Carroni, Elias (2014) Pricing in two-sided markets and social Networks. Doctoral Thesis.
This work analyzes the problem of optimal pricing policies in markets characterized by cross-group network externalities (two-sided markets) and in the presence of information held by companies about the social network of consumers. The thesis is divided in three chapters, each one readable as a distinct paper. The first chapter aims at providing a comprehensive overview of the state of the art in the literature of two-sided markets, i.e. markets characterized by the presence of platforms serving different groups of consumers linked with each other by network externalities. In particular, chapter 1 explains the main trade-offs and issues raised in the literature concerning different market structures (monopoly vs. oligopoly), exclusivity of the service (multi- vs. single-homing), price instruments (membership vs. transaction fees), type of externality (inter- vs. intra- group), interest of customers in quality and type of price discrimination (cross- vs. within-group). Chapter 2 is closely related to the first and aims at investigating about a very recent direction of the research in two-sided market. In particular, it provides an analysis of the practice of firms to offer different prices to consumers according to the past purchase behavior (BBPD) in the context of two-sided markets. In a two period model, two platforms compete for heterogeneous firms and end-users. Our contribution is that we allow platforms to discriminate prices on the users' side according to their past purchase behavior. The main findings are two. In the second period game with market shares taken as given, each platform may find it optimal either to offer discounts to rivals' users or to reward loyalty, depending on the number of users attracted in the past. Moreover, switching towards both platforms occurs if and only if the inherited market partition is symmetric enough. Making the first period game endogenous, BBPD affects both ex-ante and ex-post competition. Ex-post competition is strengthened compared to the regime in which a uniform price is charged in users' side. Ex-ante competition is relaxed (intensified) if users are the low (high) value group. The overall effect on inter-temporal profits of platforms is negative, confirming the previous results of BBPD literature. Chapter 3 changes completely topic compared to the first two. Specifically, it models the strategy of a monopolist that offers rewards to current clients in order to induce them to activate their social network and convince peers to buy from the company. In presence of heterogeneous search costs and reservation prices, this network-activation reward program may serve to expand the client base through a flow of information from informed to uninformed consumers. The offer of the monopolist affects individual incentives of aware people to share information, determining a minimal degree condition for investment. The optimal unitary reward balances the information spread effect (i.e. more receivers) and the crowding effect (i.e. less individual incentives) of an increase in the number of speakers. The monopolist always finds it profitable to use the bonus. Nevertheless, its introduction has ambiguous effects on the price and profits, depending on the process of spread of information and, in turn, on the network structure.
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