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Is the Google Platform a Two-Sided Market?
Abstract
Probably not. Or, at least, it is a sui generis two-sided market. Unlike other platforms, such as Microsoft Windows operating system, credit cards, or night clubs, where a single transaction is performed via the platform, two different transactions take place on Google. Users look for search results, while advertisers look for users' eyeballs. Whilst operating systems, credit cards, and night clubs would be meaningless if either of the two sides were missing, search engines (like TV or newspapers) can exist under different market configurations. Indeed, in search engines network externalities run only from the number of users to advertisers, and not the other way around. This thesis is supported by the analysis of the existing literature on two-sided markets and the applications carried out so far to the economics of search engines. According to this analysis, a new construction of the relevant market where Google operates is proposed. Google operates as a retailer of eyeballs, or users' attention. In the upstream market, on one side, it buys well-profiled eyeballs from large retailers, i.e. major websites, at a positive price (Traffic Acquisition Costs); on the other side, it buys eyeballs from single consumers in exchange of search services (in-kind payment). Then, it sells well-profiled eyeballs to advertisers in the downstream market. Based on this market construction, the allegations against Google are analysed as alleged violations of competition law along this vertical chain. --
... On the other hand, it could be counterproductive because it causes frictions in interactions among the sides. [48,49,56] Regulation and antitrust ...
... [ [56][57][58] The literature contributions mainly concern the application of analytical models aimed at investigating specific aspects in the areas identified in Table 2, e.g., equilibrium, allocative efficiency and competition between two different multisided platforms [59,60]. Studies holistically addressing the MSP configuration are lacking. ...
Businesses grounded upon multisided platforms (MSPs) are found in a growing number of industries, thanks to the recent developments in Internet and digital technologies. Digital MSPs enable multiple interactions among users of different sides through information and communication technologies. The understanding of the characteristics and constituents of MSPs is fragmented along different literature streams. Moreover, very few empirical studies have been carried out to date. In order to fill this gap, this paper presents a three-level framework that describes a digital MSP. The proposed framework is based on literature analysis and multiple case study. On the one hand, the framework can be used to describe MSP as it provides an operationalization of the concept through the identification of specific dimensions, variables and items; on the other hand, it can be used as an assessment tool by practitioners, as exemplified by the three empirical applications presented in this paper.
... (Rysman 2009) Broadly speaking, a two-sided market is one in which 1) two sets of agents interact through an intermediary or platform, and 2) the decisions of each set of agents affects the outcomes of the other set of agents, typically through an externality. (Luchetta 2013) Rochet and Tirole (2006) considered firms charging a price per interaction, and the sum of those prices. The point is that in most of the two-sided markets they listed, there is a single interaction between the two groups of users. ...
... The discussion about the characteristics identified by the literature to define and describe a MSP shows the lack of an agreed definition and the literature review carried out highlights some gaps related to both definitional and denotational problem (Li, 2015). In addition, many definitions provided by literature suffer from excessive specificity (over-inclusiveness), or being too vague to be of use (under-inclusiveness) (Rysman 2009, Luchetta 2013, Hagiu and Wright 2015b, Li, 2015. For this reason, in this paper, we try to provide a definition of a multisided platform in order to define clear boundaries that will guide our analysis upon this specific phenomenon. ...
Purpose: Many businesses based on a " platform " model present some of the characteristics related to the phenomenon of servitization since they provide services without a direct ownership of physical products. The aim of the paper is to investigate the phenomenon of multisided platforms focusing on three peculiar aspects: 1) the conceptualization of the phenomenon; 2) the categorization of different types of multisided platforms; 3) the effects of digitization on multisided platforms. Design/Methodology/Approach: A literature review has been carried out in order to identify the main topics related to the phenomenon. We also provide some original contributions in order to bridge some of the gaps emerged from the analysis of the literature. Findings: Building on the literature, we develop a new definition of multisided platform in order to define clear boundaries that will guide our analysis upon this phenomenon. In addition, a typology is proposed aimed at categorizing the different functions that can be performed by a multisided platform with a list of the different agents that may be involved. Originality/Value: This paper tries to give a holistic view about the phenomenon of multisided platforms discussing the main issues addressed by the literature. A new definition and typology is provided.
... Despite their significance, orthogonal platforms have been somewhat overlooked in the literature. Luchetta (2014) argued that these platforms do not fit traditional platform definitions due to the absence of ...
The concept of Multi-Sided Platforms (MSPs) has significantly impacted the management field by facilitating interactions between distinct, interdependent groups, revolutionizing numerous industries. While extensive research has examined platform models, further exploration of MSPs in Business-to-Business (B2B) settings, particularly at the supply chain level, remains necessary. This paper critically examines the role of technology-enabled MSPs within B2B environments, highlighting their distinct challenges and opportunities for supply chain ecosystems. We review existing literature on B2B platforms, classifying studies according to the main platform typologies: transactional, innovation, and orthogonal. We identify three key roles these platforms play in supply chain management: enabling information sharing and collaboration, enhancing existing processes, and supporting transformation. Additionally, we investigate five central themes in B2B relationships: power dynamics and governance, resource allocation and optimization, communication dynamics, competence development and learning, and resilience and adaptability. The findings underscore the transformative potential of MSPs in B2B contexts, particularly in driving innovation, improving operational efficiencies, and creating new forms of value. These insights also serve to introduce the eight papers in this special issue and frame three propositions for future research.
... Já nos motores de busca, a publicidade atua de forma bem diferente daquela que é preconizada nas redes sociais. A publicidade nos motores de busca é um mercado multifacetado, onde plataformas como o Google, Yahoo ou o Bing, atraem ao mesmo tempo utilizadores da internet e empresas dispostas a anunciar os seus produtos ou serviços, para surgir no topo de pesquisas do SERP (Search Engine Results Page) (Luchetta, 2012). Quanto mais detalhado for o termo de pesquisa no motor de busca, mais eficaz será o aparecimento dos links no resultado de pesquisa. ...
Digital campaigns are now a major trend in digital marketing, moreover with the
emergence of the covid-19 pandemic, it has become a habit to invest on sponsored
publications in order to reach a bigger number of consumers and develop brand awareness
among them.
As interest grew of users connected daily to the digital world, it become clear to provide
digital channels with platforms that allow the purchase of goods and products without
having to leave home.
That way, the main purpose of this research is to provide an overview, from the
perspective of users and how they were impacted by the different formats of digital
advertisements.
We chose to use a quantitative method, where a survey was carried out among users of
social networks and the internet. The conclusions obtained makes us conclude that the
ads in image and when well segmented assume a special importance in the acceptance of
digital campaigns and in the consequent conversion according to the stipulated objective.
What it was possible to reach through this study assumes a special importance for digital
marketing professionals and campaign managers. Furthermore, the study proves the
importance and potential that segmentation has in digital marketing planning and strategy.
We can therefore assume, despite the different and varied ad formats existing in different
digital channels, the image format associated with segmentation makes acceptance much
more effective on social networks. On the other hand, search engines favor the
understanding and feasibility of the address.
... In a number of papers the topic of discussion was the use by platform firms of the asymmetric price structure of their services for managing the number of agents on market sides, as well as study results of the role and significance of external effects in the consumption of these services (Armstrong 2006;Evans, Schmalensee 2007;Hagiu 2006;Rysman 2009;Weyl 2010). At the same time, a generally accepted definition of a two-sided market, which is important for antitrust regulation of platform firms business has not yet given although attempts to formulate it have been made (Evans, Schmalensee 2013;Evans, Schmalensee 2007;Luchetta 2013;Roson 2005). ...
