Platform Competition Under Asymmetric Information
American Economic Journal: Microeconomics 5, no. 3 (2013): 22–68
Harvard Business School Strategy Unit Working Paper No. 11-080
49 Pages Posted: 10 Feb 2011 Last revised: 4 Jul 2019
There are 2 versions of this paper
Platform Competition Under Asymmetric Information
Platform Competition Under Asymmetric Information
Date Written: October 17, 2012
Abstract
We consider platform competition in a two-sided market, where the two sides (buyers and sellers) have ex-ante uncertainty and ex-post asymmetric information concerning the value of a new technology. We find that platform competition may lead to a market failure: competition may result in a lower level of trade and lower welfare than a monopoly, if the difference in the degree of asymmetric information between the two side is below a certain threshold. Multi-homing solves the market failure resulting from asymmetric information. However, if platforms can impose exclusive dealing, then they will do so, which results in market inefficiency.
Keywords: symmetric information, platform competition, exclusive dealing
JEL Classification: L15, L41
Suggested Citation: Suggested Citation
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