Not Enough Girls in the Club: The European Antitrust Approach Towards Multisided Markets

Christian Ahlborn, Christoph Barth, Jun 17, 2013

Long before the era of e-commerce, girls would be let into nightclubs for free (or get bonus drinks) while guys would be charged often “excessive” prices to get past the bouncer. Multisided markets involve economic platforms that provide related goods or services to two or more distinct customer groups where the value of the product to one customer group is dependent on the number of users or participants “on the other side.” An obvious contemporary example is smartphone operating systems that connect users of handsets with application providers: the larger the number of handset users, the more attractive is the platform to application providers (and vice versa). For online dating-in some ways the internet equivalent of a traditional nightclub-meanwhile, the match-making platform’s attractiveness to men is, again, dependent on the number of participating women (and vice versa).

The task of platform operators in multisided markets is to overcome co-ordination problems and to bring both (or all) sides “on board.” In setting prices for the various groups, they take into account the relationship among the various groups and the interdependencies of their demands, i.e. they internalize the network externalities between the various groups. Platform operators often achieve this balancing act by charging very different prices to the different groups of customers even where the underlying costs for the various users are the same.

In fact, there are frequent examples where for “one side” the use of the platform is free: Google makes available its search engine for free while charging advertisers (the same is true for Microsoft or Yahoo). Similarly, certain daily or weekly newspapers require their advertisers to pay all costs incurred and stock exchanges charge “liquidity takers” a commission for every share bought or sold, while “liquidity makers” get a significant rebate (or sometimes even paid for providing additional liquidity).

While economists have made significant progress over the last decade in describing and understanding multisided markets, competition authorities have struggled to come to terms with their specific characteristics (such as the interdependencies between markets and the implications for pricing) and in adapting traditional antitrust tools accordingly. In Europe, the competition authorities and courts have developed three distinct approaches to the analysis of multisided markets.

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