Edited by Joseph E. Harrington Jr and Yannis Katsoulacos
Chapter 11: Leadership in Multi-sided Markets and Dominance in Online Advertising
Federico Etro1 The economics of multi-sided markets has recently attracted a lot of attention among economists (Caillaud and Jullien, 2003; Rochet and Tirole, 2003; Armstrong, 2006; Weyl, 2010; Athey and Ellison, 2011) because it characterizes a number of important markets of the New Economy and generates a number of new intriguing antitrust issues. In particular, wide interest has been focused on the market for search and display advertising, whose dominant firm at the global level, Google, is currently being investigated by a number of antitrust authorities. Analysing this market, it emerges that possible abuses may concern both search and display advertising, with particular reference to manipulation of the opaque bidding system for sponsored links leading to exploitative prices on advertisers, preferential treatment for Google’s own services in its free (‘universal’) search and exclusivity clauses for advertisers leading to exclusion of competing platforms. However, the theoretical debate on the role of market leaders in multi-sided markets is still limited: most of the literature on multi-sided markets is focused on monopolistic pricing and symmetric competition between platforms, not on competition between a potentially dominant platform and its followers. In this chapter, building on the literature on strategic commitments under different entry conditions (Fudenberg and Tirole, 1984; Etro, 2006) and its recent applications to antitrust and contract theory (Etro, 2010, 2011), we advance some preliminary insights on modeling leadership in multi-sided markets. As usual, the incentives to adopt different strategies or pre-commitments depend on the nature of competition, on the entry conditions, and...
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