The Economics of Platforms in a Walrasian Framework

63 Pages Posted: 15 Jun 2020

See all articles by Anil Jain

Anil Jain

Board of Governors of the Federal Reserve System

Robert M. Townsend

Massachusetts Institute of Technology (MIT)

Date Written: May, 2020

Abstract

We present a tractable model of platform competition in a general equilibrium setting. We endogenize the size, number, and type of each platform, while allowing for different user types in utility and impact on platform costs. The economy is Pareto effcient because platforms internalize the network effects of adding more or different types of users by offering type-specific contracts that state both the number and composition of platform users. Using the Walrasian equilibrium concept, the sum of type-specific fees paid cover platform costs. Given the Pareto efficiency of our environment, we argue against the presumption that platforms with externalities need be regulated.

JEL Classification: D50, D62

Suggested Citation

Jain, Anil and Townsend, Robert M., The Economics of Platforms in a Walrasian Framework (May, 2020). FRB International Finance Discussion Paper No. 1280, Available at SSRN: https://ssrn.com/abstract=3625100 or http://dx.doi.org/10.17016/IFDP.2020.1280

Anil Jain (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Robert M. Townsend

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

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