Platform Competition under Dispersed Information

Bruno Jullien and Alessandro Pavan

Discussion Papers from Northwestern University, Center for Mathematical Studies in Economics and Management Science

Abstract: We study monopolistic and competitive pricing in a two-sided market where agents have incomplete information about the quality of the product provided by each platform. The analysis is carried out within a global-game framework that offers the convenience of equilibrium uniqueness while permitting the outcome of such equilibrium to depend on the pricing strategies of the competing platforms. We first show how the dispersion of information interacts with the network effects in determining the elasticity of demand on each side and thereby the equilibrium prices. We then study "informative" advertising campaigns that increase the agents’ ability to estimate their own valuations and/or the distribution of valuations on the other side of the market.

Keywords: two-sided markets; dispersed information; platform competition JEL Classification: D82 (search for similar items in EconPapers)
Date: 2013-05-01
New Economics Papers: this item is included in nep-com, nep-cta, nep-mic, nep-mkt and nep-net
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