Product Differentiation on a Platform: The Informative and Persuasive Role of Advertising

Both sides of a two-sided market are usually modeled as markets without product differentiation. Often however, it will be profit maximizing to differentiate one or two sides in two or more types. In a simple theoretical model, inspired by Yellow Pages, we show that this decision crucially depends on the appreciation of these differentiated types by the other side. We argue that this consists of two parts: first, a preference for informative...