Joana Resende

Nesting Vertical and Horizontal Differentiation in Two-Sided Markets

We develop a model that is a synthesis of the two-sided markets duopoly model of Armstrong (2006) with the nested vertical and horizontal di erentiation model of Gabszewicz and Wauthy (2012), which consists of a linear city with di erent consumer densities on the left and on the right side of the city. In equilibrium, the high-quality platform sells at a higher price and captures a greater market share than the low-quality platform, despite the indiff erent consumer being closer to the high-quality platform. The di fference between market shares is lower than socially optimal, because of the inter-group externality and because the high-quality platform sells at a higher price. We conclude that a perturbation that introduces a negligible di erence between the consumer density on the left and on the right side of the city may disrupt the existence of equilibrium in the model of Armstrong (2006). Finally, we show that inter-group externalities make it easier to deter an inferior-quality entrant and make it easier for a superior-quality entrant to conquer the market.

Differentiated credence goods and price competition

This paper analyses price competition between two firms producing horizontally and vertically differentiated goods. These are assumed to be credence goods, as consumers can hardly ascertain the quality of the commodities. To illustrate the model, we adapt it to represent a newspaper industry with two outlets, when the population of readers have preferences both on the political stance of the newspapers and on the accuracy of the news they dispatch.

Media as multi-sided platforms

Media are among the most influential institutions in modern societies. Media outlets – press, TV, Internet, radio, cinema – have become the leading players in the production and diffusion of information.1 Universal access to information, knowledge and pluralism of opinions are fundamental vectors for promoting a democratic and free society. However, the production of information is costly and the survival of media outlets crucially depends on the possibility of financing their activities. To avoid overloading consumers with all the costs of information production and promote as much as possible a universal access to information, media outlets have long relied2 on the combination of circulation/subscription revenues and advertising revenues (sometimes complemented by public subsidies3) to finance their activities. The conventional business model used by media firms exploits their role as platforms of interaction between two categories of users: audiences (consumers) and advertisers. Exchanges arising in media markets often generate cross network externalities (between advertisers and consumers, and vice versa), producing interactions between the demand for advertising and the demand for media content. Accordingly, traditional media outlets naturally appear as two-sided platforms. In light of all changes carried by the digital disruption and the convergence phenomenon, the frontiers of media markets are going through a process of deep transformation. The cost of information provision and diffusion has become much lower and the speed of information exchange has enormously increased. This process has immensely expanded the possibilities to create value. Conventional media are now “coopeting”4 with a variety of new media outlets, predominantly based on the existence of Internet (e.g. online press, online TV, social networks, news aggregators, blogs, and many others). In this context, new important players, like telecommunication companies or “Internet giants” (Apple, Google, Amazon) are consolidating their positions in the media markets. In particular, telecommunications companies see their activity no longer restricted to the provision of telephone or Internet connections. Nowadays these companies present themselves as service

Dynamic Games of Network Effects

Network effects occur when the benefit that agents derive from a good or service depends on how many other agents adopt the same good or service. This strategic complementarity between consumers’ actions has several implications on the behavior of firms. Namely, firms need to gain advantage from early marketing stages. Network effects are intrinsically a dynamic phenomena: past consumption of the good influences the utility of present consumers. This effect can be either direct, when consumers value interaction with their peers, and/or indirect, through an increase of the quality of the good. This chapter surveys the literature on dynamic network effects. First we provide general formulations for the modelization of network effects in a dynamic setting. Second, we analyse recent developments on the literature on firms’ strategies in the context of dynamic network effects. We survey the literature both on monopoly and oligopoly markets. In the case of oligopoly markets, we distinguish between situations in which firms produce horizontally and vertically differentiated goods. Main results on pricing and evolution of market shares are exposed.