Mergers in two-sided markets: Flower power in Dutch auction houses? BIICL 6th Annual Merger Control Conference Neil Marshall, Managing Consultant November 16th 2007

2 More layers in the supply chain Trading platforms/ auction houses Buyers Sellers Buyers Sellers Direct trading

November 16th Impact of two-sided nature of the service Price structure and level now matters Which price should be used? Application of the SSNIP test Is it right to consider that any price rises would be applied proportionally? Market definition What if the merging parties have different pricing strategies?

November 16th Incorporating two-sidedness into the SSNIP One-sided critical loss -establish critical loss (t/(m+t) -where t=5–10%, m=(p – c)/p -estimate actual loss -based on demand elasticities: own price for first iteration of the test; with information on cross-price elasticities incorporated in subsequent rounds -if actual > critical loss then market not identified Two-sided critical loss -need to incorporate the demand/supply interactions -NMa, in FloraHolland 1, incorporated these in its survey: -how would sellers respond to a 5% reduction in the number of buyers using the platform and -vice versa 1 NMa (2007), Coöperatie Bloemenveiling Aalsmeer U.A. and Coöperatieve Bloemenveiling FloraHolland U.A., merger clearance, August 21st.

November 16th How should the analysis differ? Is this genuinely a two-sided function? How strong are the demand/supply interactions? What outside options are available? Careful of over- application of the concept Summary

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