The Economics of Two-sided Markets
and Issues for Competition Policy
Thibaud Vergé
Chief Economist, Autorité de la Concurrence
Jevons Institute, University College London (July 7, 2010)
Two-sided Markets
• Connect two different groups of consumers.
• Feedback loop between the two sides of the markets
• Platform may sometimes be seen as a multi-product firm
(selling different goods to the two sides of the market).
• Similar to complementary goods except that the two
goods are sold to different consumers.
• No specific to the digital economy
• Newspapers, Radio and TV Channels, Yellow Pages, stock
markets, payment cards, shopping malls, matchmakers, …
Different types of two-sided
markets
• Transaction Platforms
• The main objective of the platform is to generate transactions
between the two sides of the market.
• E.g., Payment cards, eBay.
• Other Platforms
• Different products sold to the two sides of the market.
• E.g., Newspapers, Radio or TV channel, Shopping malls.
• Tariffs may take different forms
• Membership fee, usage fee or a combination of both.
• Impossibility to charge one side of the market.
• Tariffs may take different forms on the two sides of the market.
Transaction Markets
• Need to take the feedback effect into account, but
possible to transform it in an “one-sided” analysis
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•
•
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One product: transaction
One price: sum of the fees charged to both sides.
One cost: sum of the costs on the two sides.
Complexity: Demand function.
• Implications
• SSNIP test: increase the (total) price
• Predation: compare (total) price with (total) cost.
Other Platforms
• “Non Transaction” Platforms
• Generating a transaction between the two sides of the market is
not the direct objective of the platform.
• E.g., Newspapers, Radio and TV channels.
 Two different products with interaction between the two.
• Relevant Markets
• Substitutes to the platform might be different on the two sides of
the market.
• Still need to take the feedback loop into account. But where should
you stop?
• Which price to consider for a SSNIP test? How to deal with free
goods?
• Empirical analysis and merger simulations become more complex.
Other Platforms (II)
• Market Power and Barriers to Entry
• High fixed costs and indirect network effects: dominant firm in
equilibrium (or very concentrated market).
• Dynamic effects to take into account (“Chicken and Egg” problem:
how to get into a market given that it requires to acquire enough
customers on both sides?)
• Tipping.
• Predation
• Often optimal to subsidize one side of the market.
• When is below-cost pricing or giving away free goods an
exclusionary behaviour?
http://www.autoritedelaconcurrence.fr
Thibaud Vergé (Chief Economist)
thibaud.verge@autoritedelaconcurrence.fr