Multisided Platforms, Dynamic Competition, and the Assessment of Market Power for Internet-Based Firms

32 Pages Posted: 10 Mar 2016 Last revised: 22 Mar 2016

See all articles by David S. Evans

David S. Evans

Global Economics Group; University College London

Date Written: March 10, 2016

Abstract

Market power on each side of a multisided platform, whether in the form of increasing prices or decreasing quality, is constrained by the risk of losing sales on the other sides. That tends to weaken market power on each side and encourages platforms to keep prices lower and quality higher than they would absent these feedback effects. In some cases the nature of the business model, and competition, result in the platform allowing one type of customers to participate in the platform for free or even to subsidize their participation. Non-price methods of attracting customers are especially important in this case, particularly when the business model adopted by the industry makes it difficult for platforms to move from free participation. To provide a reliable assessment of competitive constraints, market power analysis must consider the interdependencies in demand by the participants on the platform as well as have heightened focus on non-price competition when the participation for one group is free. Market shares should be used cautiously in assessing market power for multi-sided platforms, especially when they reflect only one side of the platform, and therefore do not account for the interdependent customer groups, or concern a free platform side where there is no monetary measure of value. Finally, dynamic competition makes the analysis of market power complex because it results in feature competition, and potentially drastic innovation, on one side of a platform that has feedback effects on the other side of the platform. The courts and authorities have recognized these points in Qihoo 360 v. Tencent, Cartes Bancaires v. European Commission, the Facebook/WhatsApp merger, and the Microsoft/Skype merger. These principals should become part of the standard analysis of multi-sided platforms by courts and competition authorities globally. These concerns are illustrated in the context of multi-sided platforms that offer online services where free services and dynamic competition are especially important.

Keywords: two-sided markets, multisided platforms, online industries, digital economy, networks, antirust, market power, market definition, online advertising, advertising, SSNIP, SSNDQ, dynamic competition

JEL Classification: D02, D04, D21, D22, D23, D40, D43, D62, K21, L10, L13, L25, L40, L41, L42, L86

Suggested Citation

Evans, David S., Multisided Platforms, Dynamic Competition, and the Assessment of Market Power for Internet-Based Firms (March 10, 2016). University of Chicago Coase-Sandor Institute for Law & Economics Research Paper No. 753. Available at SSRN: https://ssrn.com/abstract=2746095 or http://dx.doi.org/10.2139/ssrn.2746095

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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