Essays on Intermediation, Advertisement and Platform innovation

This thesis comprises three chapters in the area of intermediation, advertisement and platform innovation. Chapter 1, Quality Uncertainty, Uninformative Advertising and Intermediation Margins, works two contributions. First, we modify Milgrom and Roberts (1986) model of price and advertising as possible signals of an experience good quality, in such a way to rule out the possibility of price signalling alone. Second, the resulting, more tractable, model is then used to contrast the potential benefits of advertisement and intermediation, modelled as quality certification, as alternative ways to overcome information asymmetries on the quality of new experience goods. We show conditions under which intermediation can be a better way of revealing a product's true quality than advertising. Chapter 2, Platform innovation in a two-sided market, studies dynamic innovation incentives in two-sided markets. We present a monopoly platform model with service quality innovations and innovation models of competing platforms. We show that, in a non-tournament duopoly model, platforms will end up in a prisoners' dilemma equilibrium where they conduct same positive R & D, even if their profit will be higher without R & D investments. This result is derived assuming perfect ex-ante symmetry of the platform, and focusing on an ex-post symmetric equilibrium. We then present three extensions with asymmetric network externalities, platform exogenous specialization in side innovations, and innovation tournament model. Chapter 3, A note on Armstrong (2006) monopoly platform model, shows that the set of assumption in Armstrong (2006) monopoly platform model is not sufficient to guarantee the existence of an interior equilibrium with positive demands. We then show that the problem can be fixed by assuming that platform connections generate direct intrinsic value to the connected agents.