A Price Theory of Multi-Sided Platforms: Comment

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 that Weyl gives comparing priva...

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Bibliographic Details
Published in:The American economic review 2018-09, Vol.108 (9), p.2758-2760
Main Authors: Tan, Hongru, Wright, Julian
Format: Article
Language:English
Subjects:
Distortion
Economic theory
Incentives
Prices
Pricing policies
Profit maximization
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Summary: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 that Weyl gives comparing privately and socially optimal prices are misstated. Properly interpreted, his results only explain marginal incentives with respect to setting prices but not the total distortion in prices, which can be very different.
ISSN:0002-8282
1944-7981
DOI:10.1257/aer.20172018