Purpose of the study – to form two-sided network market on discrete sequence of thematically identical short-term periodic trade shows. Methods of the investigation are based on the theory of two-sided markets, the theory of industry markets and entrepreneurship, management theory, logistics theory, the theory of systems. Results of the investigation: process model was developed for transforming plat-form's resources and its parties into intermediary services of exhibition organizer; exhibition market was proved to belong to the category of Rochet & Tirole markets; toolkit of two-sided markets theory was used to develop the concept of value creation management in exhibition market network; features of logistics support for exhibition business were analyzed. All these findings lay foundations of exhibition two-sided network markets theory, created to provide methodological support for exhibition business.
... 7 The rich literature on two-sided markets is also related, due to the presence of cross-network effects (e.g., Rochet and Tirole 2006;Armstrong 2006;Jullien 2011, among others). A recent strand of the policyfocused literature argues that some of the industries viewed as two-sided markets (such as search engines) in fact reflect only one-sided network effects (e.g., Luchetta 2014;Filistrucchi et al. 2014). As such, these markets might thus better fit the present setting. ...
We consider symmetric oligopolies with positive network effects where each firm has its own proprietary network, which is incompatible with that of its rivals. We provide minimal conditions for the existence of (non-trivial) symmetric equilibrium in a general setting. We analyze the viability of industries with firm-specific networks and show that the prospects for successful launch decrease with more firms in the market. This is a major reversal from the case of single-network industries. A central part of the paper compares the viability and market performance of industries with compatible and incompatible networks and shows that viability, output, (endogenous) demand, and social welfare are higher for the former. However, the comparison of industry price, profit and consumer surplus requires respective qualifications, of a general nature for the former two but not for the latter. Overall, these results provide theoretical grounding in a general but not universal sense for the conventional view that compatibility leads to superior performance, which was hitherto based on case studies and stylized facts.
... Kavram olarak ilk kez Tirole ve Roched'in (2003) ortak çalışmalarında kullanılmış olsa da, tanımsal olarak ilk katkıya Parker ve Van Alstyne'nin (2000) çalışmalarında rastlanmaktadır. Parker ve Van Alstyne ikili piyasayı, "aynı iş kolunda farklı iki pazara yönelik ürün ve hizmetler üreterek karı maksimize etmek" olarak tanımlamaktadır (Parker & Van Alstyne'den aktaran Luchetta, 2012;4). ...
... In relation to network effects, network structure, position and the interaction between different kinds of network effects have been topics of research attention (Luchetta, 2012;Salinger and Levinson, 2015;Chu and Manchanda, 2016;Healey and Moe, 2016;Steiner et al., 2016). For example, Srinivasan and Venkatraman (2010) examined the network positions of the platform and complementors, and linked direct network effects to indirect network effects. ...
Purpose
The purpose of this paper is to systematically review the platform literature and synthesize the various topics of research into a common framework to reveal the relations between platform-based service innovation, system design and other platform-related factors.
Design/methodology/approach
A quantitative descriptive analysis led to an overview of the distribution of research focuses of the 187 sample articles identified by a well-established search strategy. A qualitative in-depth review was then used to clarify the detailed research topics and generate an overall conceptual model to link them, with a focus on platform-based service innovation and system design.
Findings
In total, 11 research topics of three research perspectives were identified and linked by a framework that accounts for the relationships between platform-based service innovation and system design and their influences on platform evolution. A small panel of industry experts validated the accuracy and utility of the proposed framework.
Originality/value
This paper provides an integrated framework for separately developed research perspectives and the topics investigated in the platform literature. Through the proposed framework, this paper helps to improve the knowledge on platform study and management, and lays a foundation for exploring the research opportunities in platform-based service innovation and system design.
... 31 These markets are governed by different rules and the competition is more intense than the physical counterparts, 32 resulting in reciprocal inter-side positive externalities. 33 As the competition is based on innovation, competition may not be in markets but for markets. 34 Two-sided platforms create difficulties for EU law right from the beginning. ...
The three central questions of this essay are: has Google via Android breached EU Competition rules? Is the EU jurisprudence applicable to Android? Does antitrust law lack the necessary tools to cope with the technological environment? Albeit these points are essential to be touched upon, they will be addressed in a modest manner due to word limit constraints.
To address these uncertainties, the challenges posed by Article 102 in fast-paced markets will be discussed. Afterwards, six characteristics of the digital sector and why they cause difficulties for EU Competition law will be examined. In the latter part, the focus will shift on critically assessing the three allegations and will challenge the appropriateness of the Commission’s legal basis in investigating Google. Finally, the last chapter will offer recommendations on how to make EU laws more effective in the digital sector.
... Some economists may argue that platform companies like Google are not multisided. Luchetta (2013), for instance, argues that the relevant market of concern for policy makers should not be the online search market, but the whole market for personal information, a market in which Google is not (yet) dominant. ...
Purpose: The paper examines recent developments in European policy debates concerned with whether governments should intervene in the digital intermediary marketplace to protect the public’s interest.
Design/methodology/approach: The paper discusses the public’s interest in the evolution of the digital intermediary marketplace, it considers the economics and policy literature on the case for policy intervention in the market dynamics of digital platforms, and it examines the extent to which policy makers in Europe are catching up with changes in the market for digital platform services.
Findings: It is argued that policy makers need to broaden the evidence-base upon which they consider whether policy intervention is needed beyond economic analysis. This is essential to ensure the European digital intermediary marketplace develops in line with economic, social and cultural goals.
Research Implications: The case is made for measures to ensure continuous and integrated monitoring of developments in the digital marketplace based on economic indicators and evidence on the diversity of media content.
... This article cites a number of working papers from economics, an area in which working papers have become the preferred mode of publishing and often circulate for years before appearing in an academic journal. 2. The application of the 'multi-sided market' concept to search engines is not uncontested (Luchetta, 2012;Pollock, 2010), but this debate is largely internal to economics. 3. Currently, sites are automatically indexed, unless they opt-out via a robots.txt ...
Media scholars have studied and critiqued search engines – and in particular the dominant commercial actor, Google – for over a decade. Several conceptual and methodological problems, such as a lack of technological transparency, have made a detailed analysis of concrete power relations and their effects difficult. This paper argues that a microeconomic approach can aid media scholars in examining the complex interactions that underpin the dynamics of information visibility unfolding around the Google search engine. Using the concept of a ‘three-sided market’, we characterize the business model built around google.com as the foundation of the company’s success. We then argue that the combination of search and advertising services, and in particular advertising network services, creates powerful incentives to orient the results page in self-serving ways, leading to fundamental conflicts of interest exacerbated by Google’s dominant position in both markets. Based on search engines’ mass media-like capacity to shape public discourse, we consider the identification of economic forces both as a prerequisite for a robust critique of the current situation and as a starting point for thinking about regulatory measures.
Digital platforms like Uber, Spotify, Airbnb, and Booking.com have completely reshaped our lives as users. Nonetheless, businesspeople are still struggling to understand the actual magnitude of their impact. In many cases, people think they are business models appropriate only for startups. In other cases, people believe they are suitable only for digital goods. In some other cases, people think those companies are managed by many smart guys who make a profit by leveraging market asymmetries (the old story that Airbnb disrupted the hotel industry without investing a cent in rooms). We believe there is another way to tell this story.
