Preliminary Version

In this paper a two-sided-market is analysed in which two platforms compete against each other. One side, the advertisers, exerts a negative externality on the other side, the users. It is shown that in a strategic pricing game there might be too much advertising compared with the social optimum because the negative effect on users is not internalised. An increase in the externality level might lead to higher profits of the platforms because it softens price competition. A model in which platforms have a fixed stock of regular users is compared with one in which they have to compete for users. It can be shown that profits might be higher if platforms have to compete for users because this additional competition effect lessens the price competition for advertisers. Two-Sided-Markets with Negative Externalities 2