The Antitrust Economics of Two-Sided Markets

95 Pages Posted: 14 Nov 2002 Last revised: 1 Mar 2014

David S. Evans

Global Economics Group; University College London

Multiple version iconThere are 2 versions of this paper

Date Written: November 2, 2002

Abstract

"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, two-sided markets, multi-sided markets, competition policy, market structure, chicken-and-egg, pricing strategy, network effects, monopoly, multi-sided platforms, payment cards

JEL Classification: K21, D04, D01, D43, D85, K21, K40, L13, L22, L51

Suggested Citation

Evans, David S., The Antitrust Economics of Two-Sided Markets (November 2, 2002). Available at SSRN: https://ssrn.com/abstract=332022 or http://dx.doi.org/10.2139/ssrn.332022

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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