But, almost in all cases, people cannot go beyond what they see, and they can’t actually “read” the world of platforms.
Platform ecosystems are complex to understand. Managers in hundreds of thousands of companies are missing the basic concepts and words to describe what they see. The result is that even if they know that Instagram and Uber are platforms, they fail to see how incredibly different they are from each other. Only a few clearly see that Instagram is much more like the New York Times than Uber!
We aim to help you in developing what we define as the “platform thinking” mindset, the ability to read the inner mechanisms of platforms around us, to write the future of innovation through platforms, while innovating the organizations you work in.
Starting from almost a decade of research in the field, we propose our framework to make platforms a tool for innovation in any organization, especially for those that, at first glance, appear far away from the platform world.
Este trabajo ha obtenido el Primer Premio Estudios Financieros 2014 en la modalidad de Derecho Civil y Mercantil. Los mercados altamente tecnológicos e innovativos, habitualmente caracterizados por un funcionamiento muy basado en las TIC, presentan una serie de características que los distinguen de los mercados «tradicionales»: especial configuración de las barreras de entrada, coste marginal próximo o igual a cero, provisión de servicios gratuitos, presencia de externalidades positivas de efecto red, etc. Esto lleva a plantearse la idoneidad de algunas de las herramientas clásicas del Derecho de Defensa de la Competencia para detectar y sancionar comportamientos presuntamente anticompetitivos en estos sectores. Máxime cuando la actitud de las autoridades antitrust europeas es la de un enfoque expansivo de dichas reglas. En este trabajo se cuestiona, al hilo de casos «célebres» –Intel y Microsoft, entre otros, y recientemente el expediente seguido por la Comisión Europea contra la empresa Google–, la aplicación del Derecho antitrust comunitario en estos nuevos mercados. Opinamos que la innovación y el desarrollo de nuestra industria tecnológica exigen que tanto las Decisiones de la CE como las Sentencias del Tribunal de Justicia adopten una postura más prudente y cauta, y sigan el planteamiento adoptado por las autoridades antitrust estadounidenses, que enjuiciando exactamente las mismas prácticas llegan habitualmente a pronunciamientos totalmente opuestos.
Dans le cadre de révolution de la mobilité urbaine, les véhicules électriques autonomes (VEA) représentent une rupture technologique qui affectera le modèle traditionnel de transport urbain. De plus, la diffusion de pratiques relevant de l’économie de fonctionnalité, la promotion de l’économie de partage, la numérisation croissante des activités ouvrent la voie à des modèles d’affaires qui se développent notamment sous forme de plateformes. En caractérisant le concept de plateforme pour différents scénarios futurs de mobilité urbaine autonome, la présente étude vise à analyser les structures de gouvernance les plus appropriées pour chaque scénario de mobilité en identifiant leurs mécanismes de coordination. Afin de déterminer la structure de gouvernance d’une plateforme pour chaque scénario, nous avons organisé des focus group qui ont identifié et dessiné les transactions sur les actifs entre les acteurs de la plateforme selon les différents scénarios. Ainsi, conformément à la théorie de coûts de transaction nous définissons les modes de coordination les plus adaptés entre acteurs de la plateforme selon les scénarios de mobilité urbaine intégrant les véhicules autonomes. Deux facteurs seront notamment pris en compte : le rôle de l’autorité régulatrice des transports au sein de la plateforme et la politique de protection des données.Classification JEL : D86, J68, L14, L22, L91, N70, 018, R40.
En los últimos 10 o 15 años los mercados han experimentado vertiginosos cambios derivados, entre otras cosas, de la digitalización de nuevos modelos empresariales y formas de hacer negocio. Pese a que Europa aspira a la creación de un verdadero mercado único digital, lo cierto es que en la actualidad las empresas que dominan el panorama (Google, Facebook, Amazon y Apple) son todas estadounidenses. En este trabajo se analiza la respuesta regulatoria que la Unión Europea está dando a este reto de la digitalización de los mercados, en algunos aspectos cruciales, como son: el tratamiento del big data; la evaluación competitiva de las plataformas digitales; la imposición de multas por prácticas de abuso de posición dominante (art. 102 TFUE) a los gigantes tecnológicos; las restricciones verticales en el comercio online y el tratamiento de las fusiones y adquisiciones en este ámbito. Especial consideración merece el Informe sobre Política de Competencia en la Era Digital, de abril de 2019, que es una auténtica declaración de principios en este terreno, y parte de una infundada desconfianza en las empresas digitales, establece una suerte de presunción de culpabilidad sobre sus prácticas en el mercado y desde luego no incentiva la innovación y el emprendimiento digital en Europa.
Der Forschungsbericht verfolgt das Ziel, die Funktionsweise von Plattformen allgemein darzustellen und arbeitete dabei diejenigen Merkmale heraus, die von den vielfältigen Anwendungsfällen unabhängig sind. Da der Nutzen von Plattformen in enger Beziehung zur Größe der Teilnehmerzahl steht, werden auch die Wachstumspotenziale von Plattformen untersucht.
Les plateformes digitales sont des modèles d’affaires de la quatrième révolution industrielle. Si la Science de gestion donne des interprétations holistiques de la plateforme, elles manquent à la décrire dans un consensus théorique généralisable. Les Sciences économiques précisent des mécaniques générales, mais sont confrontées à la difficulté d’en modéliser l’entièreté. La présente thèse propose de théoriser l’ensemble d’un écosystème de plateforme, marchande et orientée consommateur, au travers d’une approche bi-disciplinaire entre Sciences économiques et de gestion. Au sein d’une monographie, un travail de modélisation théorique des heuristiques dans la plateforme propose un canevas normatif du modèle d’affaires de plateforme. Une expérimentation de simulation d’une plateforme auprès de 1740 personnes a permis, par la réfutation ou la confirmation du modèle théorique, de distinguer les phénomènes de rationalisation, opportunisme ou d’attachement dans ce commerce de service écosystémique. Cette recherche contribue aux connaissances sur les plateformes digitales en montrant que la plateforme n’est pas une organisation robotisée dans un marché, ni un espace de partage altruiste ou un emblème de la désintermédiation, mais un modèle de commerce hybride mêlant l’ensemble de ces symboliques dans un idéal incitant chaque acteur à générer de la valeur. Cette thèse les articule et affirme la pertinence d’une approche d’économie organisationnelle pour ce modèle. Elle modère la dominance du consommateur et fait état de nombreuses relations d’alliance, d’intégration et de communication de la valeur., contre-intuitives aux sciences de l’économie néo-classique mais associables aux sciences gestionnaires. Ses outils, les algorithmes, possèdent une influence symbolique permettant la détermination d’un positionnement marketing de la plateforme, avant une influence sur la structure organisationnelle de sa communauté marchande.
Der Aufstieg digitaler Plattformen wird die Geschäftsumfelder etablierter Industrieunterneh-men tiefgreifend und nachhaltig verändern. Nachdem es im B2C-Bereich schon zu gravierenden Veränderungen in der Wettbewerbsarena kommt, steht der B2B-Bereich an der Schwelle zur so genannten Plattformökonomie. Unternehmen können durch eigene Plattformen oder den Beitritt zu bestehenden Plattformen von dieser Entwicklung profitieren und z. B. zu geringen Transaktionskosten neue Märkte erschließen. Plattformen weisen jedoch auch Bedrohungen für produzierende Unternehmen auf, wie den Verlust des direkten Kundenzugangs. Im Lichte des skizzierten Spannungsfelds gilt es frühzeitig zu antizipieren, welche Optionen für den Einstieg in die künftige Plattformökonomie existieren und welche Anpassungen am Produkt- und Dienstleistungsprogramm bereits heute vorgenommen werden sollten.
