| Summary: |
This research project proposes to identify and characterize market distortions arising in two-sided markets as a consequence of
asymmetric information.
Two-sided markets are characterized by strategic complementary between agents' choices: (i) there are two or more categories of
agents interacting with each other through one (or more) intermediary platform(s); and (ii) in each side of the market, the benefit of
joining a platform depends on the number of agents of some other category who join the same platform (cross network effects).
Examples of two-sided markets include media markets, credit card industry, operating systems, e-commerce platforms, academic
journals, dating clubs and so on.
The literature on two-sided markets has grown extensively in recent years, with a major focus on the study of platforms' optimal
behavior, namely in relation to its (their) pricing strategies. Rochet and Tirole [2001, 2006], Caillaud and Jullien [2006] and
Armstrong [2006], among others, have shown that in two sided markets optimal pricing strategies could divert significantly from
standard profit-maximizing price strategies. This is because in the context of two-sided markets, platforms' pricing strategies in each
side of the market depend not only on the profits that the platform can make on the agents participating in this side of the market but
also on the effect that such participation rates entail on the profits that the platform can make on the other side of the market.
According to the theory of two-sided markets, platforms may be forced to quote price below marginal cost in one side of the market
(which is subsidized by the other side of the market) to bring both sides of the market on board. This result has been repeatedly
mentioned in the context of anti-trust cases involving two-sided markets to justify the non-predatory nature of platforms' price
strategies when these adopt price below marginal cost strategies (e.g. Times-Pi  |
Summary
This research project proposes to identify and characterize market distortions arising in two-sided markets as a consequence of
asymmetric information.
Two-sided markets are characterized by strategic complementary between agents' choices: (i) there are two or more categories of
agents interacting with each other through one (or more) intermediary platform(s); and (ii) in each side of the market, the benefit of
joining a platform depends on the number of agents of some other category who join the same platform (cross network effects).
Examples of two-sided markets include media markets, credit card industry, operating systems, e-commerce platforms, academic
journals, dating clubs and so on.
The literature on two-sided markets has grown extensively in recent years, with a major focus on the study of platforms' optimal
behavior, namely in relation to its (their) pricing strategies. Rochet and Tirole [2001, 2006], Caillaud and Jullien [2006] and
Armstrong [2006], among others, have shown that in two sided markets optimal pricing strategies could divert significantly from
standard profit-maximizing price strategies. This is because in the context of two-sided markets, platforms' pricing strategies in each
side of the market depend not only on the profits that the platform can make on the agents participating in this side of the market but
also on the effect that such participation rates entail on the profits that the platform can make on the other side of the market.
According to the theory of two-sided markets, platforms may be forced to quote price below marginal cost in one side of the market
(which is subsidized by the other side of the market) to bring both sides of the market on board. This result has been repeatedly
mentioned in the context of anti-trust cases involving two-sided markets to justify the non-predatory nature of platforms' price
strategies when these adopt price below marginal cost strategies (e.g. Times-Picayune (media industry); Microsoft browser (software
industry); NaBanco vs Visa (credit cards),...).
However, the theory of two-sided markets is completely based on the assumption of symmetric information, considering that all
agents and platforms are able to observe (or perfectly anticipate) the network benefit of joining the platform in each sided of the
market. This research project aims to fill in this gap in the literature, by (i) investigating the robustness of existing results regarding
platforms' pricing strategies in two-sided markets; and (ii) identifying and characterizing the type of market distortions arising in twosided
markets as a result of asymmetric information.
In particular, this project deals with two types of asymmetric information: unilateral and bilateral asymmetric information. Unilateral
asymmetric information arises when the platform is more informed than agents about the type and number of agents in the opposite
side of the market. For example, in media markets, media outlets often know better the characteristics of their audiences than
advertisers. Similarly, in e-commerce platforms, potential sellers tend to be less informed than platforms about the characteristics of
potential buyers. Bilateral asymmetric information takes place when not only the platform is more informed than agents about the
type of agents in the opposite side of the market but also agents are more informed than platforms about the type and number of
agents in their own side of the market. For example, in operating systems markets, platforms are better informed than software
developers about the type of users in the ma |