Antitrust Economics of Free

Competition Policy International, Spring 2011

26 Pages Posted: 18 Apr 2011 Last revised: 16 Jun 2012

David S. Evans

Global Economics Group; University College London

Date Written: April 17, 2011

Abstract

This article examines antitrust analysis when one of the possible subject products of an antitrust or merger is ordinarily offered at a zero price. It shows that businesses often offer a product for free because it increases the overall profits they can earn from selling the free product and a companion product to either the same customer or different customers. The companion product may be a complement, a premium version of the free product, or the product on the other side of a two-sided market. The article then shows how antitrust and merger analysis should proceed when the subject is either the free product or the companion product. A key point is that the existence of a free good signals that there is a companion good, that firms consider both products simultaneously in maximizing profit, and that commonly used methods of antitrust analysis, including market definition, probably need to be adjusted to properly analyze two inextricably linked products. When antitrust or merger analysis involves a free product, the analysis of consumer welfare and injury also needs to account for customers of both the free product and its companion product since any change in market conditions for customers of one product affects the customers of the other product. Much of the analysis of the article is also relevant to other common situations in which price is set less than marginal cost.

Keywords: multi-sided platforms, two-sided markets, antitrust, web, search engines, web economy

JEL Classification: D43, D21, K21, L11, L12, L13, L21, L86

Suggested Citation

Evans, David S., Antitrust Economics of Free (April 17, 2011). Competition Policy International, Spring 2011. Available at SSRN: https://ssrn.com/abstract=1813193 or http://dx.doi.org/10.2139/ssrn.1813193

David S. Evans (Contact Author)

Global Economics Group ( email )

111 Devonshire St.
Suite 900
Boston, MA 02108
United States

University College London ( email )

Gower St
London WC1E OEG, WC1E 6BT
United Kingdom

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