Price Signals in Two-Sided Markets

Joshua Gans, Jul 27, 2010

Two-sided platforms have represented an antitrust challenge in a similar way to the challenge posed by innovation and dynamics. Put simply, a seeming lack of price competition to one set of consumers may mask competition for another, related set of consumers. That is, low competition within one side of the market may simply reflect intense competition for the other side of the market. This notion has been traditionally a focus in media markets where media outlets have been seen to charge higher prices to advertisers in order to access consumers (treating them as any monopolist would). However, the very fact that an outlet can earn monopoly rents from advertisers for each consumer they have, means that they will have strong incentives to compete for those very consumers. Those consumers will face much lower prices (perhaps none at all) as a consequence. For any antitrust analysis, it is therefore important to consider both sides of such markets.

A similar effect has been observed in credit card associations-a focus of much antitrust and regulatory attention over the past decade. For such platforms, it is the merchants who perhaps face monopolistic service charges when allowing credit card transactions while their customers face low prices that are, in fact, inducements to put more and more transactions on their cards. While this appears to be similar to the situation in media markets, there are some important differences.

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