Towards a Theory of Platform Dynamics

Luis Cabral

No 13052, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: I introduce a dynamic framework to analyze platforms. The (single) platform owner sets prices at the beginning of each period. Agents (buyers, sellers, readers, consumers, merchants, etc) make platform membership decisions occasionally. I show that optimal platform pricing addresses two externalities: across sides and across time periods. This results in optimal prices which depend on platform size in a non-trivial way. By means of numerical simulations, I examine the determinants of equilibrium platform size, showing that the stationary distribution of platform size may be bi-modal, that is, with some probability the platform remains very low or takes very long to increase in size. I also contrast the dynamics of proprietary vs non-proprietary (i.e., zero-priced) platforms; and consider the specific case of asymmetric platforms (one side cares about the other but not vice-versa).

Date: 2018-07
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Journal Article: Towards a theory of platform dynamics (2019)
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