Question

Consider a monopoly platform serving two distinct groups of users. Each group i = a; b

comprises a unit mass of users who interact on the platform. The platform charges (possibly different) membership fees for the two groups, Ma and Mb. The constant marginal

cost of attracting users on the platform is normalized to zero. A user of group i enjoys

the following net utility when interacting on the platform with users of the other group:

Ui = ui + γinj - Mi; where ui is the intrinsic value of being on the platform, i measures

the indirect network effect provided by an additional member of side j on each member

of side i, nj is the number of members of side j on the platform. We assume that ui is

drawn from a uniform distribution on [0; vi]. As for indirect network effects, we assume

that they are positive on both sides (γa; γb > 0).

a) Derive the number of participating users on side i as a function of the number of

participating users on the other side.

Answer 1

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