Study On Market Power Of Platform In Two-sided Markets

Market power and the abuse of market power have been the focus of relevant laws and regulations.Only after clear definitions and quantitative estimates of the market power,we can clarify whether the vendor has a premise for the abuse of market power and then estimate the efficiency losses.In recent years,driven by the network technology,the economic phenomenon of the two-sided markets is emerging;some pricing behaviors such as free and subsidy are contrary to the traditional theory,which leads to extensive discussion and even dispute.With the development of platform industry,the antitrust problem of platform industry is attracting more and more attention.Several platform manufacturers which have high market share,such as Visa?MasterCard?Google?Apple?Baidu,have been subject to different aspects of the antitrust review over the years.From the early case of Microsoft and some payment card platform to the recent widespread concern of disputes between China UnionPay and merchants,Baidu and the hospitals funded by Putianers as well as the merger between Didi taxi and Uber,the unique business model and the corresponding discussion of antrtrust never stop.In these cases and disputes,an unavoidable question is whether the platform have strong market power.The rational analysis of the market power of the platform based on the characteristics of two-sided markets will help the supervisors to formulate reasonable regulation policies,which have been of important research significance.The characteristics of two-sided markets,such as non-neutral price structure and cross-network externalities,bring new challenge to the applicability of the traditional theory.The association between users makes it impossible to simply divide the market on both sides of the platform.The asymmetry of prices and marginal costs leads to the failure of the general form of the Lerner Index.The cross-network externalities makes that the capacity of raising price will misjudge platform's market power.In short,the phenomenon of two-sided market lead to the situation that traditional theory of market power is no longer fully applicable to the two-sided markets.So how should we define the market power of the platform?Does the market power in two-sided markets have the same meaning and source as the unilateral market?How does cross-network externality and other characteristics of the two-sided market effect the platform's market power?These are the research questions that this article attempts to explore.In this paper,the main innovation points are as follows:Firstly,based on the perspective of relationship between users in two-sided markets,the paper clearly divides,defines and measures the platforms' market power in two-sided markets.The paper also clarifies the two reflections of platforms' market power:on one hand,market power is reflected on the relationship of the platform and the user;on the other hand,market power is reflected on the relationship between the platform vendors.The paper fills the deficiency of the related research field to a certain extent.Secondly,this paper argues that that under the effect of cross-group network externalities,the ability to raise prices to measure platform's market power directly will be an erroneous judgment.In two-sided markets,asymmetric price allocation makes the way to raise prices more complex,and cross-group network externalities influence the ability to raise prices.Based onthe "locked-in effect" and the "move-out effect" induced by the cross-group network externalities,the paper provesusing the ability to raise prices to measure platform's market power directly will be an erroneous judgment.This paper attempts to further promote the antitrust practice of two-sided markets,which is of strong theoretical and practical importance.Thirdly,based on the relevant statistics of payment market,the paper analyse the China UnionPay's market power within the platform and between the platforms and puts forward the corresponding regulation policies.Through present situation and the relevant antitrust case analysis to the payment card market,we analyse the market performance of payment markets of China,and puts forward the corresponding regulation policies.Correlation analysis and policy Suggestions of this article applies to manufacturers with administrative monopoly platform.The main conclusions are as follows:Firstly,the nature of market power is the deviation from the complete competition,which is ultimately reflected in the demand relationship.In the two-sided market,the demand of users in one side is reflected in the demand for the size of the users on the other side and the demand for the final product of the platform.The association of users makes it impossible to simply divide the market on both sides of the platform.Therefore the platform's market power is divided into two levels:The intra-platform market power reflects the mutual demand between users,which is the natural attributes of the two-sided market;The inter-platform market power reflects the users' demand for the final product,which embodies the competitive advantage.Secondly,in two-sided markets,cross-group externalities and non-neutral price structure make that the traditional theory can't be directly applied in two-sided markets.Platform vendors make decisions based on the overall demand of the platform rather than one side of it.For the platform,its cost lies in the fixed cost of building the entire platform environment.The asymmetry between price and cost on both sides leads to the inability of the Lerner index to measure the market power of the platform.Therefore,if we raise the price of one side of the platform,the cross-network externality will change the speed of user loss and significantly affect the market power of platform based on the ability of raising price.Under the influence of the cross-network externalities,the direct application of traditional theory will lead to the misjudgment of platform's market power.Thirdly,the intra-platform market power is actually the effects of the structure of the two-sided market.Association between users led by the two-sided market,as well as the corresponding platform conversion costs,positive feedback and other attributes will lead to the existence of the intra-platform market power,which mainly is reflected in the the relationship between internal users.Because the existence of intra-platform market power comes from the intrinsic attributes of two-sided market,cross-network externalities can be a measurement of intra-platform market power.In the payment market,China UnionPay is the only cross-bank clearing network in China and holds the key facilities and key resources of China's payment market.There are cross-network externalities between the card issuers and the acquisition market with certain market power.But the market power is asymmetric between the issuing market and the acquisition market.China UnionPay obtained market power with administrative power,because the relevant policy requires that the issuing banks must issue cards with the logo of China UnionPay.The market power of China UnionPay relies on two forces,one is the cross-group externalities,anthor is the administrative intervention,and the latter is a greater impact in the early stages of the establishment of the platform.Fourthly,inter-platform market power is more similar to the market power in the traditional market.Price-cost margin is converted to the index of speculation value and elasticity.The intra-platform market power to a certain extent will affect the competitive advantage in the relevant market,namely inter-platform market power.The greater the positive externalities of the platform to users of one side is,the higher the market power to users of this side will be,which affects the pricing level and inter-platform market power;When a platform has strong intra-platform market power for users on both sides,then it has a strong inter-platform market power.In this paper,the main policy implications are as follows:There are masses of phenomenon such as free and subsidies of the platform in two-sided markets with cross-group network externalities,which did not appear or fail to explain in traditional markets.So combined with characteristics of two-side markets,we should give full consideration to whether antitrust decision criteria is conflict with the essence of two-sided market attributes,and the adjusted traditional antitrust method based on two-sided market attrbutes.The platform's market power should be divided into different levels.The intra-platform market power is actually the natural attributes of the two-sided market.The association between users as well as the corresponding platform conversion costs,positive feedback and other attributes will lead to the existence of the intra-platform market power.Therefore the behaviors of a platform based on characteristics of two-sided market should not be regulated.The inter-platform market power is more similar to the market power in the traditional market and its studies can be relied on traditional theories.If the platform in two-sided markets abuse its market power,which eliminates the degree of competition and damage the market performance,then it still need to be regulated.In the payment market in our country,China UnionPay has the key infrastructure with strong inter-platform market power,which provides a medium for issuers and merchants.When the platform abuses its market power,we should cope with a series of its behaviors such as the conduct that forced the acquisition agency use China UnionPay;At the same time we should focus on the vertical integration between China UnionPay and CHINAUMS,separate network and specific single business to improve the competitive environment and the efficiency of the payments market;We should encourage and regulate the development of the third-party payment mechanism.Third-party payment has broken the original entry barriers through innovation,which has actually completed transaction liquidation practical function,but it still does not have formal qualifications licences.Related agencies should intensify efforts to standardize the market environment to encourage the development of the new payment,and improve the efficiency of payment market in China.