Digital platforms to close the information asymmetry GAPS

Abstract

Market intermediaries coordinate the actions of buyers and sellers. Digital platforms, including the case Platform as a Service (PaaS), take the roles of market intermediaries with some novel ones. In a multi-intermediary world, consumers and suppliers continue to incur search costs due to reacting to multiple intermediaries. Consumers and suppliers discount future net gains due to monetization of search time costs. Consumers have different levels of willingness to pay, suppliers have different opportunity costs, and intermediary firms have different transaction costs. These firms set both bid prices and ask prices. Consumers look for firms that offer a lower purchase price, and suppliers look for firms that offer a higher sale price. Due to such heterogeneity and search costs, the market equilibrium is a distribution of sale prices and a distribution of purchase prices. This equilibrium depends on the discount rate of consumers and suppliers, for whom a higher discount rate stands for a decrease in activity (the number of active consumers and suppliers), while a higher discount rate means an increase in the activity of intermediary firms (the number of active firms): a higher discount rate increases the costs of time-consuming search for consumers and suppliers. Intermediary firms then raise their purchase prices and lower their sale prices because consumers and suppliers are willing to pay a premium to avoid further search, thus increasing the returns to intermediation for firms and stimulating growth in the number of intermediary firms active at the market equilibrium. Thus, the discount rate determines the search costs. When this rate falls to zero, the search costs are eliminated and the relationships between the size of the bid-ask spread and transaction costs are revealed. Then the Walras equilibrium will be the limiting case of the intermediated market when transaction costs fall, and the supply and demand model can be considered an ideal case compatible with the market under consideration at the presence of search costs and price-setting firms. The cloud technologies are saving the general search costs. The two basic cases of providers for such technologies are monopoly and competition.