Thursday, January 23, 2020
TRANSACTION VERSUS NON-TRANSACTION PLATFORMS: A FALSE DICHOTOMY IN TWO-SIDED MARKET DEFINITION
TRANSACTION VERSUS NON-TRANSACTION PLATFORMS: A FALSE DICHOTOMY IN TWO-SIDED MARKET DEFINITION.offers
ABSTRACT: When it comes to market definition in two-sided markets, an idea that has gained traction—among academics, competition authorities and even the US Supreme Court—is the distinction between transaction and non-transaction platforms. However, this distinction has no theoretical underpinning in the context of the hypothetical monopolist test (HMT). The hypothetical monopolist sets profit-maximising prices on both sides, as a function of own-price elasticities and externalities between the sides, regardless of whether the platform is transaction or non-transaction. I address the various theoretical and practical arguments put forward in support of the distinction between transaction and non-transaction and explain why none of these justify a different approach to market definition. I also discuss why some of the policy suggestions made by proponents of the distinction—for example, that a single market should be defined for transaction platforms but separate markets for non-transaction platforms—reflect some confusion about how the HMT works.