Topic: Design of Market Structure within the Platform

Lecturer: Prof.Chuang Du, Institute of Economics, Chinese Academy of Social Sciences

Time: 14:00-15:30 p.m. June 15th, 2023

Venue: B438 Zhixin Building, Central Campus

Abstract: In a two-sided market where buyers and sellers are matched, the platform can influence the entry and exit of merchants through optimal pricing, and design an in-platform market structure that conforms to the maximization of platform profits. The analysis of the "bilateral platform + Salop circular market within platform" model established in this paper shows that, unlike the classic Salop model in which free entry leads to excessive number of merchants, when the platform can cross-subsidize, the number of merchants caused by the design of market structure within the platform is equal to the socially optimal number, but the impact on consumer welfare depends on the parameters. There may be an increase in total social welfare and a decrease in consumer welfare. This paper suggests the possible strategic responses and welfare consequences of price controls imposed by the government on large Internet platforms. The model can also explain why the platform is often negatively evaluated by public opinion while improving the overall efficiency.