Publisher's Synopsis
In this book I create a number of basic positive and normative results in the price theory of multisided markets. On the positive side, I introduce the notion of vulnerability of demand to separate previously confounded effects. I find that competition, pricecontrols and subsidies always reduce the price level, defined as the sum of prices on the two sides of the market. However, price controls and competition that are "unbalanced" may raise prices on one side of the market. The normative analysis emphasizes the importance of externalities across the two sides of the market and their impact on socially optimal pricing. The socially optimal price level, which takes an intuitive Ramsey-pricing form, is always below cost. Subsidies may be desirable even if the profits of the firm are disregarded. In determining optimal price balance, seemingly similar welfare criteria generally conflict. Consumers on one side of the market may want to make transfers to the other side in order to thicken their pool of partners. Unbalanced competition that undermines such transfers may harm all parties. A number of implications for policy are discussed.
