Identifying Two-Sided Markets

Abstract

We review the burgeoning literature on two-sided markets focusing on the different definitions that have been proposed. We then identify the crucial elements that make a market two-sided and explain that two-sidedness is a matter of degree. Drawing from both economic theory and competition policy practice, we derive suggestions for the identification of the two-sided nature of a market. We argue that one can follow different qualitative or quantitative approaches. A qualitative approach is sufficient to establish whether the market is two-sided. A quantitative approach is more time-consuming but it allows measuring the degree of two-sidedness. Hence, a qualitative approach is a useful preliminary tool, but a quantitative approach is often necessary for a correct decision, if the market is two-sided. Our suggestions are relevant not only for the analysis of traditional 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. Given the time constraints competition authorities face, we would expect most quantitative approaches to take the form of a well-designed survey of customers on both sides of the markets. Some recent decisions seem to move in this direction.