Antitrust in Two-Sided Markets: Is Competition Always Desirable?
University of Hamburg - Institute of Commercial Law
October 25, 2010
Berkeley Program in Law and Economics Working Paper
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.
Number of Pages in PDF File: 20
Keywords: Antitrust, Two-Sided Markets, Competition, Broadcasting, Welfare
JEL Classification: L40, D41
Date posted: November 27, 2010