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Competition among multi-product platforms: Unilateral conduct

Competition among multi-product platforms: Unilateral conduct. Comments on Belleflamme and Choi and some lessons from a Swedish case. by Mats Bergman Swedish Competition Authority. LEAR Conference, Rome, June 7-8, 2007. Mats Bergman. Jay Pil Choi.

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Competition among multi-product platforms: Unilateral conduct

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  1. Competition among multi-product platforms: Unilateral conduct Comments on Belleflamme and Choi and some lessons from a Swedish case by Mats Bergman Swedish Competition Authority LEAR Conference, Rome, June 7-8, 2007 Mats Bergman

  2. Jay Pil Choi • The welfare consequences of tying in markets with two-sided platforms and multi-homing • Examples: Media players, auction sites, payment systems, video game platforms • A (potentially) competitive product is tied to a monopoly (or “must-carry”) product (e.g., Windows operative system) LEAR Conference, Rome, June 7-8, 2007 Mats Bergman

  3. The new “twist”: tying when consumers can “multi-home” • Assumptions in formal model: • Two differentiated platforms (linear Hotelling market) • Consumers uniformly distributed along the market • Free entry into content provision (section II and III) or • Fixed “mass” of content providers of three types: “A only”, “B only” and “A and B”; platforms set prices to target one or two types LEAR Conference, Rome, June 7-8, 2007 Mats Bergman

  4. Results • Without multi-homing by consumers, tying eliminates platform competition and this can be good or bad: • A monopoly platform increases positive externalities • Loss of platform variety reduces welfare LEAR Conference, Rome, June 7-8, 2007 Mats Bergman

  5. With multi-homing consumers, tying has three effects: • Both platforms will attract larger numbers of customers; for a given number of content providers more utility is generated (+) • Non-exclusive content providers save on encoding costs, since A now reaches all consumers (+) • More content may now pass through consumers’ least preferred platform (higher “transportation costs”) (?) • Net welfare effect of tying is positive; in the equivalent model without multi-homing it would be negative LEAR Conference, Rome, June 7-8, 2007 Mats Bergman

  6. Question 1 • The results assume symmetric equilibria, absent tying. In the case of no multi-homing, perhaps the market would have “tipped” also in the absence of tying – and perhaps as a consequence of the tying it tips in the wrong direction? LEAR Conference, Rome, June 7-8, 2007 Mats Bergman

  7. Question 2 • In the section with multi-homing, content providers are assumed to be identical within 3 categories (A, B and AB)? Hence increased market power because of tying does not result in any inefficiencies because of higher prices to content providers? (Since all content providers within a category pays the same price = their incremental profit from joining the platform.) LEAR Conference, Rome, June 7-8, 2007 Mats Bergman

  8. Question 3 • The model in section IV implies that tying is welfare reducing under single-homing; this result is not emphasized? LEAR Conference, Rome, June 7-8, 2007 Mats Bergman

  9. Question 4 • What happens to the profit of the rival platform (B)? This does not directly influence welfare, but if there are fixed costs of operating a platform, tying may drive B off the market. LEAR Conference, Rome, June 7-8, 2007 Mats Bergman

  10. Question 5 • Customers and content providers pay a single price; should we interpret this as a usage fee or an access fee? What happens if there is non-linear pricing? LEAR Conference, Rome, June 7-8, 2007 Mats Bergman

  11. Attempted application 1 • Windows Media Player (WMP) tied to Windows  • All consumers adopt WMP, an increasing fraction adopts the rival media player (RMP) • Content providers that want to reach all consumers use only WMP, but some content providers use RMP exclusively • Total number of content providers unchanged, some consumers can access more content and no consumer can access less • More content may now be accessed via the consumer’s least preferred platform • Content providers save encoding costs • Total welfare increases LEAR Conference, Rome, June 7-8, 2007 Mats Bergman

  12. Application 2 • Visa credit card tied to debit cards  • All consumers adopt Visa credit card, a rising fraction adopts AmEx • Merchants that want to reach all consumers adopt Visa; some adopt AmEx exclusively • The number of credit-card accepting merchants is unchanged, but the number of merchants that accept one of the credit cards an “average” consumer carries increases • Consumers may lose from having to use the least preferred card, but merchants save on “adoption costs” • Welfare increases LEAR Conference, Rome, June 7-8, 2007 Mats Bergman

