Double Marginalization in Two-Sided Markets

45 Pages Posted: 8 Jan 2009  

E. Glen Weyl

Microsoft Research; Yale University

Date Written: July 2, 2008

Abstract

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.

Keywords: two-sided markets, double marginalization, vertical relations, pass-through

JEL Classification: L42, D42, D43

Suggested Citation

Weyl, E. Glen, Double Marginalization in Two-Sided Markets (July 2, 2008). Available at SSRN: https://ssrn.com/abstract=1324412 or http://dx.doi.org/10.2139/ssrn.1324412

Eric Glen Weyl (Contact Author)

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Yale University ( email )

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