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American Economic Journal: Microeconomics: Vol. 5 No. 3 (August 2013)

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Platform Competition under Asymmetric Information

Article Citation

Halaburda, Hanna, and Yaron Yehezkel. 2013. "Platform Competition under Asymmetric Information." American Economic Journal: Microeconomics, 5(3): 22-68.

DOI: 10.1257/mic.5.3.22

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.

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Authors

Halaburda, Hanna (Harvard U)
Yehezkel, Yaron (Tel Aviv U)

JEL Classifications

D41: Market Structure and Pricing: Perfect Competition
D42: Market Structure and Pricing: Monopoly
D82: Asymmetric and Private Information; Mechanism Design
D83: Search; Learning; Information and Knowledge; Communication; Belief
L11: Production, Pricing, and Market Structure; Size Distribution of Firms
L12: Monopoly; Monopolization Strategies

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