p.15).
Two-Sided Markets In Terms Of Competition
When the two-sided markets are subjected to an analysis in terms of competition and competition law, at first glance, it can be said that these markets include non-competitive practices. The reason of this is that single-sided approach is shown for two-sided markets. However, if these markets will be full analyzed, it is seen that these non-competitive practices are based on the competitive rationale (Veljonovski, 2006, p.37).
a. Price Discrimination
One of the fundamental economic characteristics of two-sided markets is the interdependence between the demands of different customer groups. Platform providers use this dependence to stimulate the total demand in the market. In doing so, they subject the customer groups on the market to different prices. The belief that the price discrimination practices reduce the competitive pressures is not realistic. In fact, what the competition is expected is not to eliminate the differences in price levels but to reduce the general level of prices (Veljonovski, 2006, p.37).
b. Predatory or Excessive Pricing
Predatory pricing is that a firm in dominant position in the market reduces the prices up to a point that it will lose in order to eliminate potential or actual competitors and prevent new firms from entering the market in this way. Since the predatory pricing restricts access to the market and causes the firm that adopts this pricing strategy to become the dominant force in the market it eliminates the competitive pressures (Evans, 2002, p.82).
Since the basic function of two-sided markets is to bring both sides of the market together, determination of the price as even lower than the marginal cost may be an optimal choice. Because in the two-sided markets, reflecting the costs to the customer groups that exist in the market is contrary to the nature of the market (Fletcher, 2007, p.221).
As a result of having a current pricing that is below the costs in one side of the market, a price much higher than the costs can be seen in the other side of the market. This situation is explained as excessive pricing in the theory. If the competition authority approaches to these parties separately, it may concluded that there is predatory pricing in one side of the market and excessive pricing in the other side. However, application of cross-subsidies that is in question here cannot be seen as a monopolistic behavior. Even if the profit that the platform has obtained as a result of the one-sided approach is at a competitive level, the existence of predatory or excessive pricing can be mentioned (OECD, 2009, p.13).
High Price-Cost Margins
As mentioned before, one of the most important factors determining the pricing policy in the two-sided markets is the sensibility of the sides in the market towards the changes in price. As a result that the side with less elasticity of demand makes higher pricing, observation of very high price-cost margins is natural (OECD, 2009, p.13).
To describe the high price-cost margins in one side of the market as market power, these rates must be valid for the other side of the market. However, the presence of a customer group in the other side of the market with high elasticity of demand causes a low price-cost margin. Here, necessity of analyzing the two sides of the market together gains importance
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