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Prices and Mergers in a General Model of Multi-Sided Markets

Author

Listed:
  • Raúl Bajo-Buenestado
  • Markus Kinateder
  • Raul Bajo-Buenestado

Abstract

We present a general and tractable oligopoly model of multi-sided platforms with endogenous side and platform choices of heterogeneous end-users, considering any mix of single-homing and multi-homing platforms and in which participating on one side could preclude doing so on others. We show the existence of a unique equilibrium number of end-users and characterize optimal platform pricing. Using the equilibrium conditions, we formally derive (across sides and platforms) switching effects that distort optimal pricing, which can lead to markups exceeding the Lerner index and rule out the classical “cross-subsidization” result. We then provide a unifying framework to analyze multi-sided platform mergers, which rationalizes mixed results from the previous literature by providing, based on the switching effects, a set of conditions that predict the upward pricing pressure post-merger. We show that while optimal pricing is determined by the nature of end-users’ side choices, their platform choices are crucial for merger analysis.

Suggested Citation

  • Raúl Bajo-Buenestado & Markus Kinateder & Raul Bajo-Buenestado, 2023. "Prices and Mergers in a General Model of Multi-Sided Markets," CESifo Working Paper Series 10818, CESifo.
    • Handle: RePEc:ces:ceswps:_10818
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    References listed on IDEAS

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    3. Elena Argentesi & Paolo Buccirossi & Emilio Calvano & Tomaso Duso & Alessia Marrazzo & Salvatore Nava, 2021. "Merger Policy in Digital Markets: An Ex Post Assessment†," Journal of Competition Law and Economics, Oxford University Press, vol. 17(1), pages 95-140.
    4. Argentesi, Elena & Buccirossi, Paolo & Calvano, Emilio & Duso, Tomaso & Marrazzo, Alessia & Nava, Salvatore, 2021. "Merger Policy in Digital Markets: An Ex Post Assessment," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 17(1), pages 95-140.
    5. Simon P. Anderson & John McLaren, 2012. "Media Mergers And Media Bias With Rational Consumers," Journal of the European Economic Association, European Economic Association, vol. 10(4), pages 831-859, August.
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    7. E. Glen Weyl, 2010. "A Price Theory of Multi-sided Platforms," American Economic Review, American Economic Association, vol. 100(4), pages 1642-1672, September.
    8. Bajo-Buenestado, Raúl & Kinateder, Markus, 2019. "Armstrong meets Rochet–Tirole: On the equivalence of different pricing structures in two-sided markets," Economics Letters, Elsevier, vol. 177(C), pages 43-46.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    multi-sided markets; heterogeneous end-users; endogenous side choice; mergers of platforms; digital platforms;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software

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