Strategic Intermediation in a TwoSided Market by Galeotti

Strategic Intermediation in a Two-Sided Market by Galeotti and Moraga-Gonzalez Discussion by Wilko Bolt (DNB) IDEI Conference 2006, Toulouse Competition Policy in Two-Sided Markets

• Goal: Paper offers a strategic analysis of the effects of platform competition in a 2 -sided market • Results: - Monopolist outcome is efficient: full participation and advertising is for free - Duopoly with singlehoming yields inefficiency: symmetric pricing with a coordination failure - Duopoly with multihoming: efficiency is restored when consumers multihome with probability one, and operating/entry costs are low

A. What kind of market (or good) is this? - firms must advertise before selling the good - consumers must subscribe before buying the good • Advertisement is not a choice, it is a “Must Do” (extreme preferences for advertising) • Consumers generally dislike advertisements, but here they pay a lot for it – advertisement is for free • No natural “outlet” (shops) to buy the good How would that change the outcome?

B. Global vs Local competition? - firms advertise and compete globally on “internet” to reach a wider audience, but can also sell on the local market where they enjoy some market power. - firms choose to advertise or not, set local and global prices. Consumers may shop locally at a cost. • What will be the effect of local 1 -sided competition on the 2 -sided platform fees? • Will every firm participate globally? Will advertising still be for free in the monopolistic case? • Will there be price differentiation?

C. Efficiency vs Social Welfare? • In a 2 sm social welfare is often at odds with full cost recovery: below marginal cost pricing (social value of usage externality) • Here, efficiency takes the form of full participations and prices at marginal cost, but still platform makes a profit. . . Why is this different? • Is efficient also socially optimal?

D. Perfect information • What would happen if the platform does not know the true valuation of consumers for the good? • What kind of price structure might we expect?