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Upward pricing pressure in two-sided markets: Incorporating rebalancing effects

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  • Cosnita-Langlais, Andreea
  • Johansen, Bjørn Olav
  • Sørgard, Lars

Abstract

In two-sided markets it is important to consider rebalancing effects following a merger, i.e. the impact of a change in margin on one side of the market, either due to a price change or to efficiency gains, on the pricing incentives on the other side. We propose modified versions for the indices of pricing pressure (UPP and GUPPI) that take this into account. We show that in two-sided markets where the cross-group externalities are positive the upward pricing pressure will typically be overstated if the rebalancing effect is ignored. Our approach explains why competition agencies should look at both sides of the market when assessing platform mergers.

Suggested Citation

  • Cosnita-Langlais, Andreea & Johansen, Bjørn Olav & Sørgard, Lars, 2021. "Upward pricing pressure in two-sided markets: Incorporating rebalancing effects," International Journal of Industrial Organization, Elsevier, vol. 74(C).
    • Handle: RePEc:eee:indorg:v:74:y:2021:i:c:s0167718720301156
    DOI: 10.1016/j.ijindorg.2020.102692
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    More about this item

    Keywords

    Merger assessment; Two-sided markets; Upward Pricing Pressure;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • L82 - Industrial Organization - - Industry Studies: Services - - - Entertainment; Media

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