Common Network Externalities Reshape Two-Sided Market Dynamics, Shifting Profits and Prices
Competition in two-sided markets with common network externalities can impact platforms' profits and price structures. When the externality is homogeneous, platforms shift rents between consumers and providers. In cases where the common network externality is homogeneous of degree zero, platform profits do not depend on the intensity of the network externality. This is different from traditional results that suggest network externalities increase competition in two-sided markets.