Platform Competition Under Asymmetric Information
49 Pages Posted: 10 Feb 2011 Last revised: 9 Sep 2016
Date Written: October 17, 2012
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