A two-sided market is characterized by contract negotiations, bilateral exchanges between buyers and sellers. Separation costs endow trading partners with monopoly power, rendering this a market of bilateral monopolistic competition. Market equilibrium is defined by these negotiations, a matching of the two sides, and a set of prices; the costs of disagreement are endogenous. A bargaining strategy some players use is commitment to a position. Disagreements are possible and, contrary to the case of bilateral monopoly, these disagreements are not always inefficient. © 1985.
Gerber, R. I. (1985). Bargaining and separation costs in two-sided markets. Economics Letters, 19(2), 119–123. https://doi.org/10.1016/0165-1765(85)90005-9