Prices and mergers in a general model of multi-sided markets

Title: Prices and mergers in a general model of multi-sided markets (with Raúl Bajo-Buenestado)

https://sites.google.com/site/raulbajob/

Abstract: We present a general and tractable oligopoly model of multi-sided platforms with heterogeneous end-users’ endogenous side and platform choices, 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 for the 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 that rule out the classical “cross-subsidization” result. We then provide a unifying framework to analyze multi-sided platform mergers, which rationalizes mixed results in the previous literature by providing, based on these switching effects, a set of conditions that predict the upward pricing pressure post-merger. We show that while the nature of end-users side choices determines optimal pricing, their platform choices are crucial for merger analysis.