Kate Collyer, Hugh Mullan and Natalie Timan “Measuring Market Power in Multisided Markets’

This paper – a contribution to OECD work on how to deal with multisided market which can be found here –  seeks to provide pragmatic suggestions on how to measure market power in multi-sided markets. It is quite practical: it draws operational conclusions on how to adapt existing enforcement and merger assessment tools to address some of the challenges posed by multi-sided markets. The paper is structured as follows: The first section of the paper sets out some important features of multi-sided markets, including indirect network externalities, single-homing and multi-homing, price structures, and tipping. These have been discussed extensively in previous posts, so I’m not going to elaborate on them here. Suffice it to say that: ‘The standard results from one-sided markets do not apply directly to multi-sided markets and any assessment of market power needs to take this into account explicitly. Many of our standard tools for assessing market power are more complex to apply in multi-sided markets and…

David Evans and Richard Schmalensee ‘Network Effects: March to the Evidence, Not to the Slogans’ (2017) Antitrust Chronicle

The basic position of this paper – which can be found here – is that: ‘Competition authorities (…) with support from some dismal scientists, saw the dark side of network effects. Firms could rig the race to become the winner and thereby “tip” the market to make themselves monopolies. And even if a firm won fair and square, network effects would result in insurmountable barriers to entry and would be the font of permanent monopoly power. (…) A recent argument in this debate is that online platforms have troves of data that make network effects even more potent. Unfortunately, this view of network effects evolved from a seminal economic contribution to a set of slogans that don’t comport with the facts.” A first section looks at the economics of networks. This covers the origins of theoretical studies on this topic – which focused on telephone networks and fax machines, and standard-tipping (i.e. the VCR-BetaMax war). Theoretical refinements to the theory…