Working Paper

The Economics of Platforms in a Walrasian Framework

Abstract: We present a tractable model of platform competition in a general equilibrium setting. We endogenize the size, number, and type of each platform, while allowing for different user types in utility and impact on platform costs. The economy is Pareto effcient because platforms internalize the network effects of adding more or different types of users by offering type-specific contracts that state both the number and composition of platform users. Using the Walrasian equilibrium concept, the sum of type-specific fees paid cover platform costs. Given the Pareto efficiency of our environment, we argue against the presumption that platforms with externalities need be regulated.

Keywords: First and second welfare theorems; two-sided markets; Externalities;

JEL Classification: D50; D62;

https://doi.org/10.17016/IFDP.2020.1280

Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: International Finance Discussion Papers

Publication Date: 2020-05-18

Number: 1280