Inter-firm price coordination in a two-sided market

- We analyze the role of a common distributor of TV channels in a two-sided market.
- TV channels set ad prices but delegate to distributors to set viewer prices.
- This delegation obstructs price coordination across the two sides of the market.
- Delegation may nonetheless benefit the TV channels if they compete too fiercely.

In many two-sided markets we observe that there is a common distributor on one side of the market. One example is the TV industry, where TV channels choose advertising prices to maximize own profit and typically delegate determination of viewer prices to independent distributors. We show that in such a market structure the stronger the competition between the TV channels, the greater will joint profits in the TV industry be. We also show that joint profits may be higher if the wholesale contract between each TV channel and the distributor consists of a simple fixed fee rather than a two-part tariff.