Abstract
Multisided platforms face a fundamental trade-off: should they ease entry for a larger number
of providers of complementary products or services (complementors) to join the platform and
benefit from cross-side network externalities, or should they limit entry to maintain
complementors’ incentives to provide high-quality offerings? We contend that a specific crosssubsidizing pricing strategy—where the amount of subsidy to complementors is explicitly
linked to the overall revenue they generate on the other side of the platform—may mitigate this
trade-off. Using data from the airport industry, we demonstrate that following a reduction of
airlines’ entry barriers, airports that subsidize airlines, based on the aforementioned scheme,
can boost their financial performance and maintain traffic composition in favor of legacy
airlines, which bring passengers who spend more in airport shops. Our findings shed light on
how cross-subsidization may balance the variety and quality of complementors and their
offerings on multisided platforms.