Market failure in a new model of platform design with partially informed consumers

Fujuan Gao, Enrico Maria Fenoaltea and Yi-Cheng Zhang

Physica A: Statistical Mechanics and its Applications, 2023, vol. 619, issue C

Abstract: In online markets, the role of a central platform that helps buyers and sellers to find each other is critical to reducing information asymmetry. To better understand the role of an intermediary on market outcomes, we propose a new platform design model whose foundation rests on the tools developed by physicists working on complex systems. Our framework allows us to study the influence of different platform strategies on player payoffs in a market with partially informed consumers. We find a fundamental market failure: the optimal platform strategy minimizes social welfare. Therefore, consumer search within the platform must be driven by a sub-optimal algorithm that solves the trade-off between the cost of fees charged by the platform and a high transaction volume.

Keywords: Complex systems; Market failure; Partial information; Platform design; Econophysics (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0378437123003035
Full text for ScienceDirect subscribers only. Journal offers the option of making the article available online on Science direct for a fee of $3,000

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:eee:phsmap:v:619:y:2023:i:c:s0378437123003035

DOI: 10.1016/j.physa.2023.128748

Access Statistics for this article

Physica A: Statistical Mechanics and its Applications is currently edited by K. A. Dawson, J. O. Indekeu, H.E. Stanley and C. Tsallis

More articles in Physica A: Statistical Mechanics and its Applications from Elsevier
Bibliographic data for series maintained by Catherine Liu ().