L22: Platforms and the Digital Economy

Question 1

what is a platform?

Answer 1

intermediary that makes a market for buyers and sellers

more broadly, intermediary that brings together groups of users to enable mutually beneficial interaction or exchange

Question 2

main features of a platform economy

Answer 2

technical functionality
- set of features that allow the platform to work

ecosystems
- collections of economic actors not controlled by the platform owner, who add value beyond being a regular user

network effects
- large user base increases value of a platform to all participants

Question 3

should platforms merge? - Farronato et al. 2020

Answer 3

study of the effect of a merger between the two largest platforms for pet-sitting services

main tradeoff is that a single platform may increase consumer welfare if network effects are large, but may decrease welfare due to higher prices or reduction in platform variety

idea to exploit variation in pre-merger market shares and a DiD to causally estimate network effects at the market level

users are on average not better off with a single dominant platform compared to two competitors

benefits form the merger because of network externalities but increased attrition since users value repeated transactions and couldn’t find their previous partners on the new platform
- platform fees did not increase (short-run prices so might be risky)