Platform Competition under Partial Belief Advantage

This paper considers platform competition in a two-sided market that includes buyers and sellers. One of the platforms benefits from a partial belief advantage, in that each side believes that it is more likely that the other side will join the advantaged platform. We find that the degree of the platform’s belief advantage affects its decision regarding the business model (i.e., whether to subsidize buyers or sellers), the access fees and the size of the platform. A slight increase in the platform’s belief advantage may induce the advantaged platform to switch from subsidizing sellers to subsidizing buyers, or induce the disadvantaged platform to switch from subsidizing buyers to subsidizing sellers.