Abstract

http://ssrn.com/abstract=2360263
 


 



Information and Two-Sided Platform Profits


Andrei Hagiu


Harvard Business School - Strategy Unit

Hanna Halaburda


Bank of Canada

April 5, 2014

Harvard Business School Strategy Unit Working Paper No. 12-045

Abstract:     
We study the effect of different levels of information on two-sided platform profits| under monopoly and competition. One side (developers) is always informed about all prices and therefore forms responsive expectations. In contrast, we allow the other side (users) to be uninformed about prices charged to developers and to hold passive expectations. We show that platforms with more market power (monopoly) prefer facing more informed users. In contrast, platforms with less market power (i.e., facing more intense competition) have the opposite preference: they derive higher profits when users are less informed. The main reason is that price information leads user expectations to be more responsive and therefore amplifies the effect of price reductions. Platforms with more market power benefit because higher responsiveness leads to demand increases, which they are able to capture fully. Competing platforms are affected negatively because more information intensifies price competition.

Number of Pages in PDF File: 31

Keywords: two-sided platforms, information, responsive expectations, passive expectations, wary expectations

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Date posted: November 28, 2013  

Suggested Citation

Hagiu, Andrei and Halaburda, Hanna, Information and Two-Sided Platform Profits (April 5, 2014). Harvard Business School Strategy Unit Working Paper No. 12-045. Available at SSRN: http://ssrn.com/abstract=2360263 or http://dx.doi.org/10.2139/ssrn.2360263

Contact Information

Andrei Hagiu (Contact Author)
Harvard Business School - Strategy Unit ( email )
Harvard Business School
Soldiers Field Road
Boston, MA 02163
United States
617-496-6745 (Phone)
Hanna Halaburda
Bank of Canada ( email )
234 Wellington Street
Ontario, Ottawa K1A 0G9
Canada
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