1. International Institute of Information Technology Bangalore (IIIT-B)
“Regulatory Aspects of Two-Sided Markets” “Disruptive Technologies and Economic Regulation”
Dr. V. Sridhar
International Institute of Information Technology Bangalore (IIIT-B)

2. Two-Sided Market Platforms (2SMPs)
Two-Sided IT based Market Platform
User Set 1
User Set 2
Cross-Side Network Effect
Cab Seekers
Cab Drivers
Patients
Doctors
Job seekers
Job Providers
Publishers
Readers
Information seekers
Product/ Service providers
Buyer
Seller
Same-Side Network Effect
Rochet & Tirole, 2004

3. Taxonomy of 2SMPs Directory Services Aggregator Platforms
E-Market Places
Directory Services
Aggregator Platforms
Liability
Regulatory Arbitrage
Disintermediation
Search Cost
Economic Value-Add
In emerging markets, many market verticals are relatively unorganized compared to developed markets; there is often information asymmetry leading to high search costs and arbitrage opportunities;
2SMPs reduce information asymmetry; improves efficiency of utilization of resources; disintermediate and minimize rent outflow; improves consumer and producer surplus

4. Characteristics of 2SMPs
Typically 2SPs are not monopolies or near monopolies
However, competition is minimal
Multi-homing is typical
Users adopt more than one platform
Typically platform differentiation is minimal
Attaining “critical mass” is necessary for sustainability and building network effects
Asymmetric pricing is common
The money side and subsidy side
Which side to subsidize and by how much?
Platforms reduce information asymmetry
Hence collect lot of user information to provide personalized services
Data Protection and Privacy issues abound

5. Regulatory Questions
Increasing economies of scale due to network effects: Predatory pricing to attain “critical mass”
Effect: reducing competition
Regulatory response: time limit discounting
Horizontal and vertical integration
Regulatory response: mergers and acquisitions – anti-trust regulation
Homing: What if platform offers exclusive contract to sellers, setting the price slightly below that of competitors?
Regulatory response: how serious is user lock-in?
Use of information collected for un-intended use
Effect: user privacy is violated
Regulatory response: mandatory user consent; user rights on the collected information
First Mover Advantage
Effect: Platform envelopment -> might lead to creating a high entry barrier for competitors
Regulatory response: Significant Market Power assessment and anti-trust regulation
Role of digital platforms
Effect: Technology only and hence disowns responsibility and liability
Regulatory response: Mandatory compliance and level playing field with incumbents?

6. Regulatory Guidance
Regulatory rules for 2SMPs to be different compared to the traditional brick-and-mortar business
Mandatory compliance
Cabs should run on LPG -> environmental protection
Background check of housemaids -> improve security
Content editing in mobile news -> social harmony
Background verification of Doctors -> patient wellness
Food safety check -> protect health of foodies
Other market regulatory rules
Fare regulation -> reduces market efficiency
Additional taxation -> increases platform costs
FDI regulation-> reduces overseas investment
Users and platforms considered as stakeholders in the trusted Self Regulatory Organization (SRO) with Government Omnibus oversight??