NESTING VERTICAL AND HORIZONTAL DIFFERENTIATION IN TWO‐SIDED MARKETS
We are grateful to António Brandão, Cesaltina Pires, Duarte Brito, Hélder Vasconcelos, Jean Gabszewicz, Joana Pinho and Paul Belleflamme for useful comments and suggestions. We have also benefitted from very useful comments and suggestions from an anonymous referee. This work has been presented at the 2013 UECE Lisbon Meetings on Game Theory and Applications. This research has been financed by Portuguese Public Funds through Fundação para a Ciência e a Tecnologia (FCT) in the framework of the project PEst‐OE/EGE/UI4105/2014. Vitor Miguel Ribeiro (090421011@fep.up.pt ) acknowledges financial support from FCT (SFRH/BD/62386/2009). Joao Correia‐da‐Silva (joao.correia@tse-fr.eu) acknowledges financial support from FEDER and FCT (research grants PTDC/EGE‐ECO/111811/2009 and PTDC/IIM‐ECO/5294/2012), and from the European Commission (Marie Skłodowska Curie Fellowship H2020‐MSCA‐IF‐2014‐657283). Joana Resende (jresende@fep.up.pt) acknowledges financial support from FEDER and FCT (research grants PTDC/EGE‐ECO/111811/2009 and PTDC/EGE‐ECO/115625/2009).
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ABSTRACT
We merge the two‐sided markets duopoly model of Armstrong (2006) with the nested vertical and horizontal differentiation model of Gabszewicz and Wauthy (2012), which consists of a linear city with different 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 indifferent consumer being closer to the high‐quality platform. The difference between market shares is lower than socially optimal. A perturbation that introduces a negligible difference between the consumer density on the left and on the right side of the city may disrupt existence of equilibrium in the model of Armstrong (2006).
