Winner Takes All? Product Differentiation and Two-Sided Network Effects in the Rideshare Industry

It is well known that two-sided network effects may turn duopolistic markets into monopolies, but it is still in question under which conditions this occurs in practice. To derive the conditions in which a platform market is tippy, I develop a differential game framework incorporating product differentiation and two-sided network effects in the rideshare industry. Two platforms play a differential game with market share dynamics depending on differences in price and waiting times. I present a Markov strategy equilibrium in this game. In equilibrium, two-sided network effects facilitate the larger platform to drive the smaller one out whereas product differentiation allows the smaller one to survive. Numerical analyses demonstrate that markets are likely to turn into monopolies when the multi-homing cost is high, the difference between price and waiting time in a consumer's sensitivities is large, or the discount rate is high