Ziel der Arbeit ist daher eine Systematik zum Einstieg in die Plattformökonomie. Die Kombination der oben aufgezeigten Stoßrichtungen Plattformaufbau und Plattformbeitritt liefert vier grundsätzliche Handlungsoptionen, welche das Fundament der Arbeit darstellen. Kern der Systematik ist ein Vorgehensmodell, dessen Ausgangspunkt ein bestehendes Industrieunternehmen ist. Resultat ist eine individuelle Handlungsempfehlung zum Einstieg in die Plattformökonomie. Um diese auszugestalten, können Unternehmen auf Orientierungswissen für den Plattformaufbau und den Plattformbeitritt zurückgreifen. Der Plattformaufbau wird beispielsweise durch bewährte Innovationsprinzipien erfolgreicher Plattformen unterstützt. Für den Plattform-beitritt wird eine Landkarte zur Verfügung gestellt, mit deren Hilfe in Frage kommende Platt-formen ausgewählt werden können. Die Anwendung der Systematik erfolgt exemplarisch für ein Unternehmen aus der Automatisierungs- und Verbindungstechnik.
This paper focuses on discovering and offering pertinent and attentive evidence on the successes and challenges by women entrepreneurs in GCC. The research aims at reviewing what has been achieved so far in previous literature. The economic changes and development encouraged people to start their own businesses and follow the path of entrepreneurship. These advancements were only possible because of the continuous efforts of the GCC governments. Women are part of this and have gained recently momentum in the world of business in GCC, which reflected positively on the economy. GCC was formed in 1981 and it was inaugurated to promote the economic, social, and cultural cooperation between these Arab Gulf States. This leads us to say that sustainability is supported by women role in creating new businesses.
Calls for a European “third way” in matters of digital technology need to be put into action to achieve an actual change of the status quo. To achieve autonomy in the digital sphere, European alternatives to digital services and products need to be established. However, such efforts must also extend to the level of information technology infrastructure. To that end, decentralized indexing of the internet could significantly help to strengthen Europe’s digital sovereignty. Nevertheless, legal challenges need to be overcome to make that vision a reality.
The ascending economic and political influence of the internet platforms of the 21st century has sparked a debate about the adequate regulation of these “tech titans”. At the heart of this discussion is competition law – the field of law that was created to tame dominant companies. But when does a company truly hold such a “dominant position”? The definition of this fundamental competition law term faces numerous challenges when applied to digital platforms, from zero-price markets to the multi-sidedness of business models. This book dismantles the term into its components and shows where the methodology needs to adapt to the digital economy. In doing so, it considers the legal regimes of Germany, the EU and the US, as well as findings from legal economics.
The ascending economic and political influence of the internet platforms of the 21st century has sparked a debate about the adequate regulation of these “tech titans”. At the heart of this discussion is competition law – the field of law that was created to tame dominant companies. But when does a company truly hold such a “dominant position”? The definition of this fundamental competition law term faces numerous challenges when applied to digital platforms, from zero-price markets to the multi-sidedness of business models. This book dismantles the term into its components and shows where the methodology needs to adapt to the digital economy. In doing so, it considers the legal regimes of Germany, the EU and the US, as well as findings from legal economics.
The paper examines a two-sided market on a multi-sided platform of an exhibition company and looks at the technology of market formation, its specific features, the concept of value creation management and conditions for its implementation. Methodologically the research rests on Rochet-Tirole’s theory of two-sided markets, as well as industrial organization theory, entrepreneurship theory, general management theory, logistics theory and general systems theory. The author uses the methods of analysis, decomposition, synthesis, abstraction, generalization, deduction and axiomatic method. For the trade fair organizer, the article presents the author’s versions of the main business process and the process model of managed transformation of a platform’s resources and its parties into the organizer’s intermediary services. The study proves that a two-sided trade fair market exhibits some identifying attributes that allow categorizing it as a Rochet-Tirole market. It substantiates the concept of value creation management, where the number of exhibitors and visitors is the target function, and the price structure of the organizer’s services is the tool for initiating control actions. The research details the system- and process-related specificity of the logistic support for the organizer’s activity. The findings provide the basis for the theory of two-sided trade fair market and should encourage the scientific support level for the exhibition business.
The technological foundations and businesses models upon which digital companies currently function, the so-called ‘platforms’, are characterized by the sort of features that attract antitrust scrutiny. They are usually conformed as multi-sided markets; they pervasively exhibit network effects; the nature and scope of entry barriers is uncertain; dominance in each market is duly granted to the successful company; foreclosure of small firms is always wandering around. Thus, it’s no surprise that digital markets champions such as Facebook, Amazon, Google and Apple have received close attention from the regulators in both sides of the Atlantic. Accordingly, antitrust enforcement efforts both in Europe and the United States have recently increased in number of actions taken and the amount of fines imposed in high-tech industries. Recent decisions in this field have rekindled in-depth and largely unresolved debates concerning the appropriate role of antitrust enforcement in such markets. Nevertheless, the Statement of Objections sent recently by the European Commission to Google, for allegedly abusing its dominant position in the internet-search market goes a step further, jeopardizing the very goals and objectives competition policy is supposed to pursue. Against this background and in light of other recent high-profile cases (Intel, Tomra, Post Danmark, and the everlasting Microsoft) this paper seeks to set an adequate legal and economic framework for the prohibition of monopolization under article 102 of the Treaty of Functioning of the European Union (TFUE). This sort of high tech markets are usually characterised for a heavy reliance in ICT (information and communication technologies), the importance of product design and the development of platforms. In addition, on the basis of ‘winner-takes-it-all’ paradigm, the platform on which they operate may be considered as an ‘essential facility’. As a result, any discrimination or denial of access may be considered abusive.However, the legal treatment to be applied to ‘refusals to supply’ remains as one of the most contentious issues in contemporary EU competition law. It was at the heart of Microsoft’s misbehaviour in 2004 -- and all the subsequent fines that followed -- and, ten years later, if Google’s conduct regarding discrimination of competing firms in favour of its own services may walk the very same path. The four topics addressed in this paper concern three long-lasting controversies and one recent matter: i) under what circumstances a dominant firm is entitled to respond -- albeit, aggressively -- to its competitor’s challenges; ii) the precise scope -- if there’s any -- of the ‘objective justification’ defence; iii) if that sort of conduct is prohibited only when leads to anticompetitive foreclosure, without restrictive effects, is there room for a ‘by object’ interdiction of abuse of a dominant position?; iv) finally, in the specific digital industry, and given the still uncertain economics of multi-sided market and the evolving nature of prevalent businesses models, is really a ‘monopoly’ as bad and harmful as with the bricks-and-mortar or oil-well-and-pipeline predecessors? The ultimate question is, does current antitrust enforcement in these specific markets achieve its goal of fostering competition or rather the undesired effect of chilling innovation?
