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Optimal Cartel Prices in Two-Sided Markets

27 Pages Posted: 9 Oct 2014  

Federico Boffa

Università degli Studi di Macerata

Lapo Filistrucchi

Tilburg University, TILEC; University of Florence, Dipartimento di Scienze Economiche

Date Written: September 30, 2014

Abstract

We study optimal cartel prices in a two-sided market. We present a simple model showing that prices above the two-sided monopoly price may prevail on one side of a two-sided market as a means to enhance the sustainability of the cartel. We prove that in such a case a higher benefit from the network effect may compensate customers on that side of the market for the higher prices they are charged. We then provide both sufficient and necessary conditions for these results to hold in more complex models of two-sided markets. Our analysis extends to cartels in two-sided markets a result previously known for cartels selling complementary products, despite the fact that products in a two-sided market are not complements for customers, since customers typically buy only one of the two products (e.g. in the case of newspapers, advertisers buy advertising slots while readers buy content) and products on each side are substitutes (e.g. newspapers publishers compete for readers and for advertisers).

Keywords: two-sided markets, indirect network effects, collusion, cartel, excessive prices, exploitative abuses

JEL Classification: L12, L41, L81, L82, L86

Suggested Citation

Boffa, Federico and Filistrucchi, Lapo, Optimal Cartel Prices in Two-Sided Markets (September 30, 2014). NET Institute Working Paper No. 14-19. Available at SSRN: https://ssrn.com/abstract=2506510 or http://dx.doi.org/10.2139/ssrn.2506510

Federico Boffa

Università degli Studi di Macerata ( email )

Via Angeloni 3
Jesi, Ancona 60035
Italy
+393358218861 (Phone)

Lapo Filistrucchi (Contact Author)

Tilburg University, TILEC ( email )

P.O. Box 90153
Tilburg, Noord-Brabant NL-5000 LE
Netherlands
+31 13 466 3360 (Phone)
+31 13 466 3042 (Fax)

HOME PAGE: http://www.lapofilistrucchi.com

University of Florence, Dipartimento di Scienze Economiche ( email )

via delle Pandette 9
Florence, Florence IT-50127
Italy
+39 055 2759579 (Phone)
+39 055 2759910 (Fax)

HOME PAGE: http://www.lapofilistrucchi.com

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