The Antitrust Economics of Two-Sided Markets
95 Pages Posted: 14 Nov 2002 Last revised: 29 Jul 2022
Date Written: October 10, 2002
"Two-sided" markets have two different groups of customers that businesses have to get on board to succeed - there is a "chicken-and-egg" problem that needs to be solved. These industries range from dating clubs (men and women), to video game consoles (game developers and users), to credit cards (cardholders and merchants), and to operating system software (application developers and users). They include some of the most important industries in the economy.
Two-sided firms behave in ways that seem surprising from the vantage point of traditional industries, but in ways that seem like plain common sense once one understands the business problems they must solve. Prices do not and prices cannot follow marginal costs in each side of the market. Price levels, price structures, and investment strategies must optimize output by harvesting the indirect network effects available on both sides. By doing so, businesses in two-sided industries get both sides on board and solve the chicken-and-egg problem. There is no basis for asking regulators or antitrust enforcers to steer clear of these industries or to spend extra effort on them. The antitrust analysis of these industries, however should heed the economic principles that govern pricing and investment decisions in these industries.
Keywords: antitrust multisided platforms, antitrust two sided markets, multisided platform economics, market definition platforms, predatory pricing multisided platforms, cartels and multisided platforms, exclusionary practices multisided platforms, antitrust policy and multisided platforms
JEL Classification: D4, K0, L1, L4
Suggested Citation: Suggested Citation