Paul Belleflamme, Martin Peitz, Eric Toulemonde
We introduce asymmetries across platforms in the linear model of competing two-sided platforms with singlehoming on both sides and fully characterize the price equilibrium. We identify market environments in which one platform has a larger market share on both sides while obtaining a lower profit than the other platform. This is compatible with higher price-cost margins on one or both sides, noting that in the latter case one margin must be negative. Our finding raises further doubts on using market shares as a measure of market power in platform markets.
Johannes Johnen, Benson Tsz Kin Leung
We study how firms choose designs—of their products or product information—to divert consumers’ limited attention away from price comparison or towards it. Firms choose designs to affect the dispersion of product match values and thereby how consumers allocate their limited attention. Consumers with limited attention trade off breadth and depths of search: they either study fewer products in detail to learn their match value, or superficially browse and compare prices of more products. We highlight a novel distraction effect of designs. Firms combine larger prices with designs that disperse match values to distract consumers from price-comparison. We show that more-detailed product information disperse match values and allows firms to distract consumers more effectively from price comparison. This way, interventions that allow firms to disclose more-detailed product information weaken competition and decrease consumer surplus. In turn, interventions that make information coarser and more easily-available information—like energy-efficiency labels and front-package food labels like nutriscores—increases competition and consumer surplus. These findings connect evidence of various informational interventions in the context of pension funds, advertisements, and food labels.
Many products sold on online platforms have additional features like fees for shipping, luggage, upgrades etc. We study when a two-sided platform uses dark patterns to shroud additional features towards potentially-naive buyers. We explore a novel mechanism according to which platforms shroud to manipulate network externalities between buyers and sellers. Exploring this mechanism, we argue the advent of online marketplaces led to less-transparent markets. First, platforms have stronger incentives to shroud seller fees than sellers themselves. Second, when sellers on the platform compete more fiercely, platforms—somewhat perversely—shroud more. We connect these results to the current debate on regulating online platforms
We study a model of simultaneous price competition that subsumes many employed in the literature over the last several decades. Firms sell a homogeneous good to consumers characterized by the number of prices they (exogenously) consider. We show there is a unique equilibrium if and only if some consumers consider exactly two prices. The equilibrium is in symmetric mixed strategies. When no consumer considers exactly two prices, there is, in addition, an uncountable infinity of asymmetric equilibria. Our results show that the paradigm generically produces a unique equilibrium, and only the commonly sought symmetric equilibrium is robust to perturbations in consumer behavior.
Hadar Gafni, Marek Hudon, Anais Perilleux
Crowdfunding has created new opportunities for poor microentrepreneurs. One crucial question is the impact that the purpose of a loan—either business investment or basic necessities—may have on the success of a campaign. Investigating a prosocial crowdfunding platform, we find that loans taken out to meet basic needs are funded faster than business-related loans, especially for small amounts, which can be explained by the prosocial motivation of microlenders. Moreover, female microborrowers are funded faster than men, especially for basic needs loans. Our results therefore suggest an ethical blind spot, since prosocially motivated crowdlenders may unintentionally end up producing adverse effects, replicating gender role by supporting women to a lesser extent when they apply for business loans. This finding expands prosocial motivational theory in ethical finance.
Paul Belleflamme, Nicolas Neysen
Operators of digital platforms have to convince potential users that their intermediation and matchmaking services bring additional value in the market. To do so, they need to formulate a strong value proposition, which convinces users that joining the platform brings them larger value than staying out. In recent years, a number of frameworks have been developed to help entrepreneurs reflect on which elements should be included (or not) in their value proposition. In this paper, the authors argue that such tools do not necessarily offer a satisfactory answer, as they miss the specificities of platform-based business models. Hence, they propose an alternative tool that overcomes the limitations they identified and is more appropriate for nascent multisided platforms. They argue that it is crucial to identify the complementarities and potential conflicts between the wants, needs, and fears of the different groups of users that the platform connects, so as to formulate a set of interlocked value propositions.
Paul Heidhues, Johannes Johnen, Botond Koszegi
We identify a competition-policy-based argument for regulating the secondary features of complex or complexly priced products when consumers have limited attention. Limited attention implies that consumers can only “study” a small number of complex products in full, while—by failing to check secondary features—they can superficially “browse” more. Interventions limiting ex post consumer harm through safety regulations, caps on certain fees, or other methods induce consumers to do more or more meaningful browsing, enhancing competition. We show that for a pro-competitive effect to obtain, the regulation must apply to the secondary features, and not to the total price or value of the product. As an auxiliary positive prediction, we establish that because low-value consumers are often more likely to study—and therefore less likely to browse—than high-value consumers, the average price consumers pay can be increasing in the share of low-value consumers. We discuss applications of our insights to health-insurance choice, the European Union’s principle on unfair contract terms, food safety in developing countries, and the shopping behaviour of (and prices paid by) low-income and high-income consumers.
In many deceptive markets, firms design contracts to exploit mistakes of naive consumers. These contracts also attract less-profitable sophisticated consumers. I study such markets when firms compete repeatedly. By observing their customers' usage patterns, firms acquire private information about their level of naiveté. First, I find that private information on naiveté mitigates competition and is of great value even with homogeneous products. Second, competition between initially symmetrically informed firms is mitigated when firms can educate naifs about mistakes. In an analogous setting without naifs, the second result does not occur; the first result occurs when firms cannot disclose fees.
Paul Belleflamme, Wing Man Wynne Lam, Wouter Vergote
Two duopolists compete on price in the market for a homogeneous product. They can “profile” consumers, that is, identify their valuations with some probability. If both firms can profile consumers but with different abilities, then they achieve positive expected profits at equilibrium. This provides a rationale for firms to (partially and unequally) share data about consumers or for data brokers to sell different customer analytics to competing firms. Consumers prefer that both firms profile exactly the same set of consumers or that only one firm profiles consumers as this entails marginal cost pricing (so does a policy requiring list prices to be public). Otherwise, more protective privacy regulations have ambiguous effects on consumer surplus.