Working Paper: NBER ID: w11603
Authors: David S. Evans; Richard Schmalensee
Abstract: Two-sided platforms (2SPs) cater to two or more distinct groups of customers, facilitating value-creating interactions between them. The village market and the village matchmaker were 2SPs; eBay and Match.com are more recent examples. Other examples include payment card systems, magazines, shopping malls, and personal computer operating systems. Building on the seminal work of Rochet and Tirole (2003), a rapidly growing literature has illuminated the economic principles that apply to 2SPs generally. One key result is that 2SPs may find it profit-maximizing to charge prices for one customer group that are below marginal cost or even negative, and such skewed pricing pattern is prevalent, although not universal, in industries that appear to be based on 2SPs. Over the years, courts have also recognized that certain industries, notably payment card systems and newspapers, now understood to be based on 2SPs, are governed by unusual economic relationships. This chapter provides an introduction to the economics of 2SPs and its application to several competition policy issues.
Keywords: two-sided platforms; competition policy; economic principles
JEL Codes: D4; L1; L4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Pricing strategy of 2SPs (D49) | Interaction and value creation between customer groups (D26) |
| Pricing below marginal cost by 2SPs (D40) | Market dynamics (D49) |
| Negative pricing by 2SPs (D49) | Market dynamics (D49) |
| Pricing strategies of 2SPs (D49) | Value-creating interactions between distinct customer groups (D26) |