Market shares and profits in two-sided markets

Using a logit demand model of asymmetric oligopoly in two-sided markets, I analyze the relationship between the market shares of platforms and their profits. In line with previous studies, I show that large market shares do not necessarily imply high profits. Decomposing a platform's market shares on two sides of markets into the size (i.e., the sum of shares) and the structure (i.e., the ratio between shares), I find that, conditional on the size, profits are U-shaped in structure, and that, conditional on the structure, size is positively related to profits. This implies that the change in the structure on the two sides is critical to the understanding of the non-monotonic relationship between market shares and profits and that overall size can still be used as an indicator of the profitability of platforms as long as the structure is controlled. (C) 2021 Elsevier B.V. All rights reserved.