Optimal location in two-sided markets

As the network externality in an industrial organization has been widely discussed in recent years, many researchers in the field have noted a particular type of market, the so-called two-sided market. In a two-sided market, two or more groups of agents such as buyers and sellers interact while exerting cross-group externalities upon each other. They interact with each other via some sort of medium, called the “platform” of interaction. This paper integrates the concept of two-sided markets into the optimal location problem for two platform providers. We show that when the two groups of customers' cross-side network externalities are equal, the duopoly platforms will agglomerate at the market center with no undercutting. However, disparate conditions exist under which the duopoly platforms will stay apart at the market endpoints, or agglomerate at either endpoint, with no undercutting.