Platform Competition Under Asymmetric Information
Bank of Canada; New York University (NYU); CESifo Institute
Faculty of Management, Tel-Aviv University
October 17, 2012
Harvard Business School Strategy Unit Working Paper No. 11-080
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.
Number of Pages in PDF File: 49
Keywords: symmetric information, platform competition, exclusive dealing
JEL Classification: L15, L41
Date posted: February 10, 2011 ; Last revised: September 9, 2016
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