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Is the Google Platform a Two-Sided Market?

37 Pages Posted: 30 Apr 2012 Last revised: 17 Sep 2012

Giacomo Luchetta

LUISS School of Government

Date Written: April 30, 2012

Abstract

Probably not. Or, at least, it is a sui generis two-sided market. Unlike other platforms, such as credit cards, night clubs, or operating systems, where a single transaction is performed via the platform (trade, date or using a PC), two different transactions take place on Google. Users look for search results, while advertisers look for users' eyeballs. Whilst credit cards, night clubs and operating systems would be meaningless if either of the two sides were missing, search engines (like TV or newspapers) can exist under different market configurations. Indeed, in search engines network externalities run only from the number of users to advertisers, and not the other way around. This thesis is supported by the analysis of the existing literature on two-sided markets and the applications carried out so far to the economics of search engines.

Accordingly to this analysis, a new construction of the relevant market where Google operates is proposed. Google operates as a retailer of eyeballs, or users' attention. In the upstream market, on one side, it buys well-profiled eyeballs from large retailers, i.e. major websites, at a positive price (Traffic Acquisition Costs); on the other side, it buys eyeballs from single consumers in exchange of search services (in-kind payment). Then, it sells well-profiled eyeballs to advertisers in the downstream market. Based on this market construction, the allegations against Google are analysed as alleged violations of the antitrust law along this vertical chain.

Keywords: Google, two-sided market, dominant position, search engine

JEL Classification: K21

Suggested Citation

Luchetta, Giacomo, Is the Google Platform a Two-Sided Market? (April 30, 2012). Available at SSRN: https://ssrn.com/abstract=2048683 or http://dx.doi.org/10.2139/ssrn.2048683

Giacomo Luchetta (Contact Author)

LUISS School of Government ( email )

Viale Romania 32
Rome, 00197
Italy

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