DP9164 Exclusionary Pricing in a Two-Sided Market

Author(s): Massimo Motta, Helder Vasconcelos
Publication Date: October 2012
Keyword(s): Demand externalities, Predation, Two-sided markets
JEL(s): L11, L13, L41
Programme Areas: Industrial Organization
Link to this Page: http://www.cepr.org/pubs/dps/DP9164

In this paper we provide a new way of modelling two-sided markets, and we then use this model to study anti-competitive conduct in an asymmetric two-sided market which captures the main features of some recent antitrust cases. We show that below-cost pricing on one market side can allow an incumbent firm to exclude a more efficient rival which does not have a customer base yet. This exclusionary behaviour is the more likely to occur the more mature the market and the stronger the established customer base of the incumbent.