Lining up buyers and sellers can start to look a lot like antitrust activity

1. How are credit cards an example of a two-sided market?

Issuers of credit cards need people to hold them, but people wonít use these services until businesses will accept them. Businesses wonít accept credit cards until they know people will use them.

2. Is it possible that the profit-maximization norm in a one-sided market is no longer valid in a two-sided market? Why or why not?

It could be that, in the case of a firm with both products, profit is jointly maximized, but itís more likely that opportunities for collusion will arise between companies on either side of a market that want the market to succeed.

3. According to the article, why may it be unlikely that firms in a two-sided market will collude?

It may be that because firms may be hurt by one another, they have no interest in colluding on price. In a one-sided market, firms do have an incentive to collude, because price increases for one firm benefit the colluding firm as well. In a two-sided market, though, given the uncertain effects of price changes, Firm A may not have an interest in helping Firm B raise price to raise profit. Such actions could cause Firm Aís profits to fall, not rise in conjunction with Firm Bís profits.

©2006  South-Western.  All Rights Reserved   webmaster  |   DISCLAIMER