We investigate how platform market power affects platforms' design choices in ad-funded two-sided markets, where platforms may find it optimal to charge zero price on the consumer side and extract surplus on the advertising side. We consider design choices affecting both sides in opposite ways and compare private incentives with social incentives. Platforms' design biases depend crucially on whether they can charge any price on the consumer side. We apply the framework to technology adoption, privacy, and ad load choices. Our results provide a rationale for a tougher competition policy to curb market power of ad-funded platforms with free services.
- D4: Market Structure and Pricing
- L1: Market Structure, Firm Strategy, and Market Performance
- L5: Regulation and Industrial Policy
Doh-Shin Jeon, and Jay Pil Choi, “Platform Design Biases in Ad-Funded Two-Sided Markets”, The RAND Journal of Economics, vol. 54, n. 2, August 2023, pp. 240–267.
The RAND Journal of Economics, vol. 54, n. 2, August 2023, pp. 240–267