16/04/2025 - 12:50 
> "Strategically free". 
CORE C.035 

Paul Belleflamme (CORE) 

will give a presentation on : 

Strategically free. 

Abstract : 

We present a novel rationale for two-sided platforms to offer free access to a specific group of users: platforms may find it advantageous to commit to providing free access on one side in order to alleviate price competition on the other. To illustrate this point, we extend Armstrong's (2006) platform competition model with singlehoming for both user groups. Our model expands the strategy sets by allowing platforms to commit to offering free access to one of the two user groups. (Assuming that platforms incur no marginal costs when onboarding users, providing free access effectively equates to pricing at marginal cost).

To clarify our argument (and without loss of generality), we assume unilateral cross-side network effects, where Group B users benefit as more Group A users join their platform, while Group A users remain indifferent to the participation of Group B users. We also posit that, in the absence of a commitment to free access, platforms would charge both user groups a positive fee at equilibrium. In this context, reducing the fee to zero for side B can enable a platform to enhance its profits on side A, even though this decision does not directly influence the participation of Group A users (who do not perceive value in Group B users’ participation).

The rationale is as follows: when a platform commits to offering free access on side B, its profits become independent of the number of users attracted on that side. Consequently, the platform no longer needs to leverage side A users to attract Group B users, allowing it to credibly signal to its rival platform its intent to maintain a high fee on side A, thereby easing price competition. We outline the conditions under which the gains on side A surpass the losses on side B, leading both platforms to commit to free access for side B at equilibrium.

Joined with Eric Toulemonde (UNamur).