Information vs Competition: How Platform Design Affects Profits and Surplus

59 Pages Posted: 1 Mar 2022 Last revised: 17 Apr 2023

See all articles by Amedeo Piolatto

Amedeo Piolatto

Autonomous University of Barcelona; Barcelona School of Economics; Barcelona Institute of Economics

Florian Schuett

KU Leuven - Department of Economics; Tilburg Law and Economics Center (TILEC); Tilburg University - Tilburg University School of Economics and Management

Date Written: February 11, 2022

Abstract

We study the design of online platforms that aggregate information and facilitate transactions. Two different designs can be observed in the market: revealing platforms that disclose the identity of transaction partners (e.g. Booking) and anonymous platforms that do not (e.g. Hotwire). To analyse the implications of this design choice for profits and surplus, we develop a model in which consumers differ in their location as well as their preferred product variety. Sellers offer their products for sale both directly (‘offline’) and indirectly via the platform (‘online’) but are unable to credibly disclose the product variety they offer when selling offline. The model gives rise to a novel trade-off associated with the anonymous platform design: offline, consumers observe location but not variety; online, they observe variety but not location. While the revealing design leads to more informed consumers and better matches, the anonymous design allows sellers to price discriminate and introduces competition between sellers whose markets would otherwise be segmented. We show that the comparison between the designs depends crucially on the relative importance of information about location vis-`a-vis information about variety. For an intermediate range, the anonymous design outperforms the revealing design in terms of both profits and welfare.

Keywords: anonymous information platforms, opaque products, horizontal competition, experience goods, mismatch costs

JEL Classification: D02, D21, D43, D61, D83, L11, L13, L15

Suggested Citation

Piolatto, Amedeo and Schuett, Florian, Information vs Competition: How Platform Design Affects Profits and Surplus (February 11, 2022). TILEC Discussion Paper No. DP2022-002, Available at SSRN: https://ssrn.com/abstract=4042915 or http://dx.doi.org/10.2139/ssrn.4042915

Amedeo Piolatto

Autonomous University of Barcelona ( email )

Department of Economics and Economic History
Edifici B - Campus Bellaterra
Barcelona, 08193
Spain

HOME PAGE: http://https://sites.google.com/site/piolatto/

Barcelona School of Economics ( email )

Carrer de Ramon Trias Fargas, 25-27
Barcelona, 08005
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Barcelona Institute of Economics ( email )

c/ John M. Keynes, 1-11
Barcelona, 08034
Spain

Florian Schuett (Contact Author)

KU Leuven - Department of Economics ( email )

Leuven
Belgium

Tilburg Law and Economics Center (TILEC) ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

Tilburg University - Tilburg University School of Economics and Management ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

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