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Platform Design Biases in Ad-Funded Two-Sided Markets

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  • Jay Pil Choi

    (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - Comue de Toulouse - Communauté d'universités et établissements de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

  • Doh-Shin Jeon

    (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - Comue de Toulouse - Communauté d'universités et établissements de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

Abstract

We investigate how platform market power affects platforms' design choices in ad-funded two-sided markets, where platforms may find it optimal to charge zero price on the consumer side and extract surplus on the advertising side. We consider design choices affecting both sides in opposite ways and compare private incentives with social incentives. Platforms' design biases depend crucially on whether they can charge any price on the consumer side. We apply the framework to technology adoption, privacy, and ad load choices. Our results provide a rationale for a tougher competition policy to curb market power of ad-funded platforms with free services.

Suggested Citation

  • Jay Pil Choi & Doh-Shin Jeon, 2023. "Platform Design Biases in Ad-Funded Two-Sided Markets," Post-Print hal-04470490, HAL.
    • Handle: RePEc:hal:journl:hal-04470490
    DOI: 10.1111/1756-2171.12436
    Note: View the original document on HAL open archive server: https://hal.science/hal-04470490v1
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    References listed on IDEAS

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    Cited by:

    1. Martin Peitz, 2024. "The Economic Theory of Two-Sided Platforms," CRC TR 224 Discussion Paper Series crctr224_2024_584, University of Bonn and University of Mannheim, Germany.
    2. Zennyo, Yusuke, 2024. "A model of mobile app and ad platform markets," International Journal of Industrial Organization, Elsevier, vol. 97(C).
    3. Gambato, Jacopo & Peitz, Martin, 2025. "Platform-enabled information disclosure," International Journal of Industrial Organization, Elsevier, vol. 99(C).
    4. Shiva Shekhar & Radostina Shopova, 2025. "The Limits of Media See-Saws: Ad-Funded Platform Mergers Can Harm Both Sides," CESifo Working Paper Series 11768, CESifo.
    5. Doh-Shin Jeon & Domenico Menicucci, 2024. "Data portability and competition: Can data portability increase both consumer surplus and profits?," European Journal of Law and Economics, Springer, vol. 57(1), pages 145-162, April.
    6. Etro, Federico, 2023. "Platform competition with free entry of sellers," International Journal of Industrial Organization, Elsevier, vol. 89(C).
    7. Xu, Yu & Ling, Liuyi & Wu, Jie & Xu, Shengshuo, 2024. "On-demand ride-hailing platforms under green mobility: Pricing strategies and government regulation," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 189(C).

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