The study of products or business that concurrently serve two or more “sides” of consumers has been one of the most active areas of microeconomic analysis in the past decade. However, the phrase “two-sided markets” has been used to describe markets with a variety of economic properties. Different articles and economists use the phrase inconsistently. This is probably one of the reasons why the EU antitrust authorities have accepted some industries as two-sided markets while not others. In order to solve the problem, this paper proposes a definition that the term “two-sided markets” should be applied to a product or business if, and only if, it is impossible for the business or product to exist if it is not operated in a two-sided manner. Importantly, this does not include online media.
We analyze the role of leadership in a multi-sided market as search advertising, assuming quantity competition and different entry conditions (with barriers to entry or endogenous entry). The model can be microfounded taking into account network effects, multi-homing on the advertising side and scale in search. If there are barriers to entry and the network effects are strong, there is an incentive for the leader to exploit them and attract more consumers to monopolize advertising. Under barriers to entry, the leading platform has also a strategic incentive to exploit scale in search, to manipulate search results to divert search traffic from other platforms, and to introduce limits to multi-homing, with the aim of expanding its market share and deny scale to competitors.
This paper provides an overview of the development of Internet advertising. We offer a broad overview of both online and offline
advertising and the economic models that allow one to evaluate competition among advertisers. We focus on the extent to which
various types of online advertising compete with one another and with offline advertising. We also ask whether various types
of online ads are competitive with each other.
We review the burgeoning literature on two-sided markets focusing on the different definitions that have been proposed. In particular, we show that the well-known definition given by Evans is a particular case of the more general definition proposed by Rochet and Tirole. We then identify the crucial elements that make a market two-sided and, drawing from both theory and practice, derive suggestions for the identification of the two-sided nature of a market. Our suggestions are relevant not only for the analysis of traditional two-sided markets, such as newspapers and payment cards, but also for the analysis of many new markets, such as those for online social networks, online search engines and Internet news aggregators.
The antitrust landscape has changed dramatically in the last decade. Within the last two years alone, the United States Department of Justice has held hearings on the appropriate scope of Section 2, issued a comprehensive Report, and then repudiated it; and the European Commission has risen as an aggressive leader in single firm conduct enforcement by bringing abuse of dominance actions and assessing heavy fines against firms including Qualcomm, Intel, and Microsoft. In the United States, two of the most significant characteristics of the “new” antitrust approach have been a more intense focus on innovative companies in high-tech industries and a weakening of longstanding concerns that erroneous antitrust interventions will hinder economic growth. But this focus is dangerous, and these concerns should not be dismissed so lightly. In this article we offer a comprehensive cautionary tale in the context of a detailed factual, legal and economic analysis of the next Microsoft: the theoretical, but perhaps imminent, enforcement action against Google. Close scrutiny of the complex economics of Google’s technology, market and business practices reveals a range of real but subtle, pro-competitive explanations for features that have been held out instead as anticompetitive. Application of the relevant case law then reveals a set of concerns where economic complexity and ambiguity, coupled with an insufficiently-deferential approach to innovative technology and pricing practices in the most relevant precedent (the D.C. Circuit’s decision in Microsoft), portend a potentially erroneous - and costly - result. Our analysis, by contrast, embraces the cautious and evidence-based approach to uncertainty, complexity and dynamic innovation contained within the well-established “error cost framework.” As we demonstrate, while there is an abundance of error-cost concern in the Supreme Court precedent, there is a real risk that the current, aggressive approach to antitrust error, coupled with the uncertain economics of Google’s innovative conduct, will nevertheless yield a costly intervention. The point is not that we know that Google’s conduct is procompetitive, but rather that the very uncertainty surrounding it counsels caution, not aggression.
In this paper, we define and present a comprehensive classification of user intent for Web searching. The classification consists of three hierarchical levels of informational, navigational, and transactional intent. After deriving attributes of each, we then developed a software application that automatically classified queries using a Web search engine log of over a million and a half queries submitted by several hundred thousand users. Our findings show that more than 80% of Web queries are informational in nature, with about 10% each being navigational and transactional. In order to validate the accuracy of our algorithm, we manually coded 400 queries and compared the results from this manual classification to the results determined by the automated method. This comparison showed that the automatic classification has an accuracy of 74%. Of the remaining 25% of the queries, the user intent is vague or multi-faceted, pointing to the need for probabilistic classification. We discuss how search engines can use knowledge of user intent to provide more targeted and relevant results in Web searching.
Media industries are important drivers of popular culture. A large fraction of leisure time is devoted to radio, magazines, newspapers, the Internet, and television (the illustrative example henceforth). Most advertising expenditures are incurred for these media. They are also mainly supported by advertising revenue. Early work stressed possible market failures in program duplication and catering to the Lowest Common Denominator, indicating lack of cultural diversity and quality. The business model for most media industries is underscored by advertisers' demand to reach prospective customers. This business model has important implications for performance in the market since viewer sovereignty is indirect. Viewers are attracted by programming, though they dislike the ads it carries, and advertisers want viewers as potential consumers. The two sides are coordinated by broadcasters (or “platforms”) that choose ad levels and program types, and advertising finances the programming. Competition for viewers of the demographics most desired by advertisers implies that programming choices will be biased towards the tastes of those with such demographics. The ability to use subscription pricing may help improve performance by catering to the tastes of those otherwise under-represented, though higher full prices tend to favor broadcasters at the expense of viewers and advertisers. If advertising demand is weak, program equilibrium program selection may be too extreme as broadcasters strive to avoid ruinous subscription price competition, but strong advertising demand may lead to strong competition for viewers and hence minimum differentiation (“la pensée unique”). Markets (such as newspapers) with a high proportion of ad-lovers may be served only by monopoly due to a circulation spiral: advertisers want to place ads in the paper with most readers, but readers want to buy the paper with more ads.
Classic IR (information retrieval) is inherently predicated on users searching for information, the so-called "information need". But the need behind a web search is often not informational -- it might be navigational (give me the url of the site I want to reach) or transactional (show me sites where I can perform a certain transaction, e.g. shop, download a file, or find a map). We explore this taxonomy of web searches and discuss how global search engines evolved to deal with web-specific needs.
We analyze the salient features of networks and point out the similarities between the economic structure of networks and the structure of vertically related industries. The analysis focuses on positive consumption and production externalities, commonly called network externalities. We discuss their sources and their effects on pricing and market structure. We distinguish between results that do not depend on the underlying industry microstructure (the macro approach) and those that do (the micro approach). We analyze the issues of compatibility, coordination to technical standards, interconnection and interoperability, and their effects on pricing and quality of services and on the value of network links in various ownership structures. We also briefly discuss the issue of interconnection fees for bottleneck.
Antitrust agencies in the United States and the European Union began investigating Google's search practices in 2010. Google's
critics have consisted mainly of its competitors, particularly Microsoft, Yelp, TripAdvisor, and other search engines. They
have alleged that Google is making it more difficult for them to compete by including specialized search results in general
search pages and limiting access to search inputs, including “scale,” Google content, and the Android platform. Those claims
contradict real-world experiences in search. They demonstrate competitors' efforts to compete not by investing in efficiency,
quality, or innovation, but by using antitrust law to punish the successful competitor. The Chicago School of law and economics
teaches—and the Supreme Court has long affirmed—that antitrust law exists to protect consumers, not competitors. Penalizing
Google's practices as anticompetitive would violate that principle, reduce dynamic competition in search, and harm the consumers
that the antitrust laws are intended to protect.
