Analyzing Market Definition and Power in Multi-sided Platform Markets

Abstract:     
The SSNIP test and Critical Loss Analysis are widely used tools for determining market definition in merger and sometimes other antitrust matters. However, the standard techniques used to test for a relevant antitrust market are incorrect when the firms in question operate two-sided platforms. When a two-sided platform raises price on one side of its business, it negatively impacts both sides iteratively. We show how Critical Loss Analysis can be extended to the case of two-sided platforms and drive formulas for its implementation. We perform comparative statics to show that the bias from the misuse of one-sided formulas in a two-sided setting can be large.

JEL Classifications: K21, K41, L11, L40, L41

Working Paper Series