Information and Two-Sided Platform Profits

31 Pages Posted: 28 Nov 2013 Last revised: 14 Mar 2015

Andrei Hagiu

Massachusetts Institute of Technology - Sloan School of Management

Hanna Halaburda

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

Date Written: April 5, 2014

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.

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

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: https://ssrn.com/abstract=2360263 or http://dx.doi.org/10.2139/ssrn.2360263

Andrei Hagiu (Contact Author)

Massachusetts Institute of Technology - Sloan School of Management ( email )

MIT Sloan School of Management
100 Main Street, E62-313
Cambridge, MA 02142
United States
617-715-4844 (Phone)

HOME PAGE: http://andreihagiu.com/

Hanna Halaburda

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

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