Double Marginalization in Two-Sided Markets
E. Glen Weyl
Microsoft Research New England; University of Chicago
July 2, 2008
Should banks (through Visa) be allowed to own debit clearing networks? This problem combines the classic Cournot (1838)-Spengler (1950) double marginalization problem with the more recent literature on two-sided markets (Rochet and Tirole, 2003). Because both the double marginalization (Weyl, 2008a) and two-sided markets (Weyl, 2008b) problems depend crucially on the pass-through rate, the analysis is natural and leads to strong over-identification given simple assumptions. Vertical integration does not generally erode (and often enhances) platform mark-ups. Therefore its (price level benefits) are more robust than those of competition in two-sided markets.
Number of Pages in PDF File: 45
Keywords: two-sided markets, double marginalization, vertical relations, pass-through
JEL Classification: L42, D42, D43
Date posted: January 8, 2009
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