How Many Markets are Two-Sided?

Lapo Filistrucchi, Jul 27, 2010

There is a lot of talk nowadays, among competition policy practitioners, about two-sided markets and two-sided platforms. It is indeed one of the hot topics. Part of the interest arises from it being a relatively new concept and part is due to the claim from many economists that competition policy for two-sided markets should be different than for traditional one-sided markets.

For instance, a price below marginal cost should not be perceived as a sign of a predatory attempt even if charged by a dominant firm, or a high profit margin should not be considered a sign of market power. Indeed, these are two among the eight fallacies of a one-sided approach to competition policy in two-sided markets identified by Wright. And many other authors, such as Evans and Evans & Noel, have highlighted that results of economic models on which competition policy is traditionally based do not hold in two-sided markets

The reason supporting the claim that competition policy in two-sided markets should be different is, in essence, that a firm in a two-sided market needs both sides to do business or, as it is often put, it is a platform that needs to get “both sides on board.” Evans & Schmalensee go as far as reminding their readers that in a two-sided market “it takes two to tango.”

I will not discuss here the implications of the two-sided nature of the market for competition policy. Suffice it to say that there is growing recognition that two-s

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