Two-Sided Markets and the Challenge of Turning Economic Theory into Antitrust Policy
59 Pages Posted: 20 Jan 2015 Last revised: 13 Jan 2016
Date Written: January 20, 2015
The award of the Nobel Prize in Economics to Professor Jean Tirole in 2014 has generated intense interest about his brainchild theory of two-sided markets. Against this background, this paper explores whether there is such a thing as a unified theory of two-sided markets and whether the two-sided markets literature can readily be applied by antitrust agencies, regulatory authorities and courts. This paper vindicates caution. The buzz surrounding two-sided markets could mask the fact that, in many cases, the policy implications of the theory are not yet clear, and that divergences among its proponents are often underplayed. In that regard, the paper notably stresses that one of the key conditions of market two-sidedness identified by Rochet and Tirole in their seminal paper of 2003 – the unavailability of Coasian bargaining between both sides of a platform – has often disappeared from subsequent scholarship. This omission threatens the coherent implementation of the theory of two-sided markets. Without this qualification, markets are often mischaracterized as two-sided, as soon as they display prima facie signs of indirect network externalities.
Keywords: Two sided markets, industrial organisation, antitrust policy, competition, market power, merger, abuse of dominance, coordinated conduct
JEL Classification: K00, K2, K20, K21, L00, L10, L11, L22, L23, L04, L40
Suggested Citation: Suggested Citation