  13. Application 3 • IP (pay) tv tied to telephony subscription  • All consumers adopt IP tv; an increasing fraction also adopts satellite tv • Channels that wants to reach all viewersuse only IP tv, but some use exclusively satellite broadcasting • Total number of channels fixed, but the average viewer has more channels • Consumers may lose from having to view some channels via the least preferred distribution system, but channels save on encoding costs • Welfare increases LEAR Conference, Rome, June 7-8, 2007 Mats Bergman

  14. Question to Paul Belleflamme • Profit to intermediary falls as the per-interaction profit and utility to end buyers & sellers increase • (Intuition: In an ordinary Hotelling market, profit doesn’t increase in consumer utility, if the market is already covered. Here, there is in addition an effect that comes from competition for the network effects.) The Ticnet case – exclusion in a two-sided market? Mats Bergman

  15. Q1: will the intermediary have incentives to prevent innovations that increase seller profits and consumer utility? • Q2: Do you really think that the intermediary would not like to increase to total available surplus? Can you give an example? The Ticnet case – exclusion in a two-sided market? Mats Bergman

  16. A Swedish case: Exclusive contracts in the (outsourced) internet ticketing marketTicnet (Ticketmaster) The Ticnet case – exclusion in a two-sided market? Mats Bergman

  17. Exclusion in multi-sided platform? Ticket printing (retailers of lotteries & gaming) W Z C Event organizers (promoters) B R Y Ticnet A X C o n s u m e r s The Ticnet case – exclusion in a two-sided market? Mats Bergman

  18. Ticketing – 2 channels • Outsourcing • Sales and distribution (all or part of) handled by specialized company • In-house • Manual ticketing or use of internally developed (”low tech”) software The Ticnet case – exclusion in a two-sided market? Mats Bergman

  19. Dominance & behaviour • Ticnet’s market share: 80-90 % • Exclusive long-term contracts with event organizers • Exclusivity covers the three main activities: • Internet sales • Ticketing & seating systems • Distribution • Exclusivity also with the largest and most sophisticated retailer (for printing and OTC payment) The Ticnet case – exclusion in a two-sided market? Mats Bergman

  20. Some market characteristics • Bargaining market • Costs and prices vary significantly between customers • Total market relatively small • 10-15 M euro per year The Ticnet case – exclusion in a two-sided market? Mats Bergman

  21. Ticnet’s contracts The Ticnet case – exclusion in a two-sided market? Mats Bergman

  22. Exclusionary effect? • A two-sided markets: final customers go to the webbpage of the largest ticketing company and event organizers go where most customers are • Event organizers contractually prevented from selling via more than one ticketing company • Event organizers prevented from purchasing system components separately • At each point in time, only a small fraction of the market is open for competition The Ticnet case – exclusion in a two-sided market? Mats Bergman

  23. Efficiencies • Relatively large customer-specific fixed start-up costs • Also the event organizer has relation-specific fixed costs • Long-term contracts promotes relation-specific investments • Absent long-term contracts, the customer would have to pay for relation-specific investments up-front – and hence be locked-in anyway The Ticnet case – exclusion in a two-sided market? Mats Bergman

  24. Simultaneous use of two systems is costly (incl coordination of seating)  Event organizers prefer not to dual source The Ticnet case – exclusion in a two-sided market? Mats Bergman

  25. After the initial three-year exclusive period, contracts can be terminated with 6 months notice • Event organizers will only consider changing ticketing provider between seasons (once a year)  Extending exclusive contracts does not effectively restrict customers The Ticnet case – exclusion in a two-sided market? Mats Bergman

  26. Limited returns to scale • Customers claimed that there is effective competition, but that long-term exclusive contracts are needed to elicit competition • Conclusion: What looked like an obvious violation of Art 82 was found to be quite acceptable The Ticnet case – exclusion in a two-sided market? Mats Bergman

  27. Ticketing a vertical relation? Ticket printing (retailers of lotteries & gaming) A B C Ticnet R Event organizers (promoters) X Y Z W C o n s u m e r s The Ticnet case – exclusion in a two-sided market? Mats Bergman

  28. The Ticnet case – exclusion in a two-sided market? Mats Bergman

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