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Platform Competition under Dispersed Information

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  • Bruno Jullien
  • Alessandro Pavan

Abstract

We study monopolistic and competitive pricing in a two-sided market where agents have incomplete information about the quality of the product provided by each platform. The analysis is carried out within a global-game framework that offers the convenience of equilibrium uniqueness while permitting the outcome of such equilibrium to depend on the pricing strategies of the competing platforms. We first show how the dispersion of information interacts with the network effects in determining the elasticity of demand on each side and thereby the equilibrium prices. We then study "informative" advertising campaigns that increase the agents’ ability to estimate their own valuations and/or the distribution of valuations on the other side of the market.

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Bibliographic Info

Paper provided by Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number 1568.

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Date of creation: 01 May 2013
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Handle: RePEc:nwu:cmsems:1568

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Postal: Center for Mathematical Studies in Economics and Management Science, Northwestern University, 580 Jacobs Center, 2001 Sheridan Road, Evanston, IL 60208-2014
Phone: 847/491-3527
Fax: 847/491-2530
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Web page: http://www.kellogg.northwestern.edu/research/math/
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Keywords: two-sided markets; dispersed information; platform competition JEL Classification: D82;

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  1. Marc Rysman, 2009. "The Economics of Two-Sided Markets," Journal of Economic Perspectives, American Economic Association, vol. 23(3), pages 125-43, Summer.
  2. Jean-Charles Rochet & Jean Triole, 2002. "Platform Competition in Two Sided Markets," FMG Discussion Papers dp409, Financial Markets Group.
  3. Whinston, Michael D, 1990. "Tying, Foreclosure, and Exclusion," American Economic Review, American Economic Association, vol. 80(4), pages 837-59, September.
  4. Carlsson, H. & Damme, E.E.C. van, 1990. "Global games and equilibrium selection," Discussion Paper 1990-52, Tilburg University, Center for Economic Research.
  5. Caillaud, Bernard & Jullien, Bruno, 2003. " Chicken & Egg: Competition among Intermediation Service Providers," RAND Journal of Economics, The RAND Corporation, vol. 34(2), pages 309-28, Summer.
  6. Ettore Damiano & Hao Li, 2007. "Price discrimination and efficient matching," Economic Theory, Springer, vol. 30(2), pages 243-263, February.
  7. Simon P. Anderson & R�gis Renault, 2006. "Advertising Content," American Economic Review, American Economic Association, vol. 96(1), pages 93-113, March.
  8. Simon P. ANDERSON & Régis RENAULT, 2008. "Comparative Advertising: disclosing horizontal match information," THEMA Working Papers 2008-29, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  9. E. Glen Weyl, 2010. "A Price Theory of Multi-sided Platforms," American Economic Review, American Economic Association, vol. 100(4), pages 1642-72, September.
  10. Mark Armstrong & Julian Wright, 2007. "Two-sided Markets, Competitive Bottlenecks and Exclusive Contracts," Economic Theory, Springer, vol. 32(2), pages 353-380, August.
  11. Andrei Hagiu, 2009. "Two-Sided Platforms: Product Variety and Pricing Structures," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 18(4), pages 1011-1043, December.
  12. Caillaud, Bernard & Jullien, Bruno, 2001. "Competing cybermediaries," European Economic Review, Elsevier, vol. 45(4-6), pages 797-808, May.
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