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The economics of platforms in a Walrasian framework

Author

Listed:
  • Anil K. Jain

    (Federal Reserve Board of Governors)

  • Robert M. Townsend

    (Massachusetts Institute of Technology)

Abstract

We present a tractable model of platform competition in a general equilibrium setting. We endogenize the size, number, and type of each platform, while allowing for different user types in utility and impact on platform costs. The model is applicable to the recent growth in digital currency platforms. The economy is Pareto efficient because platforms internalize the network effects of adding more or different types of users by offering type-specific contracts that state both the number and composition of platform users. Using the Walrasian equilibrium concept, the sum of type-specific fees paid cover platform costs. Given the Pareto efficiency of our environment, we argue against the presumption that platforms with externalities need be regulated.

Suggested Citation

  • Anil K. Jain & Robert M. Townsend, 2021. "The economics of platforms in a Walrasian framework," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 71(3), pages 877-924, April.
    • Handle: RePEc:spr:joecth:v:71:y:2021:i:3:d:10.1007_s00199-020-01309-6
    DOI: 10.1007/s00199-020-01309-6
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    Cited by:

    1. Jean-Baptiste Desquilbet & Etienne Farvaque, 2022. "'As one dies, so dies the other' ? On local complementary currencies as two-sided platforms," Working Papers halshs-03518592, HAL.

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    More about this item

    Keywords

    Two-sided markets; First and second welfare theorems; Externalities;
    All these keywords.

    JEL classification:

    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • D62 - Microeconomics - - Welfare Economics - - - Externalities

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