ABSTRACT

Weyl (2010) shows that in multi-sided platform settings, profit maximization leads to classical and Spence distortions, with the Spence distortion providing a new explanation for why prices may sometimes be too high (or too low) on platforms. However, the key formulas Weyl gives comparing privately and socially optimal prices are misstated. Properly interpreted, his results only explain marginal incentives with respect to setting prices and not the total distortion in prices, which can be very different.

KEYWORDS

Two-sided markets, Regulation, Spence

JEL CLASSIFICATION

D42; E85; L14

American Economic Review

https://www.aeaweb.org/articles?id=10.1257/aer.20172018

https://doi.org/10.1016/j.jclepro.2019.05.001