ABSTRACT
This chapter explores how digitalization transforms economic markets, focusing on platform economics and auctions. It begins by discussing cost structures with high fixed costs and near-zero marginal costs, the substitutability of labor and machines, and network effects that drive value in digital platforms. Using Airbnb, Uber, and Apple’s App Store as examples, we analyze two-sided markets where pricing, quality control, and matching are central to platform success. We explore monopoly pricing with cross-side effects, drawing on Armstrong (2006), and highlight competition policy issues such as entry barriers, self-preferencing, and singlehoming versus multihoming. The chapter also introduces auctions, including English, Dutch, sealed-bid, and second-price (Vickrey) formats. We examine the winner’s curse, auction design, revenue outcomes, and the Revenue Equivalence Theorem. Applications include online ad markets, procurement, and spectrum allocation. The chapter emphasizes how traditional microeconomic tools remain powerful for analyzing modern digital markets.
