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Licensed Unlicensed Requires Authentication Published by De Gruyter December 6, 2011

Why is Platform Pricing Generally Highly Skewed?

Richard Schmalensee

Bolt and Tieman (2008) suggested the prevalence of profit function non-concavity may account for the widespread use of skewed pricing by two-sided platform businesses. In both the Rochet-Tirole (2003) and Armstrong (2006) models, however, skewed pricing may simply reflect substantial differences between side-specific demand functions; non-concavity is not necessary. In the Rochet-Tirole (2003) model, ubiquitous high pass-through rates, which seem implausible, are required for non-concavity to be prevalent. In the Armstrong (2006) model, non-concavity is not sufficient for skewed pricing. In both models, non-concavity is associated with strong indirect network effects; in the Armstrong (2006) model, such effects are also associated with dynamic instability.

Published Online: 2011-12-6

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