Marketing Seminar（2017-04）

Title:Two-Sided Price Discrimination

Speaker:Lin Song, Hong Kong University of Science and Technology

Time:Wednesday, April 19, 13:30-15:00

Place:Room217, Guanghua Building 2

Abstract

This paper studies an increasingly common practice adopted by media platforms or content providers to sell contents with different advertising levels to different consumer segments. Building on a canonical model of two-sided media market, I analyze how a media platform can implement (second-degree) price discrimination on both the consumer and advertiser sides. It is shown that price discrimination on one side can strengthen the incentive to discriminate on the other.

By adopting versioning that allocates more ads to low-valuation consumers and less to high-valuation consumers, the platform can effectively increase the quality difference, thereby raising the surplus gained from high-valuation consumers through a high price. Such monetization strategy can enhance profit and raise the total advertising level. Although advertisers with a better match to consumers prefer to reach the high-valuation segment, the platform tends to deliver fewer ads to these consumers than the socially optimal level. The low-valuation consumers, however, may receive either fewer or more ads, depending on the market share of this segment. Compared to the strategy of selling to both segments with no differentiation in ads, the versioning strategy reduces consumer and advertiser surplus. The total welfare, however, can either decrease or increase.

Introduction

Song Lin is an Associate Professor of Hong Kong University of Science and Technology, Hong Kong. He received Phd degree in Marketing from Massachusetts Institute of Technology, Cambridge, U.S. His current research interests include Product and pricing policies, consumer learning and search, new products, platform design, advertising. His research has been published in journals such as Marketing Science, Journal of Marketing Research.

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