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http://ssrn.com/abstract=332022
 
 

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The Antitrust Economics of Two-Sided Markets


David S. Evans


University of Chicago Law School; University College London; Global Economics Group

November 2, 2002


Abstract:     
"Two-sided" markets have two different groups of customers that businesses have to get on board to succeed - there is a "chicken-and-egg" problem that needs to be solved. These industries range from dating clubs (men and women), to video game consoles (game developers and users), to credit cards (cardholders and merchants), and to operating system software (application developers and users). They include some of the most important industries in the economy.

Two-sided firms behave in ways that seem surprising from the vantage point of traditional industries, but in ways that seem like plain common sense once one understands the business problems they must solve. Prices do not and prices cannot follow marginal costs in each side of the market. Price levels, price structures, and investment strategies must optimize output by harvesting the indirect network effects available on both sides. By doing so, businesses in two-sided industries get both sides on board and solve the chicken-and-egg problem. There is no basis for asking regulators or antitrust enforcers to steer clear of these industries or to spend extra effort on them. The antitrust analysis of these industries, however should heed the economic principles that govern pricing and investment decisions in these industries.

Number of Pages in PDF File: 95

Keywords: antitrust, two-sided markets, multi-sided markets, competition policy, market structure, chicken-and-egg, pricing strategy, network effects, monopoly, multi-sided platforms, payment cards

JEL Classification: K21, D04, D01, D43, D85, K21, K40, L13, L22, L51

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Date posted: November 14, 2002 ; Last revised: March 1, 2014

Suggested Citation

Evans, David S., The Antitrust Economics of Two-Sided Markets (November 2, 2002). Available at SSRN: http://ssrn.com/abstract=332022 or http://dx.doi.org/10.2139/ssrn.332022

Contact Information

David S. Evans (Contact Author)
University of Chicago Law School ( email )
1111 E. 60th St.
Chicago, IL 60637
United States
University College London ( email )
London WC1E OEG
United Kingdom
Global Economics Group ( email )
1400 S. Dearborn, Suite 400
Chicago, IL 60603
United States
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