Transparency and Control in Platforms for Networked Markets

TL;DR

This paper examines how different platform design choices in networked markets affect efficiency, highlighting that balanced access strategies optimize participation and minimize efficiency loss.

Contribution

It introduces a networked Cournot competition model to analyze the impact of transparency and control in platform designs, proposing a balanced access approach as optimal.

Findings

Open access designs promote competitive production levels.

Controlled allocation leads to low participation and high efficiency loss.

Discriminatory access balances transparency and control effectively.

Abstract

In this paper, we analyze the worst case efficiency loss of online platform designs under a networked Cournot competition model. Inspired by some of the largest platforms in operation today, the platform designs that we consider examine the trade-off between transparency and control. Our results show that open access designs incentivize increased production towards perfectly competitive levels and limit efficiency loss, while controlled allocation designs lead to producer-platform incentive misalignment, resulting in low participation and unbounded efficiency loss. We also show that discriminatory access designs balance transparency and control, achieving the best of both worlds by maintaining high participation rates while limiting efficiency loss.