La Gratuité Peut-Elle Avoir Des Effets Anticoncurrentiels ? Une Perspective D’Économie Industrielle Sur Le Cas Google (Exclusionary Pricing in a Two-Sided Platform: Some Insights from the Industrial Organization Theory in the Google Case)

Document de Travail OFCE, 2013-01, January 2013

31 Pages Posted: 9 Feb 2013

See all articles by Estelle Malavolti-Grimal

Estelle Malavolti-Grimal

University of Toulouse 1 - Groupe de Recherche en Economie Mathématique et Quantitative (GREMAQ)

Frédéric M. Marty

Research Group on Law, Economics and Management (UMR CNRS 7321 GREDEG) / Université Nice Sophia Antipolis; OFCE; Center for Interuniversity Research and Analysis on Organization (CIRANO)

Date Written: January 31, 2013

Abstract

Firms operating in two-sided markets have to integrate in their optimal pricing structure the existence of indirect externalities across groups of consumers. Beyond direct externalities (network effects), such markets are characterized by the increasing value of the platform for the users on one side with the number on the other side. As for Internet search platforms such as Google, their value for advertisers depends on the number of users and especially of precisely targeted ones. As a consequence, the optimal price structure in a two-sided market cannot be symmetrical. In other words, the price structure is not neutral and has to take into account such linkages between these two groups of users. From an economic point of view, it may make sense to impose no charge for the group that generates the most valuable externalities. With antitrust inquiries, such specificity imposes to consider simultaneously both sides of the markets. Otherwise, the risk of false negative decisions may arise. On one side the pricing strategy might be interpreted as a predatory practice and on the other side as an exploitative abuse. As the number and the loyalty of users on one side is an essential input to competition between platforms on the other side, it might be rational to subsidize them by acquiring exclusive rights on some valuable contents and to implement bundling and tying strategies. The main risk lies in some market foreclosure. The market might evolve towards vertically integrated ecosystems, e.g. a silos model of competition. Furthermore, competition authorities have to define a sound economics-based theory of harm to disentangle practices that reduce consumer welfare (by increasing switching costs) from ones that might be finally welfare-enhancing. The issue of remedies arises inexorably from this point. Our paper sheds light on these industrial economics and competition law issues.

Note: Downloadable document is in French.

Keywords: Two-sided markets, Internet search markets, exclusionary practices, market foreclosure, remedies

JEL Classification: K21, L12, L41, L86

Suggested Citation

Malavolti-Grimal, Estelle and Marty, Frédéric M., La Gratuité Peut-Elle Avoir Des Effets Anticoncurrentiels ? Une Perspective D’Économie Industrielle Sur Le Cas Google (Exclusionary Pricing in a Two-Sided Platform: Some Insights from the Industrial Organization Theory in the Google Case) (January 31, 2013). Document de Travail OFCE, 2013-01, January 2013, Available at SSRN: https://ssrn.com/abstract=2213707 or http://dx.doi.org/10.2139/ssrn.2213707

Estelle Malavolti-Grimal

University of Toulouse 1 - Groupe de Recherche en Economie Mathématique et Quantitative (GREMAQ) ( email )

Manufacture des Tabacs
21 Allees de Brienne Universite des Sciences Sociales
31000 Toulouse
France
+33 5 61 12 85 83 (Phone)
+33 5 61 22 55 63 (Fax)

Frédéric M. Marty (Contact Author)

Research Group on Law, Economics and Management (UMR CNRS 7321 GREDEG) / Université Nice Sophia Antipolis ( email )

250, rue Albert Einstein
Valbonne, 06560
France

HOME PAGE: http://hp.gredeg.cnrs.fr/marty/

OFCE ( email )

69 Quai d'Orsay
Paris 75004
France

Center for Interuniversity Research and Analysis on Organization (CIRANO) ( email )

2020 rue University, 25th floor
Montreal H3C 3J7, Quebec
Canada

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