The Economics of Markets and Platforms

Platforms are typically digital markets although platforms can designate markets generally. The economic analysis of markets and platforms are one and the same. Advances in the study of markets and platforms both contribute to economics. The discussion shows that the platform model combines and extends the basic Walrasian and Marshalian market models. The analysis considers various theories explaining the bid-ask spread including market power, search costs, matching costs, adverse selection, and moral hazard. The analysis also examines the role of platforms in endogenous price adjustment and market clearing. The analysis discusses the implications for the theory of the firm. The analysis further considers how platforms affect innovation and entrepreneurship