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.