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Is exclusionary pricing anticompetitive in two-sided markets?

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  • Vasconcelos, Helder

Abstract

This paper studies the competitive effects of exclusionary pricing in two-sided markets. While formally showing that below-cost pricing on one market side can allow an incumbent firm to exclude a potential rival which does not have a customer base yet, the proposed model does not necessarily imply that below-cost pricing in such markets should be taken as anti-competitive conduct. Instead, I find that in sufficiently asymmetric two-sided markets, exclusion is always beneficial and if anything, there is too little of it in the sense that there are cases in which there is inefficient entry. Further, prohibiting below marginal cost pricing may destroy some socially efficient exclusion and worsen the problem of excessive (or inefficient) entry.

Suggested Citation

  • Vasconcelos, Helder, 2015. "Is exclusionary pricing anticompetitive in two-sided markets?," International Journal of Industrial Organization, Elsevier, vol. 40(C), pages 1-10.
  • Handle: RePEc:eee:indorg:v:40:y:2015:i:c:p:1-10
    DOI: 10.1016/j.ijindorg.2015.02.005
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    References listed on IDEAS

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    1. B. Douglas Bernheim & Michael D. Whinston, 1998. "Exclusive Dealing," Journal of Political Economy, University of Chicago Press, vol. 106(1), pages 64-103, February.
    2. Chiara Fumagalli & Massimo Motta, 2013. "A Simple Theory of Predation," Journal of Law and Economics, University of Chicago Press, vol. 56(3), pages 595-631.
    3. David Evans & Richard Schmalensee, 2007. "The Industrial Organization of Markets with Two-Sided Platforms," CPI Journal, Competition Policy International, vol. 3.
    4. Jean‐Charles Rochet & Jean Tirole, 2006. "Two‐sided markets: a progress report," RAND Journal of Economics, RAND Corporation, vol. 37(3), pages 645-667, September.
    5. Jean-Charles Rochet & Jean Tirole, 2014. "Platform Competition in Two-Sided Markets," CPI Journal, Competition Policy International, vol. 10.
    6. Rasmusen, Eric B & Ramseyer, J Mark & Wiley, John S, Jr, 1991. "Naked Exclusion," American Economic Review, American Economic Association, vol. 81(5), pages 1137-1145, December.
    7. Caillaud, Bernard & Jullien, Bruno, 2003. " Chicken & Egg: Competition among Intermediation Service Providers," RAND Journal of Economics, The RAND Corporation, vol. 34(2), pages 309-328, Summer.
    8. Liliane Karlinger & Massimo Motta, 2012. "Exclusionary Pricing When Scale Matters," Journal of Industrial Economics, Wiley Blackwell, vol. 60(1), pages 75-103, March.
    9. Michael D. Whinston & Ilya R. Segal, 2000. "Naked Exclusion: Comment," American Economic Review, American Economic Association, vol. 90(1), pages 296-309, March.
    10. Wright Julian, 2004. "One-sided Logic in Two-sided Markets," Review of Network Economics, De Gruyter, vol. 3(1), pages 1-21, March.
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    Cited by:

    1. Vasconcelos, Helder, 2015. "Exclusionary pricing in markets with interdependent demands," Economics Letters, Elsevier, vol. 134(C), pages 24-28.
    2. repec:gam:jsusta:v:10:y:2018:i:4:p:1053-:d:139245 is not listed on IDEAS

    More about this item

    Keywords

    Two-sided markets; Exclusion; Demand externalities;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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