Tuesday, May 28, 2013
The Consensus Among Economists on Multisided Platforms and its Implications for Excluding Evidence that Ignores It
Posted by D. Daniel Sokol
David S. Evans, University of Chicago Law School; University College London; Global Economics Group discusses The Consensus Among Economists on Multisided Platforms and its Implications for Excluding Evidence that Ignores It.
ABSTRACT: There is now a professional consensus among economists that multisided platforms are the main form of business organization in many industries; that these platforms face interdependent demand from multiple groups of customers; and that profit-maximization in the face of this interdependent demand can in theory, and often does in practice, result in their charging a price to one group of customers that is less than marginal cost including zero or less than zero. Traditional economic models that do not consider interdependent demand do not yield reliable results for platform businesses. Many of the economic tools used in antitrust, including the various back-of-the-envelope tools such as critical loss analysis, are not reliable when applied to multisided platforms. In conducting reliable economic analysis of multisided platforms economists must either explicitly consider interdependent demand in their models or assess biases resulting from traditional tools to verify that they do not alter conclusions.