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Platform Competition under Asymmetric Information

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  • Hanna Halaburda
  • Yaron Yehezkel

Abstract

We consider platform competition in a two-sided market, where the two sides (buyers and sellers) have ex-ante uncertainty and ex-post asymmetric information concerning the value of a new technology. We fi nd that platform competition may lead to a market failure: competition may result in a lower level of trade and lower welfare than a monopoly, if the diff erence in the degree of asymmetric information between the two side is below a certain threshold. Multi-homing solves the market failure resulting from asymmetric information. However, if platforms can impose exclusive dealing, then they will do so, which results in market inefficiency.

Suggested Citation

  • Hanna Halaburda & Yaron Yehezkel, 2013. "Platform Competition under Asymmetric Information," American Economic Journal: Microeconomics, American Economic Association, vol. 5(3), pages 22-68, August.
  • Handle: RePEc:aea:aejmic:v:5:y:2013:i:3:p:22-68
    Note: DOI: 10.1257/mic.5.3.22
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    References listed on IDEAS

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    1. Bruno Jullien, 2011. "Competition in Multi-sided Markets: Divide and Conquer," American Economic Journal: Microeconomics, American Economic Association, vol. 3(4), pages 186-220, November.
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    3. E. Glen Weyl, 2010. "A Price Theory of Multi-sided Platforms," American Economic Review, American Economic Association, vol. 100(4), pages 1642-1672, September.
    4. repec:hrv:faseco:4589709 is not listed on IDEAS
    5. Ramon Casadesus-Masanell & Francisco Ruiz-Aliseda, 2008. "Platform Competition, Compatibility, and Social Efficiency," Working Papers 08-32, NET Institute.
    6. Attila Ambrus & Rossella Argenziano, 2009. "Asymmetric Networks in Two-Sided Markets," American Economic Journal: Microeconomics, American Economic Association, vol. 1(1), pages 17-52, February.
    7. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, January.
    8. Ettore Damiano & Li Hao, 2008. "Competing Matchmaking," Journal of the European Economic Association, MIT Press, vol. 6(4), pages 789-818, June.
    9. Gilbert, Richard J & Newbery, David M G, 1982. "Preemptive Patenting and the Persistence of Monopoly," American Economic Review, American Economic Association, vol. 72(3), pages 514-526, June.
    10. Andrei Hagiu & Robin S. Lee, 2011. "Exclusivity and Control," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 20(3), pages 679-708, September.
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    Citations

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    Cited by:

    1. Jullien, Bruno & Pavan, Alessandro, 2013. "Platform Pricing under Dispersed Information," IDEI Working Papers 793, Institut d'Économie Industrielle (IDEI), Toulouse.
    2. Mark J. McCabe & Christopher M. Snyder, 2016. "Open Access as a Crude Solution to a Hold-up Problem in the Two-Sided Market for Academic Journals," NBER Working Papers 22220, National Bureau of Economic Research, Inc.
    3. Hagiu, Andrei & Wright, Julian, 2015. "Multi-sided platforms," International Journal of Industrial Organization, Elsevier, vol. 43(C), pages 162-174.
    4. Jeitschko, Thomas D. & Tremblay, Mark J., 2014. "Homogeneous platform competition with endogenous homing," DICE Discussion Papers 166, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    5. Gary Biglaiser & Jacques Crémer, 2016. "The Value of Incumbency in Heterogeneous Platforms," CESifo Working Paper Series 5829, CESifo Group Munich.
    6. Sagit Bar-Gill, 2013. "Game of Platforms: Strategic Expansion in Two-Sided Markets," Working Papers 13-12, NET Institute.
    7. Halaburda, Hanna & Jullien, Bruno & Yehezkel, Yaron, 2016. "Dynamic Competition with Network Externalities: Why History Matters," CEPR Discussion Papers 11205, C.E.P.R. Discussion Papers.
    8. Biglaiser, Gary & Crémer, Jacques, 2016. "The value of incumbency in heterogeneous platforms," CEPR Discussion Papers 11207, C.E.P.R. Discussion Papers.
    9. Hanna Hałaburda & Yaron Yehezkel, 2016. "The Role of Coordination Bias in Platform Competition," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 25(2), pages 274-312, April.
    10. Hagiu, Andrei & Hałaburda, Hanna, 2014. "Information and two-sided platform profits," International Journal of Industrial Organization, Elsevier, vol. 34(C), pages 25-35.
    11. Biglaiser, Gary & Crémer, Jacques, 2016. "The value of incumbency for heterogeneous platforms," TSE Working Papers 16-630, Toulouse School of Economics (TSE), revised Nov 2016.

    More about this item

    JEL classification:

    • D41 - Microeconomics - - Market Structure, Pricing, and Design - - - Perfect Competition
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

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