In two-sided markets, a shared platform or intermediary brings together two different groups of stakeholders, such as how magazines connect advertisers with readers.
In an article appearing in the May 2021 issue of the American Economic Journal: Microeconomics, Brattle Principal Dr. Minjae Song examines platform market power in two-sided markets, using a structural model to estimate markup on both sides of a platform as well as predict price and welfare changes resulting from platform mergers.
In the article, “Estimating Platform Market Power in Two-Sided Markets with an Application to Magazine Advertising,” Dr. Song applies data on TV magazines in Germany to demonstrate his two-sided market structural model, with magazines serving as the platform that charges the readers for buying the magazine (on one side) and the advertisers for placing ads (on the other side). The article shows that platforms may choose to take a loss on one side of the market in order to take a profit on the other side, and that platform mergers can benefit some agents by either lowering prices or by attracting more agents on the other side of the market.
Published in the American Economic Journal: Microeconomics