Transcript On the Economics of Payment Cards Regulation

Strategic Intermediation in a
Two-Sided Market
by Galeotti and Moraga-Gonzalez
Discussion by Wilko Bolt (DNB)
IDEI Conference 2006, Toulouse
Competition Policy in Two-Sided Markets
• Goal:
Paper offers a strategic analysis of the effects of platform
competition in a 2-sided market
• Results:
- Monopolist outcome is efficient: full participation and
advertising is for free
- Duopoly with singlehoming yields inefficiency:
symmetric pricing with a coordination failure
- Duopoly with multihoming: efficiency is restored when
consumers multihome with probability one, and
operating/entry costs are low
A.
What kind of market (or good) is this?
- firms must advertise before selling the good
- consumers must subscribe before buying the good
•
Advertisement is not a choice, it is a “Must Do”
(extreme preferences for advertising)
•
Consumers generally dislike advertisements, but here
they pay a lot for it – advertisement is for free
•
No natural “outlet” (shops) to buy the good
How would that change the outcome?
B.
Global vs Local competition?
- firms advertise and compete globally on “internet” to
reach a wider audience, but can also sell on the local
market where they enjoy some market power.
- firms choose to advertise or not, set local and global
prices. Consumers may shop locally at a cost.
•
What will be the effect of local 1-sided competition on
the 2-sided platform fees?
•
Will every firm participate globally? Will advertising still
be for free in the monopolistic case?
•
Will there be price differentiation?
C.
Efficiency vs Social Welfare?
•
In a 2sm social welfare is often at odds with full cost
recovery: below marginal cost pricing
(social value of usage externality)
•
Here, efficiency takes the form of full participations and
prices at marginal cost, but still platform makes a
profit...
Why is this different?
•
Is efficient also socially optimal?
D.
Perfect information
•
What would happen if the platform does not know the
true valuation of consumers for the good?
•
What kind of price structure might we expect?