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Industrial Organization of Markets with Two-Sided Platforms

Competition Policy International, Vol. 3, No. 1, Spring 2007

30 Pages Posted: 20 May 2007  

Richard Schmalensee

Massachusetts Institute of Technology (MIT) - Sloan School of Management

David S. Evans

Global Economics Group; University College London

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Abstract

Many diverse industries are populated by businesses that operate two-sided platforms. These businesses serve distinct groups of customers who need each other in some way, and the core business of the two-sided platform is to provide a common (real or virtual) meeting place and to facilitate interactions between members of the two distinct customer groups. Platforms play an important role throughout the economy by minimizing transactions costs between entities that can benefit from getting together. In these businesses, pricing and other strategies are strongly affected by the indirect network effects between the two sides of the platform. As a matter of theory, for example, profit-maximizing prices may entail below-cost pricing to one set of customers over the long run and, as a matter of fact, many two-sided platforms charge one side prices that are below marginal cost and are in some cases negative. These and other aspects of two-sided platforms affect almost all aspects of antitrust analysis - from market definition, to the analysis of cartels, single-firm conduct, and efficiencies. This paper provides a brief introduction to the economics of two-sided platforms and the implications for antitrust analysis.

Keywords: antitrust, anitrust analysis, industrial organization, multi-sided platforms, two-sided markets, two-sided platforms

Suggested Citation

Schmalensee, Richard and Evans, David S., Industrial Organization of Markets with Two-Sided Platforms. Competition Policy International, Vol. 3, No. 1, Spring 2007. Available at SSRN: https://ssrn.com/abstract=987341

Richard Schmalensee

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

Room E62-525
Cambridge, MA 02142
United States
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David S. Evans (Contact Author)

Global Economics Group ( email )

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Boston, MA 02108
United States

University College London ( email )

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London WC1E OEG, WC1E 6BT
United Kingdom

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