Introduction.

In January 2004, the Institut D'Economie Industrielle (IDEI) at Toulouse University and the Center for Economic Policy Research (CEPR) sponsored a conference on the economics of two-sided markets. Two-sided (or, more generally, multi-sided) markets are roughly defined as markets in which one or several platforms enable interactions between end-users and try to get the two (or multiple) sides on board by appropriately charging each side. Many such markets belong to the new economy (software, Internet, videogames, etc.), but others are more traditional (newspapers, TV channels, intermediaries). The academic literature on two-sided markets is recent but has grown very fast in the last few years. The conference managed to attract most of the specialists in this domain and provided an overview of the active research topics in the field of two-sided markets.

This symposium issue includes five articles, all presented at the conference. All the articles went through RJE's normal refereeing process under the control of two editors, Jennifer Reinganum and Chaim Fershtman.

The Rochet and Tirole article provides a model that unifies the two hitherto separate strands of the literature on two-sided markets: the one emphasizing usage externalities, and the other emphasizing membership externalities. It also identifies two-sided markets with markets in which the structure (and not only the level) of prices charged by the platforms matters, and it derives conditions for two-sidedness. The Armstrong article analyzes the determinants of equilibrium prices in three different situations: (i) one platform, (ii) two platforms but each agent can join at most one ("single-homing"), and (iii) a "competitive bottleneck" situation with two platforms but where one group of agents wishes to join both ("multi-homing"). Armstrong shows that equilibrium prices essentially depend on three factors: the relative sizes of the cross-group externalities, whether fees are levied on a lump-sum or per-transaction basis, and the extent of multi-homing. The Hermalin and Katz article studies the determinants of routing rules. In many two-sided markets, multi-homing is prevalent, and interactions between users can potentially be mediated through several networks. Hermalin and Katz show that the party with the formal authority to choose the routing rule may paradoxically lose from this situation and be forced to select the network preferred by the agents on the other side of the market. The Hagiu article analyzes the pricing policies of platforms in a context where sellers arrive before buyers. Examples of such situations are the software and videogame industries, where developers have to choose a platform before they know how many consumers will buy the operating system or the console. Hagiu shows that exclusive equilibria (in which sellers register with only one platform) are less likely in a competitive case than in a monopoly case, but also that multi-homing equilibria may exist. Finally, the Ackerberg and Gowrisankaran article is one of the very few empirical studies of two-sided markets. The authors estimate the magnitude of cross externalities in the automated clearing house (ACH) industry, and they study the determinants of adoption decisions by customers and banks. They derive interesting policy implications. In particular, they find that subsidizing banks that adopt ACH could increase welfare significantly.

Jean-Charles Rochet *

and

Jean Tirole **

* University of Toulouse; rochet@cict.fr.

** University of Toulouse, and MIT; tirole@cict.fr.