Many online businesses seek and provide attention. These online attention rivals provide products and features to obtain the
attention of consumers and sell some of that attention, through other products and services, to merchants, developers, and
others who value it. The multi-sided business of seeking and providing attention is fluid with rivalries crossing boundaries
defined by the features of the products and services. It is also dynamic. Rivals introduce new products and services, some
involving drastic and frequent innovation. Online attention rivals impose competitive constraints on one another. Product
differentiation tempers the significance of these constraints in particular situations. But the relevant differentiation mainly
involves aspects of the attention that is procured and sold rather than, necessarily, particular features of the products
and services used for acquiring and delivering that attention. Antitrust analysis should consider these competitive constraints
in evaluating market definition, market power, and the potential for anticompetitive effects. The existence of competition
among attention rivals does not imply that antitrust should reduce the vigor with which it examines mergers and exclusionary
practices among these platforms. It just needs to look for problems in the right places.
The Ross-Simmons case raises the question of whether or not predatory bidding should be subject to the same antitrust hurdles as predatory pricing Professor Salop believes they should be. His analysis proceeds from three basic assumptions that I believe are incorrect. The first is that the Brooke Group ruling is correct as a matter of economic policy, not just antitrust law. The Court in Brooke Group relied on empirical analysis that does not meet the required standard of scientific fact. The data easily lend themselves to subjective interpretation so that the bias of the commentator is more important than any set of facts in determining conclusions. Second, Professor Salop proceeds as if the proper welfare analysis is limited to a quite restricted set of markets (partial equilibrium analysis) rather than c markets more generally (general equilibrium analysis). Yet, it is well recognized that general equilibrium analysis will give more accurate results than partial equilibrium analysis. The use of partial equilibrium analysis by Professor Salop leads to the assumption that if price falls below marginal costs in the market for the primary good, consumers gain, and that such a case is very different from the one in which prices rise above marginal costs. The two situations differ, however, only in the distributional burden of their initial impacts. When price deviates from marginal costs, resources are wasted. The use of these resources in these alternative markets would, as a general matter, benefit consumers in these alternative markets. These remarks are clearly related to Professor Salop's third assumption (shared by Professor Kirkwood)5 that it is consumer welfare, not economic efficiency, that counts. The distinction is unrealizable.
I analyze the salient features of networks and point out the similarities between the economic structure of networks and the structure of vertically related industries. The analysis focuses on positive consumption and production externalities, commonly called network externalities. I discuss their sources and their effects on pricing and market structure. I distinguish between results that do not depend on the underlying industry microstructure (the 'macro' approach) and those that do (the 'micro' approach). I analyze the issues of compatibility, coordination to technical standards, interconnection and interoperability, and their effects on pricing and quality of services and on the value of network links in various ownership structures. I also briefly discuss the issue of interconnec-tion fees for bottleneck facilities.
This article is about a type of business that connects distinct groups of customers on a "multi-sided platform." Such businesses have been around for millennia. But their economic importance has increased with the Internet revolution. Many significant web-based businesses such as eBay, Facebook, and Google are multi-sided. Multi-sided platform businesses must account for the fact that each type of customers they attract values more of the other type of customers. Buyers value many sellers and sellers many buyers, for example, on Internet auction sites. That interdependence has significant implications for the economic behavior of these businesses (they often break even or lose money on customers on one side) and for how competition authorities and regulators should analyze them (market definition must account for the linkages between the multiple customer groups). Multi-sided platforms tend to engage in complex business practices. The challenge for policymakers is distinguishing anticompetitive from complicated but benign behavior. This paper is based on the Beesley Lecture, sponsored by the London Business School and the Institute for Economic Affairs, which I was invited to deliver on 26 October 2007 in London.
The Weyerhaeuser case presents the scenario of a firm that successfully engages in exclusionary conduct, obtains a monopsony, and yet does not have any potential to injure the end users of its products. Rather, the conduct has the immediate effect of injuring competitors, and the longer-term effect of injuring input sellers. Commentators have argued that the antitrust laws are indifferent to latter injuries because they are concerned only with "consumer welfare." This essay demonstrates that Congress was, and the courts have been, far from indifferent to the plight of sellers exploited by monopsonies. This essay shows that Sherman Act cases referring to "consumer welfare" have not indicated that they meant end-user welfare rather than aggregate welfare. Finally, this essay argues that promoting consumer welfare is a goal of the Sherman Act, but only a goal, and that making end-user welfare the touchstone under the Act could have extraordinarily undesirable consequences.
In this article, I examine two categories of exclusionary conduct - price discrimination and predatory pricing - and ask whether the standards that govern a seller's use of such conduct should also apply to a powerful buyer. In the classic case, a seller uses price discrimination as an exclusionary device when it charges a monopoly price in one geographic market but cuts price in another to attack a new entrant. Brooke Group held that such behavior cannot violate the Robinson-Patman Act unless it satisfies the tests for predatory pricing under the Sherman Act - below-cost pricing and recoupment. I conclude that those tests should not apply to buyer-induced price discrimination, which occurs when a buyer obtains a price concession from a seller that is not made available to competing buyers. Not only are those tests not relevant to buyer-induced discrimination, but the purpose of the Robinson-Patman Act's ban on such discrimination is to protect small business, not promote consumer welfare. In addition, as I show, the market power requirements and consumer welfare effects of the two kinds of discrimination are significantly different. In the second part of the paper, I address whether the tests for predatory pricing should apply to "predatory bidding," in which a buyer bids up the market price of an input to injure competing buyers and acquire monopsony power. Though predatory pricing and predatory bidding are very similar, they are not identical. In particular, predatory bidding complaints, which have seldom been filed and which challenge a buyer's decision to increase prices rather than reduce them, appear less likely to chill price cutting than predatory pricing complaints. Until courts gain more experience with predatory bidding, I conclude that a plaintiff should not have to meet Brooke Group's tests but should have to show, under a full rule of reason analysis, that defendant's conduct was likely to reduce rather than increase consumer welfare.
The market for Internet search is not only economically and socially important, it is also highly concentrated. Is this a problem? We study the question whether "competition is only a free click away". We argue that the market for Internet search is characterized by indirect network externalities and construct a simple model of search engine competition, which produces a market share development that fits the empirically observed development since 2003 well. We find that there is a strong tendency towards market tipping and, subsequently, monopolization, with negative consequences on economic welfare. Therefore, we propose to require search engines to share their data on previous searches. We compare the resulting "competitive oligopoly" market structure with the less competitive current situation and show that our proposal would spur innovation, search quality, consumer surplus, and total welfare. We also discuss the practical feasibility of our policy proposal and sketch the legal issues involved.
The unique characteristics of the search advertising industry encourage the development of anticompetitive monopoly power, facilitating the rise and dominance of companies like Google. First, the search advertising industry is subject to multi-sided network effects that create a positive feedback loop. An increase in the number of customers on one side of the market attracts increased numbers of customers on the other side, enabling dominant firms to entrench their market power. Second, and relatedly, the search advertising industry operates in an innovative market where firms compete not to outdo competitors on price but rather to displace one another's products entirely. In such a market, a dominant firm can acquire potentially displacing (but not substitutive) technology and thereby control future innovation, freeing itself from the burden of innovating further to maintain competitive advantage. Current regulatory enforcement, informed by traditional antitrust analysis, does not adequately account for the impact of multi-sided network effects or innovation-to-displace on competition. Retooling the regulatory regime governing merger enforcement, allowing the agencies tasked with enforcement to broaden their inquiries when investigating anticompetitive behavior of these firms, is therefore necessary to preserve competition in multi-sided innovative markets.
