Strategic Release of Information in Platforms: Entry, Competition, and Welfare

Forthcoming, Operations Research

83 Pages Posted: 10 May 2021 Last revised: 12 Oct 2022

See all articles by Kostas Bimpikis

Kostas Bimpikis

Stanford Graduate School of Business

Giacomo Mantegazza

Stanford Graduate School of Business

Date Written: October 10, 2022

Abstract

Two-sided platforms play an important role in reducing frictions and facilitating trade, and in doing so they increasingly engage in collecting and processing data about supply and demand. This paper establishes that platforms have an incentive to strategically disclose (coarse) information about demand to the supply side as this can considerably boost their profits. However, this practice may also adversely affect the welfare of consumers. By optimally designing its information disclosure policy, a platform can influence the entry and pricing decisions of its potential suppliers. In general, it is optimal for the platform to disclose its information only partially to either ``nudge'' entry when it is a priori costly for suppliers to join or, conversely, discourage it when suppliers do not have access to attractive outside options. On the other hand, consumers may end up being worse off as they have access to fewer trading options and/or face higher prices compared to when the platform refrains from sharing any demand information to its potential suppliers.

Keywords: Two-sided platforms, information design, competition, consumers welfare

JEL Classification: C73, D82, D83

Suggested Citation

Bimpikis, Kostas and Mantegazza, Giacomo, Strategic Release of Information in Platforms: Entry, Competition, and Welfare (October 10, 2022). Forthcoming, Operations Research, Available at SSRN: https://ssrn.com/abstract=3841265 or http://dx.doi.org/10.2139/ssrn.3841265

Kostas Bimpikis

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

Giacomo Mantegazza (Contact Author)

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, 94305
United States

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