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Platform Competition Under Asymmetric Information

49 Pages Posted: 10 Feb 2011 Last revised: 9 Sep 2016

Hanna Halaburda

Bank of Canada; New York University (NYU); CESifo (Center for Economic Studies and Ifo Institute)

Yaron Yehezkel

Faculty of Management, Tel-Aviv University

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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

Halaburda, Hanna and Yehezkel, Yaron, Platform Competition Under Asymmetric Information (October 17, 2012). Harvard Business School Strategy Unit Working Paper No. 11-080. Available at SSRN: https://ssrn.com/abstract=1758831 or http://dx.doi.org/10.2139/ssrn.1758831

Hanna Halaburda (Contact Author)

Bank of Canada ( email )

234 Wellington Street
Ontario, Ottawa K1A 0G9
Canada

New York University (NYU) ( email )

Bobst Library, E-resource Acquisitions
20 Cooper Square 3rd Floor
New York, NY 10003-711
United States

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Munich
Germany

Yaron Yehezkel

Faculty of Management, Tel-Aviv University ( email )

Ramat Aviv
Tel Aviv, 69978
Israel

HOME PAGE: http://www.tau.ac.il/~yehezkel/

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