4 Conclusion
In this paper, we have explicitly included within-group external effects in the two-sided singlehoming model of Armstrong (2006), which has become the workhorse model to analyze price competition between two horizontally differentiated two-sided platforms. We have first proposed a general – and surprisingly simple – characterization of the platform access fees at the symmetric equilibrium of the game. We have then coupled this general formulation with a specific modeling of the relationship between buyers and sellers on a B2C platforms. Doing so, we have shown that cross- and within-group external effects are intertwined and jointly influenced by the underlying characteristics of the interaction between buyers and sellers. This naturally led us to analyze how changes in these underlying characteristics affect the equilibrium of the game. Of particular interest is the finding that when trade is intermediated by platforms, buyers and sellers have even more reasons to welcome product differentiation, not only as it does satisfy buyers’ taste for variety and reduces competition among sellers, but also because it drives platforms to charge lower access fees. However, buyers and sellers may rank differently markets with different numbers of sellers, and they may do so for opposite reasons than in an environment where trade is not intermediated: in markets where sellers are more numerous, platforms may set higher buyer fees and smaller seller fees, to such an extent that sellers are better off, and buyers worse off, in these markets with stronger competition.
