Platform Competition under Asymmetric Information
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.
Volume (Year): 5 (2013)
Issue (Month): 3 (August)
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