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This paper analyzes the optimal market structures and pricing strategies of a monopolist platform in a two-sided market where the agents on each side prefer the platform to be less competitive on their side; that is, in a market with negative intra-group network externalities. Results show that the equilibrium market structure varies with the extent of negative intra-group network externalities. If the negative network externalities are substantial, that is, if an agent’s disutility due to a larger sized market on his side is high (enough), then the profit-maximizing strategy for the matchmaker will be to match the highest types of one side with all of the agents on the other side. In that case, the matchmaker will charge a high entrance fee from the former side and allow free entrance to the agents of the latter side. However, if the network externalities are not substantial, then the matchmaker will maximize profits by matching an equal number of agents from each side. This paper thus provides an explanation of the asymmetric pricing schedules in two-sided markets when the matchmaker uses a one-program pricing schedule.

This paper examines the impact of variation in transportation options – what I denote the “supply network” – on observed price differences between locations for a specific good, retail gasoline. I use a unique data set of weekly gasoline prices across 44 Canadian cities to analyze how the existence of variation in the available modes of transportation for gasoline between cities (via pipeline, marine tanker, rail or truck) accounts for observed price differences across locations. I find that the supply network is significant – cities connected by lower cost-per-unit methods like pipelines or seaports exhibit smaller mean- and weekly-price differences than those connected only by road or rail, after controlling for distance, regional effects and market size. A pipeline connection results in a reduction in weekly price dispersion equivalent to a 53% reduction in distance between cities, while a maritime connection has the equivalent effect of a 38% reduction in distance between cities.