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Dynamic Platform Competition in Two-Sided Markets

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Document pages: 23 pages

Abstract: This paper analyzes two-sided platform competition in a dynamic setting that accounts for cross-group network externalities, single multi-homing, and platform differentiation. By introducing heterogeneity of users and horizontally differentiation of platforms, we find that in addition to multi-homing tendency, market segmentation is another determining factor whether or not a two-sided market is destined to be served by a single platform. In the case where more than one platform can co-exist, we examine how optimal pricing structure and optimal customer trajectory for each platform are influenced by the product service value, cross-network effect, the price sensitivity, diffusion rate, marginal cost and initial customers in each side of the markets that the competing platforms have. The analysis provides a framework for us to develop strategy that would increase the platform s competitive advantage.

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