Competition Policy On Two Sided

Decent Essays
1 Competition policy on two-sided markets: literature review
On a TSM, an intermediary platform provides services allowing two sides of users to interact with each other. For example, an online market serves sellers on one side and buyers on the other side. An integral part of every TSM is externality between two sides: buyers benefit from a greater number of sellers and products proposed on the platform, sellers benefit from a greater number of potential buyers who use the platform. The utility obtained by each side depends on the number of users on the other side and vice versa.
According to Rochet and Tirole (2006),
“a market is two-sided if the net utility on one side increases (decreases) with the number of members on the other side,
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The theory of two-sided markets was partially based on and is related to the theory of intermediation and of multi-product firms. A TSM model is close to the model of a multi-production: two products are represented by two services – to side 1 and to side 2 – with interconnected demands. The profit function of a two-sided platform could describe behavior of a multi-product monopoly, given that both models are characterized by nonzero cross elasticities. But the mechanisms of demand interdependence are different. In case of two linked products, demand on one good depends directly on the price of the other complement or substitute good, and this price interdependence is internalized by one consumer who wants to use both goods. On multisided markets, demand on one good doesn’t depend directly on the price of another good, but on the level of its consumption.
Positive externalities between two sides imply negative cross-elasticities. The well-known result is that multi-product monopolist’s price in the case of negative price elasticities
(product complementarity) is lower. By analogous reasoning, under two-sided positive externalities prices on both sides are lower, and the number of consumers on both sides is higher than without externalities. Price of each side positively depends on the externalities it creates on the one side and
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