Price Theory of Multi-Sided Platforms, A

Competition Policy and Antitrust

Article Snapshot


E. Glen Weyl


American Economic Review, Vol. 100, No. 4, pp. 1642-1672, 2010


This paper looks at how competition and prices work for products that serve more than one type of customer.

Policy Relevance

Competition regulators should be more aggressive in some high-tech markets, holding prices below cost.

Main Points

  • In a two-sided market, the business serves two (or more) different groups of users. Changes affecting one group tend to affect the other group: e.g. Google’s offering service free to consumers increases the number of users and makes the service more valuable to advertisers.

  • Subsidies, competition, and price controls tend to reduce the price level, the sum of the prices charged both groups of users. Competition usually results in lower prices to both groups.

  • Sometimes, markets are unbalanced: prices decrease for one group (maybe when competition for those users is more intense), giving the two-sided firm less reason to attract the other group, so it raises prices on that side.

  • Consumers are better off when prices are below cost, making subsidies desirable. Some users might benefit from paying more so the other group pays less and grows. 

  • Authorities should be more aggressive in two-sided markets.
    • It is always harmful for a firm to raise prices above cost, unlike ordinary markets.
    • Two-sided markets can go wrong both in price level and balance, giving regulators more reasons to intervene.

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