Product Differentiation in Two-sided Market
In: Moscow University Economics Bulletin, Volume 2019, Issue 1, p. 50-70
In this paper we present the results of the analysis of firm behavior in two-sided market with product differentiation. Based on the developed model, we study the conditions when it is profitably for a firm to launch two versions of a product: full and test platform models. In our analysis we draw on the methods of microeconomics, industrial economics, game theory and contract theory. The main conclusions confirm the benefit from versioning strategy in a firm in case of strong indirect network effects in the market between the two groups of agents. Product versioning allows the firm to separate agents more effectively: the first group with high product and connection value and the second group that generates high network effects. We noted that product differentiation is preferable for agents from the second group.