Thepot, F; (2012) Market Power in Online Search and Social-Networking: A Matter of Two-Sided Markets. (CLES Research Paper series 4/2012). Centre for Law, Economics and Society, UCL Faculty of Laws: London, UK.

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Abstract

The industries of online search and social networking are characterised by high market shares held by a very limited number of actors. Google holds 85% of the market for Internet search engines in terms of traffic, and has been maintaining its market share at this level since 2008. Eight years after its creation, the socialnetworking website Facebook has 800 million active users in 2012, accounting for about 65% of the market share of social-networking websites, in terms of registered users. As advertised-based media, search engines and social-networking websites have the characteristics of a special type of market known as two-sided markets or platforms. Two-sided markets are platforms which have two distinct user groups providing each other with network benefits. The platforms enable the user groups to minimise the transaction costs they would have otherwise incurred, of searching for each other and interacting. Economics of two-sided markets cannot be ignored by competition authorities in assessing market power in the search and social networking industries. The paper provides a framework for defining the relevant market and for assessing market power in the industries of online search and socialnetworking websites, focusing on the current leaders Google and Facebook. It is argued that online-search and social-networking websites may exert competitive constraints on each other, as both operate in the relevant market for ‘monetization of user’s information by online advertising’.

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