Information and Two-Sided Platform Profits

31 Pages Posted: 28 Nov 2013 Last revised: 4 Jul 2019

See all articles by Andrei Hagiu

Andrei Hagiu

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

Hanna Halaburda

New York University (NYU) - Leonard N. Stern School of Business

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). International Journal of Industrial Organization, Vol. 34 (May 2014), Pages 25–35; 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 (MIT) - Sloan School of Management ( email )

100 Main Street
E62-313
Cambridge, MA 02142
United States
617-715-4844 (Phone)

HOME PAGE: http://andreihagiu.com/

Hanna Halaburda

New York University (NYU) - Leonard N. Stern School of Business ( email )

44 West 4th Street
New York, NY NY 10012
United States

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