Competing Business Models and Two-Sidedness

AuthorJorge Marcos Ramos,Sébastien Broos
Published date01 June 2017
Date01 June 2017
DOI10.1177/0003603X17708358
Subject MatterArticles
ABX708358 382..399 Article
The Antitrust Bulletin
2017, Vol. 62(2) 382-399
Competing Business Models
ª The Author(s) 2017
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DOI: 10.1177/0003603X17708358
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Shopping Case
Se´bastien Broos* and Jorge Marcos Ramos**
Abstract
This article provides a conceptual framework to help define relevant markets in the presence of two-
sided intermediaries and competing business models. In particular, we argue that two-sidedness is not
a feature of markets but of firms and, hence, that firms with different business models may compete
within the same relevant market. We then apply the proposed framework to the Google Shopping
case.
Keywords
competition policy, abuse of dominance, two-sided intermediaries, business models, relevant market
1. Introduction
The definition of relevant markets in the context of antitrust proceedings continues to be an area of
much contention.1 No wonder; much is at stake. Its boundaries will dictate market power considera-
tions and the extent of anticompetitive foreclosure. In particular, the advent of the “new economy” has
complicated the task of defining markets that accurately capture the competitive constraints that firms
face.2 The proliferation of two-sided intermediaries and the large window of opportunity that the
Internet offers to swiftly implement a variety of business models have both brought an additional
layer of complexity to this task.
1. Louis Kaplow, Why (Ever) Define Markets? 124 HARV. L. REV. 437 (2010); and Louis Kaplow, Market Definition, Market
Power, 43 INT. J. IND. ORGAN. 148 (2015).
2. Commission Notice on the definition of relevant market for the purposes of Community competition law, OJ C 372, 9
December 1997, pp. 5–13, at §2 (“Relevant Market Notice”).
*Liege Competition and Innovation Institute (lcii.eu); HEC-ULg; University of Liege, Lie`ge, Belgium
**Liege Competition and Innovation Institute (lcii.eu); School of Law; University of Liege, Lie`ge, Belgium
Corresponding Author:
Se´bastien Broos, Liege Competition and Innovation Institute (lcii.eu); HEC-ULg; University of Liege, Place des Orateurs, 3, 4000,
Belgium, Europe.
Email: sbroos@ulg.ac.be

Broos and Ramos
383
In light of recent economic theory and a long-standing business strategy literature, this article brings
forward a conceptual framework to define relevant markets in the presence of two-sided intermediaries
and different business models. It then applies the proposed framework to the investigation of the
European Commission (or “Commission”) in the “Google Shopping case.” In short, Google has been
accused of anticompetitively leveraging its dominant position from the general online search market
into the online comparison-shopping market.
In the presence of two-sided intermediaries, we explain the circumstances under which antitrust
authorities should define a single market encompassing both sides of the platform, as opposed to two
interrelated markets. In the Google Shopping case, we propose that a single market should be defined.
We argue that such a definition captures better the competitive constraints that Google faces.3
Moreover, the simultaneous presence of different business models that can be one-sided or two-
sided further complicates the endeavor to accurately define markets. The Google Shopping case serves
to demonstrate that a two-sided business model, such as that of Google, can compete head-to-head with
other two-sided and one-sided business models, such as those that Amazon has in place. By “business
models,” we refer to the choice that firms face in the way they organize their interactions with buyers
and sellers on the market. Essentially, it is the choice between four forms of organization: vertical
integration, two-sided intermediary, input supplier, or reseller.
Once we have accounted for the multifaceted competitive constraints that arise from different
business models, and in particular those between Google and Amazon, we call into question the
dominant position of Google in the Google Shopping case. The reason is that, when market dynamics
are accurately understood, the role of Google is not that of an advertiser or a purveyor of search results
but, more simply, that of an intermediary linking two sides of the same market: consumers and
retailers. In the case at hand, Google’s main competitors are not necessarily only traditional advertisers
or search engines but also other intermediaries or more traditional resellers. Therefore, we do not argue
that Google never enjoys a dominant position but rather that, in the case at hand, it does not.4
The article is structured as follows. First, we discuss definitions of two-sidedness, clarify some of the
confusion surrounding two-sided intermediary concepts, and provide a workable definition. Second, we
examine the differences between two-sided intermediary and other business models. We show that these
different business models might compete against each other and that two-sidedness is a decision of the firm
and not a feature of markets. Third, we distinguish between cases where two-sidedness requires defining a
single market that encompasses two sides and cases where two interrelated markets should be defined. Fourth,
we apply the insights of the previous three sections to the Google Shopping case. Finally, we conclude.
2. The Contentious Definition of Two-Sidedness
It is no secret that the concept of two-sidedness or of two-sided intermediaries is not easy to define.5 It
has a flavour of “you know one when you see one,” but providing a clear and formal definition is
difficult. Some scholars consider that the presence of indirect network effects between the different
sides is an important attribute of two-sided intermediaries.6 Others, such as Rochet and Tirole,7 argue
3. We use the terms “platform” and “intermediary” interchangeably.
4. Note that we do not define an exact relevant market. This would require data to which we do not have access. Neither do we
claim that Google has not degraded rivals. What we do claim is that even if Google has “misbehaved” it does not have the
dominant position required to trigger the application of Article 102 TFEU.
5. For an extended discussion, see Dirk Auer & Nicolas Petit, Two-Sided Markets and the Challenge of Turning Economic
Theory into Antitrust Policy, 60 ANTITRUST BULL. 426 (2015).
6. David S. Evans, Antitrust Economics of Multi-Sided Platform Markets, 20 YALE J. REG. 325 (2003); and Mark Armstrong,
Competition in Two-Sided Markets, 37 RAND J. ECON. 8 (2006).
7. Jean-Charles Rochet & Jean Tirole, Two-Sided Markets: A Progress Report, 37 RAND J. ECON. 645 (2006).

