Platform Design and Rent Extraction

Amedeo Piolatto and Florian Schuett

No 746858, Working Papers of Department of Economics, Leuven from KU Leuven, Faculty of Economics and Business (FEB), Department of Economics, Leuven

Abstract: We study the design of online platforms that aggregate information and facilitate trans actions. Leading players in the industry (e.g. the Booking Group) hold two types of platforms in their portfolio: revealing platforms that disclose the identity of transaction partners (like Booking.com) and anonymous platforms that do not (like Hotwire.com). Anonymous plat forms offer discounts but lead to inefficient matching between consumers and firms. We develop a model in which horizontally differentiated firms sell to heterogeneous consumers both directly and via a platform that enlarges the pool of consumers they can attract. The platform charges firms for transactions it intermediates and can choose to offer an anonym ous sales channel in addition to a revealing one. We show that offering both sales channels is profitable not only because it allows the platform to implement price discrimination, as suggested by the literature on opaque selling, but also because it improves rent extraction. The anonymous channel breaks the link between the price on the revealing channel and the firms’ outside option; moreover, it can reduce double marginalisation. The welfare impact of the anonymous channel is ambiguous: while it sometimes leads to market expansion, it also causes inefficiently high transport costs.

Pages: 49
Date: 2023-11
New Economics Papers: this item is included in nep-com, nep-mic, nep-pay and nep-reg
Note: paper number DPS 23.18
References: Add references at CitEc
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Forthcoming in FEB Research Report Department of Economics

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Related works:
Journal Article: Platform design and rent extraction (2025)
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Persistent link: https://EconPapers.repec.org/RePEc:ete:ceswps:746858

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