Question

1. Consider a two-sided platform that matches econ students with econ teachers. The platform sets a price for teachers to access the platform and the price for students to access the platform. These prices are chosen to maximize the platform’s profits. Assume this is the only platform on the market.
   1. What determines who pays a higher price?
   2. Suppose recent job market trends mean there are twice as many teachers on the market than there used to be; how might that affect platform pricing for both groups?
   3. Suppose the employment opportunities of econ students changed, so that employers would determine hiring based on grades and exam scores. How might this change the pricing for both groups?

Answer 1

1.

It is the elasticity of demand that determines the price. The demand among teachers is relatively inelastic, so paying the higher price. But, students will have relatively elastic demand and they will be charged a lower price.

2.

When supply of teachers increase on the platform, then price will also increase to cater them. It will happen because demand is inelastic in nature. Price for the students will not be significantly affected.

3.

In the changed scenario in terms of the requirements of hiring, demand among students will become more elastics and students will have to pay higher prices. Though, teachers will pay the same price and it will not change.