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Antitrust in two-sided markets: Is competition always desirable?

  • Fiedler, Ingo C
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    The main objective of antitrust interventions is to assure competition in markets to benefit consumers. This paper challenges this common approach by examining the case of a satellite broadcasting network with monopoly power. First, satellite TV is identified as a two-sided market. It is then analyzed in the framework of the canonical model for two-sided markets developed by Rochet & Tirole (2004). The main finding is that the satellite network maximizes his profits by choosing a price formation which maximizes the overall welfare of all market participants. Even if the satellite network uses his monopoly power to introduce a fee to receive satellite TV, it would do so only until the semi-elasticity of the amount of consumers in regard to the per-interaction-price equals the one of the TV stations – exactly the point where welfare is maximized. It is therefore concluded that antitrust cases have to take a more in-depth look at two-sided markets before deciding that competition is best for consumers.

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    Paper provided by Berkeley Olin Program in Law & Economics in its series Berkeley Olin Program in Law & Economics, Working Paper Series with number qt5dp3q033.

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    Date of creation: 25 Oct 2010
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    Handle: RePEc:cdl:oplwec:qt5dp3q033
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    1. Jean-Charles Rochet & Jean Tirole, 2003. "Platform Competition in Two-Sided Markets," Journal of the European Economic Association, MIT Press, vol. 1(4), pages 990-1029, 06.
    2. Schmidtke, Richard, 2006. "Two-Sided Markets with Pecuniary and Participation Externalities," Discussion Papers in Economics 963, University of Munich, Department of Economics.
    3. Schmidtke, Richard, 2006. "Two-Sided Markets with Pecuniary and Participation Externalities," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 133, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    4. Evans David S., 2003. "Some Empirical Aspects of Multi-sided Platform Industries," Review of Network Economics, De Gruyter, vol. 2(3), pages 1-19, September.
    5. Richard Schmidtke, 2006. "Two-Sided Markets with Pecuniary and Participation Externalities," CESifo Working Paper Series 1776, CESifo Group Munich.
    6. repec:rje:randje:v:37:y:2006:3:p:645-667 is not listed on IDEAS
    7. Reisinger, Markus, 2004. "Two-Sided Markets with Negative Externalities," Discussion Papers in Economics 478, University of Munich, Department of Economics.
    8. Geoffrey G. Parker & Marshall W. Van Alstyne, 2005. "Two-Sided Network Effects: A Theory of Information Product Design," Management Science, INFORMS, vol. 51(10), pages 1494-1504, October.
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