Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

The Economics of Two-Sided Markets

The Economics of Two-Sided Markets Abstract Broadly speaking, a two-sided market is one in which 1) two sets of agents interact through an intermediary or platform, and 2) the decisions of each set of agents affects the outcomes of the other set of agents, typically through an externality. In the case of a video game system, the intermediary is the console producer—Sony in the scenario above—while the two sets of agents are consumers and video game developers. Neither consumers nor game developers will be interested in the PlayStation if the other party is not. Similarly, a successful payment card requires both consumer usage and merchant acceptance, where both consumers and merchants value each others' participation. Many more products fit into this paradigm, such as search engines, newspapers, and almost any advertiser-supported media (examples in which consumers typically negatively value, rather than positively value, the participation of the other side), as well as most software or title-based operating systems and consumer electronics. This paper seeks to explain what two-sided markets are and why they interest economists. I discuss the strategies that firms typically consider, and I highlight a number of puzzling outcomes from the perspective of the economics of two-sided markets. Finally, I consider the implications for public policy, particularly antitrust and regulatory policy, where there have been a number of recent issues involving media, computer operating systems, and payment cards. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Economic Perspectives American Economic Association

The Economics of Two-Sided Markets

Journal of Economic Perspectives , Volume 23 (3) – Aug 1, 2009

Loading next page...
 
/lp/american-economic-association/the-economics-of-two-sided-markets-axSGFtccZ0

References (115)

Publisher
American Economic Association
Copyright
Copyright © 2009 by the American Economic Association
Subject
Articles
ISSN
0895-3309
DOI
10.1257/jep.23.3.125
Publisher site
See Article on Publisher Site

Abstract

Abstract Broadly speaking, a two-sided market is one in which 1) two sets of agents interact through an intermediary or platform, and 2) the decisions of each set of agents affects the outcomes of the other set of agents, typically through an externality. In the case of a video game system, the intermediary is the console producer—Sony in the scenario above—while the two sets of agents are consumers and video game developers. Neither consumers nor game developers will be interested in the PlayStation if the other party is not. Similarly, a successful payment card requires both consumer usage and merchant acceptance, where both consumers and merchants value each others' participation. Many more products fit into this paradigm, such as search engines, newspapers, and almost any advertiser-supported media (examples in which consumers typically negatively value, rather than positively value, the participation of the other side), as well as most software or title-based operating systems and consumer electronics. This paper seeks to explain what two-sided markets are and why they interest economists. I discuss the strategies that firms typically consider, and I highlight a number of puzzling outcomes from the perspective of the economics of two-sided markets. Finally, I consider the implications for public policy, particularly antitrust and regulatory policy, where there have been a number of recent issues involving media, computer operating systems, and payment cards.

Journal

Journal of Economic PerspectivesAmerican Economic Association

Published: Aug 1, 2009

There are no references for this article.