Antitrust in Two-Sided Markets: Is Competition Always Desirable?
Berkeley Program in Law and Economics Working Paper
20 Pages Posted: 27 Nov 2010
Date Written: October 25, 2010
The main objective of antitrust interventions is to assure competition in markets to benefit consumers. This paper challenges this common approach by examining the case of a satellite broadcasting network with monopoly power. First, satellite TV is identified as a two-sided market. It is then analyzed in the framework of the canonical model for two-sided markets developed by Rochet & Tirole (2004). The main finding is that the satellite network maximizes his profits by choosing a price formation which maximizes the overall welfare of all market participants. Even if the satellite network uses his monopoly power to introduce a fee to receive satellite TV, it would do so only until the semi-elasticity of the amount of consumers in regard to the per-interaction-price equals the one of the TV stations – exactly the point where welfare is maximized. It is therefore concluded that antitrust cases have to take a more in-depth look at two-sided markets before deciding that competition is best for consumers.
Keywords: Antitrust, Two-Sided Markets, Competition, Broadcasting, Welfare
JEL Classification: L40, D41
Suggested Citation: Suggested Citation