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20 Yale J. on Reg. 325 (2003)
The Antitrust Economics of Multi-Sided Platform Markets

handle is hein.journals/yjor20 and id is 331 raw text is: The Antitrust Economics of Multi-Sided Platform Markets David S. Evanst Multi-sided platforms coordinate the demands of distinct groups of customers who need each other in some way. Dating clubs, for example, enable men and women to meet each other; magazines provide a way for advertisers to find an audience, and computer operating system vendors provide software that applications users and applications developers can use together. When devising pricing and investment strategies, multi-sided platforms must account for interactions among the demands of multiple groups of customers. In theory, the optimal price to customers on one side of the platform is not based on a markup formula such as the Lerner condition, and price does not track marginal cost. Indeed, many actual platform businesses charge one side little or nothing-shopping malls seldom charge shoppers; operating system vendors give developers many services for free; most Internet portals and free television providers do not charge viewers. Competition among platforms takes place in multi-sided markets in which seemingly distinct customer groups are connected through interdependent demand and a platform that, acting as an intermediary, internalizes the resulting indirect network externalities. Multi-sided platforms arise in many economically significant industries from media to payment systems and software; they arise in bricks and mortar industries such as shopping malls as well as information-based industries such as portals. The economics of platform competition has implications for analyzing antitrust and regulatory policies affecting businesses that compete in multi-sided markets. For example, market definition and market power analyses that focus on a single side will lead to analytical errors; since pricing and production decisions are based on coordinating demand among interdependent customer groups, one must consider the multiple market sides in analyzing competitive effects and strategies. To take another example, efficient pricing may result in setting price on a particular market side below measures of average variable or marginal cost incurred for customers on that market side. Economic analysis that t Senior Vice President, NERA Economic Consulting. The author thanks Howard Chang, Ward Farnsworth, Marco lansiti, George Priest, Jean-Charles Rochet, Richard Schrnalensee, and Jean Tirole for many helpful comments and suggestions. The author appreciates the many contributions of Irina Danilkina, Anne Layne-Farrar, Bryan Martin-Keating, Nese Nasif, and Bernard Reddy to the research upon which the article is based. He is also grateful to Visa for financial support. This Article draws on material from DAVID S. EVANS, THE ANTITRUST ECONOMICS OF Two-SIDED MARKETS (AEI-Brookings Joint Ctr. for Regulatory Studies, Related Publication 02-13, 2002), available at http://aei.brookings.org/admin/pdffiles/phpMt.pdf. Copyright © 2003 by Yale Journal on Regulation

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