Regulating Platform Competition in Markets with Network Externalities: Will Predatory Pricing Restrictions Increase Social Welfare?*

Abstract

We consider an infinitely repeated platform competition in a market with network externalities. The platform that dominated the market in the previous period becomes the incumbent in the current period. We examine the effect of an antitrust policy that prohibits both platforms (symmetric regulation), or just the incumbent (asymmetric regulation) from charging predatory prices. We show that symmetric regulation decreases consumer surplus and does not affect efficiency. Asymmetric regulation increases consumer surplus and improves welfare when the size of the market remains constant over time. Yet, when market size varies over time, this policy may lead to inefficient entry.