Is exclusionary pricing anticompetitive in two-sided markets?

Abstract

This paper studies the competitive effects of exclusionary pricing in two-sided markets. While formally showing that below-cost pricing on one market side can allow an incumbent firm to exclude a potential rival which does not have a customer base yet, the proposed model does not necessarily imply that below-cost pricing in such markets should be taken as anti-competitive conduct. Instead, I find that in sufficiently asymmetric two-sided markets, exclusion is always beneficial and if anything, there is too little of it in the sense that there are cases in which there is inefficient entry. Further, prohibiting below marginal cost pricing may destroy some socially efficient exclusion and worsen the problem of excessive (or inefficient) entry.