Strategic Release of Information in Platforms: Entry, Competition, and Welfare

Abstract

Information Disclosure in Platforms: Optimizing Volumes and Prices Can Harm Consumers Two-sided platforms reduce frictions and facilitate trade in many sectors, and, in doing so, they increasingly collect and process data about supply and demand. The paper “Strategic Release of Information in Platforms: Entry, Competition, and Welfare” by Kostas Bimpikis and Giacomo Mantegazza shows that platforms can increase their profits by strategically disclosing (coarse) information that they collected about demand to the supply side. However, this practice may also adversely impact the welfare of consumers. By designing its information disclosure policy, a platform can influence the entry and pricing decisions of its potential suppliers. In general, it is optimal for platforms to disclose their information only partially to either “nudge” entry when it is costly for suppliers to join or discourage it when suppliers do not have valuable outside options. On the other hand, consumers may end up worse off due to higher prices compared with when the platform refrains from sharing any demand information.