Private contracts in two-sided platforms

Abstract

© 2021, The RAND Corporation.We study a platform that signs private contracts with sellers. Contractual secrecy implies interrelated hold-up problems for buyers and sellers that reduce platform profits and welfare. By increasing its control over sellers' prices, the platform is able to increase price transparency and commit to not behaving opportunistically, which increases profits and welfare. Thus, policy prescriptions for dealing with contractual secrecy are reversed in the case of two-sided platforms. We also find a platform may benefit from an erosion of its market power on one side of the market because this erosion may raise the surplus it offers the other side.