Topic of the lecture:

Prices and mergers in a general model of multi-sided markets (joint work with Raúl Bajo-Buenestado, U Navarra)

Abstract:

We develop a general oligopoly model of multi-sided platform markets, in which end-users decide endogenously which sides and platforms to join in any combination of single-/multi-homing and participation potentially limited to one side. Heterogeneous enduser valuations are drawn from a general density function. We derive formally uniqueness of the equilibrium number of end-users and novel switching effects that distort optimal platform pricing. This can lead to positive cross-price elasticities under positive network externalities, markups exceeding the Lerner index, and the ruling out of “cross-subsidization”. To analyze multi-sided platform mergers, we provide a framework that unifies seemingly contradictory results in the previous literature. Given observable pre-merger variables, our model is the first to predict post-merger upward pricing pressure of mergers among (un)related platforms based on the switching effects. We show that while optimal pricing is determined by the nature of end-users’ side choices, their
platform choices are crucial for merger analysis. (pdf)