Heavily skewed pricing in two-sided markets

A common feature in two-sided markets is the prevalence of heavily skewed pricing strategies in which price markups are much higher on one side of the market than the other. We show that maximal skewed pricing is profit maximizing under constant elasticity of demand. The most clastic side of the market is used to generate maximum demand by providing it with platform service at the lowest possible price. Full participation of the high-elasticity, low-price side of the market attracts the other side. As this side is less price elastic, the platform is able to extract high prices. (C) 2007 Elsevier B.V. All rights reserved.