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The Industrial Organization of Markets with Two-Sided Platforms

Author

Listed:
  • David S. Evans
  • Richard Schmalensee
Abstract
Two-sided platforms (2SPs) cater to two or more distinct groups of customers, facilitating value-creating interactions between them. The village market and the village matchmaker were 2SPs; eBay and Match.com are more recent examples. Other examples include payment card systems, magazines, shopping malls, and personal computer operating systems. Building on the seminal work of Rochet and Tirole (2003), a rapidly growing literature has illuminated the economic principles that apply to 2SPs generally. One key result is that 2SPs may find it profit-maximizing to charge prices for one customer group that are below marginal cost or even negative, and such skewed pricing pattern is prevalent, although not universal, in industries that appear to be based on 2SPs. Over the years, courts have also recognized that certain industries, notably payment card systems and newspapers, now understood to be based on 2SPs, are governed by unusual economic relationships. This chapter provides an introduction to the economics of 2SPs and its application to several competition policy issues.

Suggested Citation

  • David S. Evans & Richard Schmalensee, 2005. "The Industrial Organization of Markets with Two-Sided Platforms," NBER Working Papers 11603, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:11603
    Note: IO
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    More about this item

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L4 - Industrial Organization - - Antitrust Issues and Policies

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