Information and two-sided platform profits |
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| Affiliation: | 1. Harvard University (HBS Strategy Unit), United States;2. Bank of Canada, Canada;1. European Commission, DG Comp, Belgium;2. Imperial College London, United Kingdom;3. University of Rome Tor Vergata, Italy;1. Toulouse School of Economics, University of Toulouse Capitole, France;2. Católica Porto Business School and CEGE, Universidade Católica Portuguesa, Portugal;1. The University of Alabama, Department of Economics, Finance & Legal Studies, 265 Alston Hall, Tuscaloosa, AL 35487, USA;2. Drexel University, LeBow College of Business, 3141 Chestnut Street, Philadelphia, PA 19104, USA;3. The Ohio State University, Fisher College of Business, 2100 Neil Avenue, Columbus, OH 43210, USA |
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| Abstract: | We study the effect of different levels of information on two-sided platform profits—under monopoly and competition. One side (developers) is always informed about all prices and therefore forms responsive expectations. In contrast, we allow the other side (users) to be uninformed about prices charged to developers and to hold passive expectations. We show that platforms with more market power (monopoly) prefer facing more informed users. In contrast, platforms with less market power (i.e., facing more intense competition) have the opposite preference: they derive higher profits when users are less informed. The main reason is that price information leads user expectations to be more responsive and therefore amplifies the effect of price reductions. Platforms with more market power benefit because higher responsiveness leads to demand increases, which they are able to capture fully. Competing platforms are affected negatively because more information intensifies price competition. |
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