In a two-sided market, two groups interact through an intermediary, or platform, that accounts for the externalities between the groups. Two-sided networks can be found in many industries, including search engines or communication networks such as the media and the internet. This program will focus on these industries, and propose a discussion on several important issues that are currently discussed in the economic literature.
- Platforms as two-sided markets - Bernard Caillaud
- Social media platforms - Francis Bloch
- Search: Platform design - Régis Renault
- Platform antitrust: Empirical tests - Philippe Gagnepain
Platforms as two-sided markets - Bernard Caillaud
This course will focus on network effects, in particular on services/platforms that are available to several groups of users among which there exist cross-network externalities. This theory of so-called two-sided markets offers many new insights to analyze industries such as video games, matchmaking agencies, credit card systems or the media industry, and it is particularly central to the analysis of the new business models in the digital economy that are based on advertising. After a reminder of the basic articles on the topic of two-sided markets, we will study selected recent advances and applications, in particular in the media industry and other type of industry that is mostly financed through advertising, also touching on topics related to the use of personal data and privacy issues.
- Basics : Two-sided platforms.
- Advertising-based platform models.
- Reseller vs marketplace/platform: choice of a business model.
- Economic policy facing platforms: taxation and antitrust.
- Collection and use of users’ data on platforms
Specific Pre-requisites: A solid background in microeconomics and applied game theory is necessary. A good knowledge of standard industrial organization is also required.
- Armstrong, M. (2006): “Competition in Two-Sided Markets”, RJE, 37(3), 668–91.
Caillaud, B. and B. Jullien (2003), “Chicken & Egg: Competition among Intermediation Service Providers”, RJE, 34(2), 309–28.
- Rochet, J.-C. and J. Tirole (2003): “Platform Competition in Two-Sided Markets”, JEEA, 1(4), 990–1029.
- Rochet, J.-C. and J. Tirole (2006): “Two-Sided Markets: A Progress Report”, RJE, 37(3), 645–67.
Social media platforms - Francis Bloch
Social media platforms (Facebook, Instagram, and Twitter for instance) play an increasingly important role in everyday life. Their existence and development poses new challenges to economists. How credible is the information (including ratings and news) contained in social media platforms? Can this information be exploited by third parties to manipulate opinion, diffuse new products, extract surplus from consumers? How is information contained in social platforms protected and what are the risks on privacy? The course will propose an introduction to these issues, drawing from recent work (both theoretical and empirical) in economics, computer science and marketing.
- Diffusing of new products and viral marketing
- Ratings and reviews
- Rumors and fake news
- Information extraction and privacy
- Bloch, F., Demange, G., & Kranton, R. (2018). Rumors and social networks. International Economic Review, 59(2), 421-448.
- Bloch, F., & Olckers, M. (2019). Friend-based ranking. Available at SSRN 3213311.
- Leduc, M. V., Jackson, M. O., & Johari, R. (2017). Pricing and referrals in diffusion on networks. Games and Economic Behavior, 104, 568-594.
- Mayzlin, D., Dover, Y., & Chevalier, J. (2014). Promotional reviews: An empirical investigation of online review manipulation. American Economic Review, 104(8), 2421-55.
Search: Platform design - Régis Renault
The course presents the basic concepts underpinning the theory of imperfectly competitive markets with consumer search and draws some implications for the design of online platforms. The theory of consumer search can address critical questions such as the impact of reduced search cost on prices, product variety, and product design as well as advertising practices. Particular attention is devoted to the allocation of prominence of sellers in the search order and the role of information obfuscation in maintaining market power on a platform that should nonetheless remain attractive to consumers.
- Price dispersion
- Matching products to consumers
- Buyer and seller heterogeneity
- Prominence and ordered search
- Obfuscation and platform design.
- Anderson, S. P., Renault, R. (1999). Pricing, product diversity, and search costs: a Bertrand-Chamberlin-Diamond model. The RAND Journal of Economics, 30(4), 719-735.
- Anderson, S. P., & Renault, R. (2018). Firm pricing with consumer search. Handbook of Game Theory and Industrial Organization, 2, 177-224.
- Armstrong, M. (2017). Ordered consumer search. Journal of the European Economic Association, 15(5), 989-1024.
- Bar-Isaac, H., Caruana, G., Cunat, V. (2012). Search, Design, and Market Structure. American Economic Review, 102(2), 1140-1160.
Platform antitrust: Empirical tests - Philippe Gagnepain
Platform economics creates some important challenges for antitrust policy. This course proposes to discuss several antitrust issues from an empirical perspective. Examples include: (i) Platform providers who compete with one another to get the firms that produce of complementary goods and services onboard their network, and often rely on exclusive contracts or vertical integration in order to do so. (ii) Apple who uses most favored-nation (MFN) clauses which prohibited publishers from selling their e-books at higher retail prices on Apple’s iBookstore than they sold for elsewhere. (iii) The newspaper market which provides an ideal environment for analyzing the effect of mergers on product features. An interesting question is whether, after an ownership consolidation, newspaper publishers improve or diminish the content quality, whether they enlarge or shrink the local news ratio, or whether they increase or decrease content variety. Whether or not all these (and many other) arrangements are pro- or anti-competitive needs to be tested using simple reduced forms or more complex structural models which aim at describing more precisely each economic agent’s strategic behavior.
- Merger effects
- Exclusive contracts
- Vertical integration
- Most favored-nation clauses
- Fan, Y. (2013). Ownership consolidation and product characteristics: A study of the US daily newspaper market. American Economic Review, 103(5), 1598-1628.
- Foros, Ø., Kind, H. J., & Shaffer, G. (2017). Apple’s agency model and the role of most‐favored‐nation clauses. The RAND Journal of Economics, 48(3), 673-703.
- Jeziorski, P. (2014). Effects of mergers in two-sided markets: The US radio industry. American Economic Journal: Microeconomics, 6(4), 35-73.
- Lee, R. S. (2013). Vertical integration and exclusivity in platform and two-sided markets. American Economic Review, 103(7), 2960-3000.
Contents - Social Networks, Plaforms and Regulation of Information