Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

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Thursday, October 18, 2012

Double Marginalization in Two-Sided Markets

Posted by D. Daniel Sokol

E. Glen Weyl, University of Chicago; University of Toulouse 1 - Toulouse School of Economics discusses Double Marginalization in Two-Sided Markets.

ABSTRACT: Should banks (through Visa) be allowed to own debit clearing networks? This problem combines the classic Cournot (1838)-Spengler (1950) double marginalization problem with the more recent literature on two-sided markets (Rochet and Tirole, 2003). Because both the double marginalization (Weyl, 2008a) and two-sided markets (Weyl, 2008b) problems depend crucially on the pass-through rate, the analysis is natural and leads to strong over-identification given simple assumptions. Vertical integration does not generally erode (and often enhances) platform mark-ups. Therefore its (price level benefits) are more robust than those of competition in two-sided markets.

http://lawprofessors.typepad.com/antitrustprof_blog/2012/10/double-marginalization-in-two-sided-markets.html

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