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South African Journal of Economic and Management Sciences

On-line version ISSN 2222-3436
Print version ISSN 1015-8812

Abstract

ZHANG, Kai  and  LIU, Weiqi. Price discrimination in two-sided markets. S. Afr. j. econ. manag. sci. [online]. 2016, vol.19, n.1, pp.1-17. ISSN 2222-3436.  http://dx.doi.org/10.17159/2222-3436/2016/v19n1a1.

The use of a price discrimination strategy is an important tool in competition. It can hurt firms and benefit consumers in a one-sided market. However, in two-sided markets, its primary goal is to attract more agents or increase profits. Here, the performance of a second-degree price discrimination strategy in the context of duopoly two-sided platforms is analysed. Two exogenous variables, which include the discount rate and the price discrimination threshold, are used in order to examine whether the price discrimination strategy could help two-sided platforms achieve their objective, which is to maximise their market value. Three cases are considered, and we demonstrate that the price discrimination strategy cannot attract more agents and at the same time increase the profits; a lower price discrimination threshold cannot ensure larger markets shares; a higher discount rate is detrimental to the profit of a platform. However, this is good for its market shares. Moreover, discriminative pricing increases the competition.

Keywords : price discrimination; two-sided market; cross-network externality; price discrimination threshold.

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