1 / 25

Competition Policy in Two-Sided Markets - Some brief remarks

Competition Policy in Two-Sided Markets - Some brief remarks. Dr Amelia Fletcher Chief Economist Office of Fair Trading LEAR Conference 7th June 2007. NB The views expressed here are my own, and not necessarily those of the OFT. Market definition? Predation? Collusion?

ronli
Télécharger la présentation

Competition Policy in Two-Sided Markets - Some brief remarks

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Competition Policy in Two-Sided Markets- Some brief remarks Dr Amelia Fletcher Chief Economist Office of Fair Trading LEAR Conference7th June 2007 NB The views expressed here are my own, and not necessarily those of the OFT

  2. Market definition? Predation? Collusion? Exclusive contracts? Media regulation and mergers? What do certain key factors of 2-sided markets mean for:

  3. In a typical 2-sided market: DA is function not only of pA but also of qB DB is function not only of pB but also of qA What does this mean for market definition? 2-sided markets: First key factor

  4. SSNIP test: Could a hypothetical monopolist profitably sustain a small but significant and non-transitory increase in price? If no, the relevant antitrust market must be wider If yes, the market is not any wider (but could be narrower) Key question for 2-sided markets: Which feedback loops should be taken into account? Market definition

  5. Market definition: Feedback loops pA↑ qA↓ πA↑ πA↓ ? πA↑ Normal Market: Does total πA↑? If yes, market no wider

  6. Market definition: Feedback loops For given pB pA↑ qA↓ DB↓ qB↓ Feedback to market B πA↑ πA↓ πB↓ πA↑ Normal Market: Does total πA↑? If yes, market no wider

  7. Market definition: Feedback loops For given pB pA↑ qA↓ DB↓ qB↓ Feedback to market B πA↑ πA↓ πB↓ Should we take this into account? πA↑ Normal Market: Does total πA↑? If yes, market no wider

  8. Market definition: Feedback loops For given pB For given pA pA↑ qA↓ DB↓ qB↓ DA↓ qA↓ Feedback to market B Feedback to market A πA↑ πA↓ πB↓ πA↓ πA↑ Normal Market: Does total πA↑? If yes, market no wider

  9. Market definition: Feedback loops For given pB For given pA pA↑ qA↓ DB↓ qB↓ DA↓ qA↓ Feedback to market B Feedback to market A πA↑ πA↓ πB↓ πA↓ Should we take this into account? πA↑ Normal Market: Does total πA↑? If yes, market no wider

  10. Market definition: Feedback loops For given pB For given pA pA↑ qA↓ DB↓ qB↓ DA↓ qA↓ Feedback to market B Feedback to market A πA↑ πA↓ πB↓ πA↓ πA↑ pB↓ qB↑ Should we take this into account? Normal Market: Does total πA↑? If yes, market no wider Profits dissipated in market B πB↓

  11. Market definition: Feedback loops For given pB For given pA pA↑ qA↓ DB↓ qB↓ DA↓ qA↓ Feedback to market B Feedback to market A πA↑ πA↓ πB↓ πA↓ πA↑ pB↓ qB↑ DA↑ qA↑ Normal Market: Does total πA↑? If yes, market no wider Profits dissipated in market B Feedback to market A πB↓ πA↑

  12. Market definition: Feedback loops For given pB For given pA pA↑ qA↓ DB↓ qB↓ DA↓ qA↓ Feedback to market B Feedback to market A πA↑ πA↓ πB↓ πA↓ πA↑ pB↓ qB↑ DA↑ qA↑ Normal Market: Does total πA↑? If yes, market no wider Profits dissipated in market B Feedback to market A πB↓ πA↑

  13. Market definition: Feedback loops For given pB For given pA pA↑ qA↓ DB↓ qB↓ DA↓ qA↓ Feedback to market B Feedback to market A πA↑ πA↓ πB↓ πA↓ πA↑ pB↓ qB↑ DA↑ qA↑ Normal Market: Does total πA↑? If yes, market no wider Profits dissipated in market B Feedback to market A πB↓ πA↑

  14. pA will tend to be lower when either: each additional buyer in market A generates significant extra revenue in market B; or it is hard to persuade market A buyers to sign up. More formally (Rochet & Tirole, 2006): price – ‘cost’ = 1 . price elasticity of demand If ‘cost’ increases (due to lower revs in other market), then so will price (The ‘waterbed effect’) 2-sided markets: Second key factor

  15. In a two-side market, we may typically observe: Prices below marginal cost on one side of a market; and Prices well above marginal cost on the other Such pricing is an efficient response to network externalities. Competition authorities need to be aware of this when assessing predation or excessive pricing We also need to be aware of the ‘waterbed effect’, when imposing remedies Predation and excessive pricing

  16. This does not mean predation (and excessive pricing) doesn’t occur For example, what if pricing structure affects market structure? Specifically, what if pricing low on one side of a market prevents entry into both sides? Can such a pricing structure increase ‘tippability’ of already ‘tippable’ markets? But how to assess? However…

  17. Low pricing on one side of a two sided market can be exclusionary But application of simple Akzo type test for predation (ie is P < AAC?) problematic A possible approach? to apply an Akzo type test, but to employ an ‘opportunity cost’ benchmark A careful approach is needed

  18. True that increased profits from collusion on one side of a market get competed away on the other Does this justify a laissez faire approach? No! Not all additional profits are competed away Prices typically even higher than without collusion, suggesting inefficient price asymmetry But it does make it difficult to determine appropriate exemption criteria where relevant Collusion on one side of the market

  19. 2-sided markets are often ‘tippable’ Often observe competition ‘for’ the market This competition can get rough – but should competition authorities intervene? After all – a monopoly anyway Does it matter who wins? Yes! And best for both consumers and dynamic competition if the best product wins 2-sided markets: Third key factor

  20. The ‘tippability’ of 2-sided markets is reduced if there is multi-homing on one (or both) side of the market A move to single-homing by a relatively small part of the previously multi-homing side of the market can sometimes have major effects. 2-sided markets: Fourth key factor

  21. The effect of single-homing Buyer 1 Platform A Seller 1 Buyer 2 Platform B Seller 2

  22. The effect of single-homing Buyer 1 Platform A Seller 1 Buyer 2 Platform B Seller 2

  23. Assessment of exclusivity contracts (or refusal to supply) is complicated in ‘tippy’ markets: Small scale coverage could ‘tip’ the balance Interesting that customers do better by being ‘single homing’ under profit-maximising pricing So no need for profit sacrifice to ‘bribe’ customers to sign exclusive contracts or to refuse to supply Could ‘multi-homing be a remedy? Exclusivity contracts

  24. The advertising funded nature of media can result in imperfect product/political diversity For media regulators: This clearly provides a microeconomic justification for some form of regulatory intervention But how to decide ‘what is welfare optimal’ in real life? For competition authorities: Does it suggest a need to think about wider ‘public interest’ issues when assessing media mergers? 2-sided markets: Fifth key factor

  25. Competition Policy in Two-Sided Markets- Some brief remarks Dr Amelia Fletcher Chief Economist Office of Fair Trading LEAR Conference7th June 2007 NB The views expressed here are my own, and not necessarily those of the OFT

More Related