open access article distributed under the Creative Commons Attribution License unported 3.0, which permits unrestricted use, distribution, and reproduction in any medium, provided that original work is properly cited.

Abstract

We study, in this paper, the impact of two-sided congestion effect on the pricing policy of a two-sided duopoly platform. Relative to Armstrong (2006), we show that, with congestion effect, (i) competition for submarket share is softened, (ii) the divide-and-conquer pricing strategy is modified insofar as it depends upon the differential of the marginal congestion costs and (iii) each platform charges any agent of one side a price that covers not only the marginal congestion cost that he imposes on agents of his own side having joined its platform, as the traditional principle of the textbook congestion pricing, but also it covers the marginal congestion cost that he indirectly imposes on the of-his-type agents having chosen to join the rival platform. This issue matters despite there is no technical link between the two platforms.