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Topic 11: Market Definition FOR multisided platforms

A ntitrust Economics 2013. David S. Evans University of Chicago, Global Economics Group. Elisa Mariscal CIDE, Global Economics Group. Topic 11: Market Definition FOR multisided platforms. Topic 11| Part 2 3 October 2013. Overview. A Shopping Mall Merger Example. 3. 1. 2. 4.

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Topic 11: Market Definition FOR multisided platforms

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  1. Antitrust Economics 2013 David S. Evans University of Chicago, Global Economics Group Elisa Mariscal CIDE, Global Economics Group Topic 11: Market Definition FOR multisided platforms Topic 11| Part 2 3 October 2013

  2. Overview

  3. A Shopping Mall Merger Example 3 1 2 4 What are the relevant market(s)? Can we use traditional SSNIP-based tools to answer that? How do we assess market power? Would the merger result in a “substantial lessening of competition” in those markets?

  4. Shopping Mall Platforms

  5. Shopping Malls and Anchor Stores Anchor Store

  6. Competitive Constraints and Two-Sided Market Definition

  7. Refresher on Economics of Two-Sided Platforms

  8. The “Other” Side Acts as a Price Constraint

  9. Accounting for Two-Sided Effects Makes Demand More Elastic Space in a Shopping Mall For a price change around this point the flatter curve reflects the feedback effects on the shopper side resulting from fewer or less interesting stores Price per meter $8 $7 $6 $5 $4 $3 $2 $1 9 10 3 4 6 7 8 1 2 5 11 Thousands of meters rented

  10. Accounting for Two-Sided Effects Makes Demand More Elastic The magnifying effect of the complementary side on demand response to price increase As a result of positive feedback effects a 5% increase in the price on side A leads in this example to a 30% decrease in the quantity on side A and a 10% decrease in the quantity on side B. True demand elasticity with feedback effects of 6 rather than 4.

  11. The Cross-Effects for the Shopping Mall Merger Reduce the Ability to Raise Prices How much this matters in practice depends on how big the cross-effects are. They may be small enough to ignore safely, or so big they must be considered.

  12. Other Platforms Serve as a Constraint

  13. Multihoming May Make Alternative Platforms Closer Substitutes in the Short-Run

  14. The Role of Single-Sided Competitors

  15. Single-Sided Competitors for Shopping Malls

  16. Using a Single-Sided Market Definition in a Two-Sided World

  17. Avoid Excluding One Side of the Platform From Analysis Next section deals with pragmatic approaches about dealing with this problem. This section shows that even on a single side the traditional analysis leads to improperly defined markets.

  18. Single-Sided Market Definition Tools Don’t Apply

  19. Single-Sided Critical Loss Wrong WRONG Single-sided formulas are wrong because they are based on the simple price-cost markup result which is wrong because it ignores linked demand between the two sides. WRONG WRONG

  20. Applying Single-Sided Tests to Two-Sided Platforms Leads to Multiple Errors Magnitude and relevance of these errors depend on the degree of the cross-effects and thus how “two-sided” the relevant businesses really are.

  21. Consumer Welfare and Market Definition

  22. Market Definition with Additive Prices

  23. Market Definition with Two-Sided Platforms

  24. Hypothetical Monopolist Test in Two-Sided Markets

  25. Hypothetical Monopolist Test with Additive Prices

  26. SSNIP Approach with Total Price and Additive Prices Modified Lerner Index for simple Rochet-Tirole Model with each side jointly consuming a “transaction”

  27. Pragmatic Approaches to the Analysis of Two-Sided Market Definition and Power

  28. Key Lesson: Avoid Approaches that Result in the Exclusion of a Customer Side from the Analysis

  29. Taking a More Open Approach to the Analysis of Market Definition and Power for Two-Sided Platforms Focus on competitive effects rather than a precise market definition.

  30. End of Part 2, Next Class Horizontal Mergers

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