Observability of Incentive Contract and Platform Competition

Lei Bao, Yulin Zhang and Vitor Miguel Ribeiro

Australian Economic Papers, 2018, vol. 57, issue 2, 154-180

Abstract: As in traditional firms, owners of platforms may hire managers to reduce the marginal production cost. The managers’ contracts may be either observable or unobservable by rival platforms. This paper analyses the impact of contract observability in a two†sided market composed of symmetric indirect externalities with quantity competition and perfect information on agents’ effort. We show that, in both types of contracts, managers’ effort and platform subscription on each side of the market increase as the indirect network externality becomes more intense. However, the impact of the indirect network externality on platform profit is ambiguous. Managerial incentives, consumer surplus and social welfare are higher with observable contracts; however, platform profit is higher with unobservable contracts. Our analysis demonstrates that the disclosure of incentive information in two†sided markets implies tougher competition which unambiguously increases social welfare.

Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1111/1467-8454.12110

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:ausecp:v:57:y:2018:i:2:p:154-180

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0004-900X

Access Statistics for this article

Australian Economic Papers is currently edited by Daniel Leonard

More articles in Australian Economic Papers from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().