The Impact of Within-platform Competition in Two-sided Business Models

Abstract: We analyze the impact of exogenous changes in competition within one side of a two-sided market on the optimal pricing of both sides. We take into account both its impact through indirect network externalities and its impact through higher competition in the marketplace. We find that within-platform competition increases the price charged to the other side, while its impact on the same side price is ambiguous. We test our hypotheses in the U.S. airport industry, exploiting an increase in within airport competition driven by a change in regulation. As hypothesized, we estimate that an increase of airline competition within an airport increases commercial revenues per passenger, only in airports that adopt a platform business model. We also investigate the impact of passenger type and airport pricing approach on the airport response to this exogenous change.