Matching & Information Provision by One-Sided and Two-Sided Platforms
AbstractThis paper studies a "market creating" firm (platform) that offers a matching environment by charging an access fee to a population of high and low type users who wish to form a match. We focus on an environment where users only observe a signal of their randomly assigned partner's type and where the informativeness of the signal is controlled by the firm. We study how both tools, access fee and signal informativeness, can be used to screen particular segments of the population. We finish by characterizing the set of optimal menus. The paper proposes three results. We show that information provision has a screening role when network effects are heterogeneous because a platform cannot induce every level of participation using only the access fee. Secondly, any platform will optimally offer a menu such that only high types participate, or where every user participates. In the former the signal is perfectly informative; in the latter it is partially informative. Lastly, the profit maximizing firm will over-provide information in relation to the surplus maximizing firm, and the higher the heterogeneity in the population, the higher the chance of the optimal menu excluding low type users.
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Bibliographic InfoPaper provided by NET Institute in its series Working Papers with number 11-20.
Length: 58 pages
Date of creation: Sep 2011
Date of revision: Oct 2011
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Web page: http://www.NETinst.org/
Pricing; Market Design; Matching; Information Provision; Heterogeneous Network Effects;
Find related papers by JEL classification:
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
- D42 - Microeconomics - - Market Structure and Pricing - - - Monopoly
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-11-07 (All new papers)
- NEP-COM-2011-11-07 (Industrial Competition)
- NEP-CTA-2011-11-07 (Contract Theory & Applications)
- NEP-GTH-2011-11-07 (Game Theory)
- NEP-IND-2011-11-07 (Industrial Organization)
- NEP-NET-2011-11-07 (Network Economics)
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