This article extends antitrust analysis to two-sided markets in which a virtual monopolist competes with local bricks-and-mortar dealers. The discussion examines the market power of an Internet market maker as well as an Internet matchmaker. The analysis shows that equilibrium in a two-sided market can be characterized as a one-sided market in which transaction demand depends on the bid-ask spread of the central market maker. This allows for a straightforward extension of critical demand elasticity and critical loss analysis from one-sided markets to two-sided markets, with antitrust tests based on the hypothetical monopolist's bid-ask spread. Antitrust analysis of a one-sided market also carries over to a two-sided market with a matchmaker where antitrust tests are based on the sum of participation fees.
Google has become, for the majority of Americans, the index of choice for online information. Through dynamically generated results pages keyed to a near-infinite variety of search terms, Google steers our thoughts and our learning online. It tells us what words mean, what things look like, where to buy things, and who and what is most important to us. Google's control over results constitutes an awesome ability to set the course of human knowledge. As this paper will explain, fortunes are won and lost based on Google's results pages, including the fortunes of Google itself. Because Google's results are so significant to e-commerce activities today, they have already been the subject of substantial litigation. Today's courtroom disputes over Google's results are based primarily, though not exclusively, in claims about the requirements of trademark law. This paper will argue that the most powerful trademark doctrines shaping these cases, initial interest confusion and trademark use, are not up to the task they have been given, but that trademark law must continue to stay engaged with Google's results. The current application of initial interest confusion to search results represents a hyper-extension of trademark law past the point of its traditional basis in preventing consumer confusion. Courts should reject initial interest confusion doctrine due to its tendency to grant trademark owners rights over search results that could easily operate against the greater public interest. On the other hand, the recent innovation of trademark use doctrine improperly relieves trademark law of any role in the supervision of the shape of Google's search results. The absence of any state involvement in the shape Google's results will effectively cede the structure of our primary online index to Google's law. Google may enjoy substantial public goodwill, but what is best for Google will not always be what is best for society. Part I of this article describes the history of Google and its business model. Google is not the only search engine today, but it is the leading search engine in terms of United States market share. Additionally, Google is playing the most important role today in search engine litigation. It is a unique search engine in many respects. During its evolution, Google followed a very different path than many of its competitors. Today its competitors are largely imitating its model, yet are unable to dethrone its centrality in search. Understanding how Google rose to prominence is essential to understanding its motives and how it might act in the future. Part II of this article sets forth the contemporary law pertaining to search results. It begins with a short discussion of recent (failed) attempts to regulate Google's results through laws other than trademark. It then describes current theories of trademark law. It concludes by summarizing how trademark law has been applied to search engines, starting with early meta tag cases and concluding with Google's current attempts to insulate itself from liability under an expanded doctrine of trademark use. Part III criticizes the current application of trademark law to search engines. It argues that the judicial innovations of both initial interest confusion and trademark use are inconsistent with the traditional purpose of trademark law and the new realities of the e-commerce marketplace. It concludes that a simple focus on the likelihood of confusion standard, which some courts have already supported, is overdue. It concludes by explaining why, despite the fact that trademark law today will likely permit Google's current practices, Google's bid for the carte blanche freedom permitted by trademark use doctrine should be rejected by courts. In its relatively new role as a protector of the social value of indices, trademark law must retain the ability to curb potential abuses of the commercial power enjoyed by Google.
We provide a roadmap to the burgeoning literature on two-sided markets and present new results. We identify two-sided markets with markets in which the structure, and not only the level of prices charged by platforms, matters. The failure of the Coase theorem is necessary but not sufficient for two-sidedness. We build a model integrating usage and membership externalities that unifies two hitherto disparate strands of the literature emphasizing either form of externality, and obtain new results on the mix of membership and usage charges when price setting or bargaining determine payments between end-users.
Broadly speaking, a two-sided market is one in which 1) two sets of agents interact through an intermediary or platform, and 2) the decisions of each set of agents affects the outcomes of the other set of agents, typically through an externality. In the case of a video game system, the intermediary is the console producer -- Sony in the scenario above -- while the two sets of agents are consumers and video game developers. Neither consumers nor game developers will be interested in the PlayStation if the other party is not. Similarly, a successful payment card requires both consumer usage and merchant acceptance, where both consumers and merchants value each others' participation. Many more products fit into this paradigm, such as search engines, newspapers, and almost any advertiser-supported media (examples in which consumers typically negatively value, rather than positively value, the participation of the other side), as well as most software or title-based operating systems and consumer electronics. This paper seeks to explain what two-sided markets are and why they interest economists. I discuss the strategies that firms typically consider, and I highlight a number of puzzling outcomes from the perspective of the economics of two-sided markets. Finally, I consider the implications for public policy, particularly antitrust and regulatory policy, where there have been a number of recent issues involving media, computer operating systems, and payment cards.
We examine a price competition game between two intermediaries offering to match two sides of a market on the Internet. Competition is characterized by asymmetric network externalities. We account for some specificities of cybermediation, in particular access versus usage pricing and the possibility of using the services of several intermediaries. When only registration fees are used and agents register with at most one cybermediary, there exists an equilibrium where one firm corners the market with positive profits. Introducing either fees contingent on successful matching or the possibility of registration with two cybermediaries make these profits vanish. Other types of equilibria are discussed.
Two types of single-firm overbuying are analyzed in this article. Predatory overbuying consists of overbuying inputs as a predatory strategy to cause buyer-side competitors in the input market to exit from the market or permanently shrink their capacity in order to gain monopsony power in the input market. Raising Rivals' Costs (RRC) overbuying consists of overbuying inputs as an exclusionary strategy to raise rivals' input costs and thereby gain market power in the output market. In most cases, the additional input purchases are used to produce output. However, in unusual cases a firm may engage in naked overbuying, that is, purchasing an input solely to deny it to rivals and then simply discarding the input.
This Article provides a road map to issues of search engine law. It indicates what questions we must consider when thinking about search engines, and it indicates the interconnections among those questions. It does not endorse any particular normative framework for search. Nor does it recommend who should regulate search. Instead, it provides the necessary foundation for informed decision-making, by whatever regulator and whatever its normative approach. Part I will explain how modern search engines function and describe the business environment within which they operate. Search engine operations can be understood in terms of the information flows among four principal actors: search engines themselves, their users, information providers, and third parties (such as copyright holders and censorious governments) with interests in particular content flows. There are, in turn, four significant information flows: the indexing by which a search engine leans what content providers are making available, user queries to the search engine for information about particular topics, the results returned by the search engine to users, and finally, the context that providers send to users who have found them through searching. Because so many major search engines are funded through advertising, this Part will also includes a survey of how search engine advertising works and the distinctive fraud problems confronting search engines and their advertisers. Part II, the heart of the Article, will present a descriptive analysis of the legal struggles over search, showing how questions of search policy, many of which have long been latent in different fields of Internet law, are increasingly confronting lawyers, courts, and regulators. It will describe those struggles in terms of the legitimate interests that each of these actors brings to debates over search. Users want high-quality results without too great a sacrifice of privacy. Content providers want favorable placement in search results without paying more than their fair share of the costs of supporting search and without facing unfair competition from search engines. Third parties want to prevent unauthorized distribution of copyrighted content, to preserve their own privacy, to protect their reputation, and to preserve user virtue. And finally, search engines want to preserve their ability to innovate, to protect themselves from fraud, and to ensure that the search market remains open to competition. Each entry in this list of a dozen interests has its own associated legal theories; this systematic taxonomy allows us to recognize how any given legal theory affects the search ecology. Part III will then show, with five examples, how taking a broad view of search yields otherwise unavailable insights into pressing controversies. This is not to say that the end result must be a body of search-specific law, only to note that failing to consider the larger forces at work in search is antithetical to sensible policy-making. First, the broad, systematic view illustrates how various claims in search engine disputes can serve as functional substitutes for each other. Second, it shows that the degree of transparency of the search process is a highly contested variable, which some concerns pressing for greater transparency and some pressing for less. Third, it illustrates that user privacy is a deeply knotty problem, and that preserving reasonable user expectations will involve difficult trade-offs with other interests—including some of users’ own. Fourth, it shows that we require a theory of search engine speech; the most well-developed theory of search engine results as speech so far articulated by a court is insufficiently complex. And fifth, it illustrates the richness of debates over search engines’ relationship to providers’ trademarks.
