Competition in Two Sided Markets with Congestion

This paper analyses competition in a two sided market with congestion. The existing literature’s pricing mechanisms of two-sided markets has concluded that pricing mechanism depends on the following three factors: relative size of cross group externalities fixed price or per transaction charge by platform, and single homing or multiple homing agents. This paper extends the analysis by including the effect of congestion on pricing mechanisms in a two sided market. It concludes that in the case of single homing of agents, profits of the platform increase due to congestion if the agents have a low tolerance level, whereas in the case of multi homing, profits of the platform increase due to congestion if the agents have a high tolerance level.