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 Classification: K21, K41, L11, L40, L41