384
The Antitrust Bulletin 62(2)
Figure 1. Figure 1 from Andrei Hagiu & Julian Wright, Multi-sided Platforms, 43 INT. J. IND. ORGAN. 162 (2015).
1
Different business models. 14 Used with permission.
that the defining feature of a two-sided intermediary is that the number of transactions occurring on the
platform depends on the structure of prices—their ratio—and not only on the sum of the charged fees.
For instance, if an intermediary decreases its price by 10% on one side and raises it by the same
proportion on the other side—the ratio of the prices changes but not their sum—then the number of
transactions should be affected. The side that faces the price increase should not be able to completely
pass it through to the other side.8
The multiplicity and breadth of these and other definitions has made the task of distinguishing
one-sided from two-sided intermediaries arduous. For instance, one would not consider shopping malls
as two-sided under the definition of Rochet and Tirole,9 but Rysman10 classifies them as such.
Newspapers are two-sided according to Anderson and Gabszewicz11 but not according to Luchetta.12
We use the definition developed by Andrei Hagiu and Julian Wright in a series of recent papers.13
Firstly, because it encompasses the most important aspects of previous definitions without being so
broad that it represents any type of firm. For example, it allows for network effects but does not
require network effects. And secondly, it allows us to distinguish easily between two-sided inter-
mediaries and more traditional business models: resellers, vertically integrated firms and input
suppliers (see Figure 1).
The first characteristic of two-sided intermediaries is that they enable direct interaction between
two (or more) sides. It is the sides, not the intermediary, who control the most important variables of
the interaction such as pricing, marketing efforts, and so forth. Secondly, it must be that both sides
8. Lapo Filistrucchi, Damien Geradin, Eric van Damme, & Pauline Affeldt, Market Definition in Two-Sided Markets: Theory
and Practice, 10 J. COMPETITION L. & ECON. 293 (2014).
9. See Rochet & Tirole, supra note 7.
10. Marc Rysman, The Economics of Two-Sided Markets, 23 J. ECON. PERSPECTIVES 125 (2009).
11. Simon P. Anderson & Jean J. Gabszewicz, The Media and Advertising: A Tale of Two-Sided Markets, in 1 HANDBOOK OF THE
ECONOMICS OF ART AND CULTURE 567–614 (Victor A. Ginsburgh & David Throsby eds., 2006). See Auer & Petit, supra note 5,
for a comparison of many industries under the light of different definitions.
12. Giacomo Luchetta, Is the Google Platform a Two-Sided Market? 10 J. COMPETITION L. & ECON. 185 (2014).
13. Andrei Hagiu, Merchant or Two-Sided Platform? 6 REV. NETWORK ECON. 1 (2007); Andrei Hagiu & Julian Wright,
Marketplace or Reseller? 61 MANAGE. SCI....

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