We analyze technology adoption in industries where network externalities are significant. The pattern of adoption depends on whether technologies are sponsored. A sponsor is an entity that has property rights to the technology and hence is willing to make investments to promote it. Key findings include the following: (1) compatibility tends to be undersupplied by the market, but excessive standardization can occur; (2) in the absence of sponsors, the technology superior today has a strategic advantage and is likely to dominate the market; (3) when one of two rival technologies is sponsored, that technology has a strategic advantage and may be adopted even if it is inferior; (4) when two competing technologies both are sponsored, the technology that will be superior tomorrow has a strategic advantage.
Introduction, 103.—Sources of bias in program selection, 106.—Numbers of programs and audience sizes in equilibrium, 114.—Summary
of results and policy, 122.
Many if not most markets with network externalities are two-sided. To succeed, platforms in industries such as software, portals and media, payment systems and the Internet, must "get both sides of the market on board." Accordingly, platforms devote much attention to their business model, that is, to how they court each side while making money overall. This paper builds a model of platform competition with two-sided markets. It unveils the determinants of price allocation and end-user surplus for different governance structures (profit-maximiz-ing platforms and not-for-profit joint undertakings), and compares the outcomes with those under an integrated monopolist and a Ramsey planner. (JEL: L5, L82, L86, L96) Copyright (c) 2003 The European Economic Association.
Internet-based technologies are revolutionizing the stodgy $625 billion global advertising industry. There are a number of public policy issues to consider. Will a single ad platform emerge or will several remain viable? What are the consequences of alternative market structures for a web economy that is increasingly based on selling eyeballs to advertisers? This article describes the online advertising industry. The industry is populated by a number of multi-sided platforms that facilitate connecting advertisers to viewers. Search-based advertising platforms, the most developed of these, have interesting economic features that result from the combination of keyword bidding by advertisers and single-homing.
This paper provides a first pass at comparing two polar strategies for market intermediation: "merchant" mode - buying from sellers and reselling to buyers - and "two-sided platform" mode - enabling affiliated sellers to sell directly to affiliated buyers. The merchant mode is more profitable when the chicken-and-egg problem for the two-sided platform is more severe and when the degree of complementarity among sellers' products is higher. The platform mode is preferred when seller investment incentives are important or when there is asymmetric information regarding seller product quality. We discuss these tradeoffs in the context of several prominent digital intermediaries.
There are many examples of markets involving two groups of agents who need to interact via 'platforms', and where one group's benefit from joining a platform depends on the number of agents from the other group who join the same platform. This paper presents theoretical models for three variants of such markets: a monopoly platform; a model of competing platforms where each agent must choose to join a single platform; and a model of 'competing bottlenecks', where one group wishes to join all platforms. The main determinants of equilibrium prices are (i) the relative sizes of the cross-group externalities, (ii) whether fees are levied on a lump-sum or per-transaction basis, and (iii) whether a group joins just one platform or joins all platforms.
We discuss issues of the application of antitrust law and regulatory rules to network industries. In assessing the application of antitrust in network industries, we analyze a number of relevant features of network industries and the way in which antitrust law and regulatory rules can affect them. These relevant features include (among others) network effects, market structure, market share and profits inequality, choice of technical standards, relationship between the number of active firms and social benefits, existence of market power, leveraging of market power in complementary markets, and innovation races. We find that there are often significant differences on the effects of application of antitrust law in network and non-network industries.
I discuss the design and implementation of a SSNIP test in order to identify the relevant market in a media market. I argue that in such a two-sided market the traditional SSNIP test cannot be applied as it is usually conceived but rather should be modified in order to take into account indirect network externalities. I discuss the issues of which price the hypothetical monopolist should be thought of as raising, of whether we should look at profits changes on only one side or on both sides of the market and of which feedback among the two sides of the market we should take into account. I then derive the relevant formulas for Critical Loss Analysis. These look much uglier than in a single-sided market but in fact they are easy to calculate as they are still expressed in terms of elasticities and of current observed markups, prices and quantities. Data requirements are however higher as one needs to estimate the matrixes of the own and cross price elasticities of demand on the two-sides of the market and the matrixes of the network effects. The paper fills a gap in the economic literature, so much more as market definition in media markets is at the centre of many recent competition policy and regulation cases around the world.
Two-sided platforms (2SPs) cater to two or more distinct groups of customers, facilitating value-creating interactions between them. The village market and the village matchmaker were 2SPs; eBay and Match.com are more recent examples. Other examples include payment card systems, magazines, shopping malls, and personal computer operating systems. Building on the seminal work of Rochet and Tirole (2003), a rapidly growing literature has illuminated the economic principles that apply to 2SPs generally. One key result is that 2SPs may find it profit-maximizing to charge prices for one customer group that are below marginal cost or even negative, and such skewed pricing pattern is prevalent, although not universal, in industries that appear to be based on 2SPs. Over the years, courts have also recognized that certain industries, notably payment card systems and newspapers, now understood to be based on 2SPs, are governed by unusual economic relationships. This chapter provides an introduction to the economics of 2SPs and its application to several competition policy issues.
This paper first discusses how the market is delineated in some recent antitrust cases in the printed media industry. It evaluates the extent to which the main features of the industry are incorporated into the analysis and affect market definition. In addition we argue that an econometric analysis that does not incorporate these features can lead to biased estimates of elasticities. As demand substitution is a crucial element for defining market, bad estimates of elasticities could blur the boundaries of relevant markets. Second we propose a simple model that encompasses these features and in particular the two-sidedness of the market. Thirdly, we review some empirical papers that analyse the issue of demand estimation in printed media. Finally, we perform a statistical estimation on a dataset of magazines in order to provide a measure of the possible bias that could arise in the estimation of elasticities when one does not use a proper model.
I study a budget-constrained, private-valuation, sealed-bid sequential auction with two incompletely-informed, risk-neutral bidders in which the valuations and income may be non-monotonic functions of a bidder's type. Multiple equilibrium symmetric bidding functions may exist that differ in allocation, efficiency and revenue. The sequence of sale affects the competition for a good and therefore also affects revenue and the prices of each good in a systematic way that depends on the relationship among the valuations and incomes of bidders. The sequence of sale may affect prices and revenue even when the number of bidders is large relative to the number of goods. If a particular good, say [alpha], is allocated to a strong bidder independent of the sequence of sale, then auction revenue and the price of good [alpha] are higher when good [alpha] is sold first.
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