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Private contracts in two‐sided platforms

Author

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  • Gastón Llanes
  • Francisco Ruiz‐Aliseda

Abstract

We study a platform that signs private contracts with sellers. Contractual secrecy implies interrelated hold‐up problems for buyers and sellers that reduce platform profits and welfare. By increasing its control over sellers' prices, the platform is able to increase price transparency and commit to not behaving opportunistically, which increases profits and welfare. Thus, policy prescriptions for dealing with contractual secrecy are reversed in the case of two‐sided platforms. We also find a platform may benefit from an erosion of its market power on one side of the market because this erosion may raise the surplus it offers the other side.

Suggested Citation

  • Gastón Llanes & Francisco Ruiz‐Aliseda, 2021. "Private contracts in two‐sided platforms," RAND Journal of Economics, RAND Corporation, vol. 52(4), pages 815-838, December.
    • Handle: RePEc:bla:randje:v:52:y:2021:i:4:p:815-838
    DOI: 10.1111/1756-2171.12392
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    References listed on IDEAS

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    Cited by:

    1. Xi Li & Xinlong Li, 2023. "The Bright Side of Inequity Aversion," Management Science, INFORMS, vol. 69(7), pages 4210-4227, July.
    2. Jan Frederic Nerbel & Markus Kreutzer, 2023. "Digital platform ecosystems in flux: From proprietary digital platforms to wide-spanning ecosystems," Electronic Markets, Springer;IIM University of St. Gallen, vol. 33(1), pages 1-20, December.

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