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A Novel Argument on Regulating Prices in Two-sided Markets: Finding Win-Win Policy Correctly

Author

Listed:
  • Yukihiro Nishimura

    (Osaka University and CESifo)

Abstract

Online markets like app stores are typically characterized by a monopoly who set prices on both sides — the prices of the network good (such as iPhone) and the commission fee to participating firms. There is an ongoing concerns on the welfare consequences of imperfect competition, where the antitrust authorities in the EU are keen about the monopolistic commission fee. With online apps as a representative example, this study investigates the welfare effects of price ceiling policies. The following results are shown. If the network-size externality on apps’ price is stronger than the app variety’s network externality, then, first, the price ceiling on the network good increases both the producer surplus of the app developers and the consumer surplus of the end-users. Second, in contrast, the price ceiling on the commission fee for the developers reduces the consumer surplus. The reverse proposition holds when the order of the strength of two network externalities is reversed. By the level of the unconstrained equilibrium commission fee, a regulator can identify which policy would make both consumers and developers better off.

Suggested Citation

  • Yukihiro Nishimura, 2025. "A Novel Argument on Regulating Prices in Two-sided Markets: Finding Win-Win Policy Correctly," Discussion Papers in Economics and Business 25-05, Osaka University, Graduate School of Economics.
    • Handle: RePEc:osk:wpaper:2505
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software

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