Abstract:

This paper studies the optimal pricing of a two-sided monopoly platform when one side is affected by congestion. We show that the “divide and conquer” strategy (or skewed  pricing) depends not only on the relative magnitude of the sides’ price elasticities of demand but it also depends on the marginal cost of congestion that an agent imposes on the others. Compared with the no congestion case, this pricing strategy gives rise to some interesting features that violate the results of Rochet and Tirole (2003, 2006). In the case of equal price elasticities of demand, the no-congested side is charged the higher price. On the other hand, in the case of different price elasticities, the platform congestion pricing depends on a certain threshold of the marginal cost of congestion. We show, under some conditions, that the “divide and conquer” strategy is reversed.