Two-Part Tariff Competition between Two-Sided Platforms

Two-sided market models in which platforms compete in two-part tariffs, i.e., a subscription and a per-transaction fee, are often plagued by a continuum of equilibria. This paper incorporates heterogeneous trading behavior of agents into the existing framework. We show that this natural and realistic extension yields a unique equilibrium that has several reasonable properties but differs from equilibria obtained through other selection criteria. The analysis also provides novel empirical predictions. We demonstrate that platforms tend to benefit from charging two-part tariffs compared to linear fees, while the utility of single-homing agents falls and the utility of multi-homing agents is unaffected.