Multisided Markets and Platform Dominance

Abstract

Facebook and Google and other internet giants are multisided markets (MSM). The user-side of the market, prices are zero-“free.” On the other side of the market, Facebook’s and Google’s revenues are derived from advertising which appears when the users click on advertisers’ web sites. They can extract exorbitant prices for ads, since they are the only source that can target ads directly to potential customers with laser-like focus to produce enormous monopoly rents. This monopolistic aspect of the internet giants is addressed in the Chapter. Monopoly pricing is not well defined in multisided markets. The paper examines non-transactional multisided markets for their ability to create consumers’ harm. Estimates of Google’s and Facebook’s social cost in terms of consumers’ welfare loss are $54 and $33 billion, respectively, for a total cost of at least 87 billion dollars. The dominant internet platforms can create three major harms to consumers: Increasing prices to consumers via added costs to the products being advertised, Elimination (or non-emergence) of competition in markets to the products being advertised, Increasing prices to consumers beyond the cost of advertising via the market power of the remaining firms in the market of the products being advertised.