Uber case and some implications with two side business

Uber Case and Some Implications with Two-Side Business Truong Trong Hieu University of Economics and Law Vietnam National University – Ho Chi Minh City PhD Candidate, Yokohama National University, Japan Abstract In digital economies, especially in an era of 4.0 industry, technology absolutely plays a central role for establishing business models Two-side business of course consumes technological applications much However, successfully decisive elements evidently stand outside technology but inside itself business model Take Uber business model for case analysis, the paper points out these advanced feature, which are also drawn down in theory of two-side markets; big two-group of users’ data, indirect network effects as well as its nonneutrality of the price structures For business operators, especially Uber’s competitors, it reveals that a deep utilization of technology is clearly important but insufficient For competition policy and regulation, competition authorities need to pay more attention on evaluation of market power as well as anticompetitive impacts in questions of two-side business models EU Court judgement on Uber, given its authority boundary and in an initial step, provided a good clue for Uber’s field of trade It still leaves an enough consideration on the fashion of business activities which competition commissions in South-East countries in turn make progress for such evaluation in the current merger case between Uber and Grab The assessment must respect to both sides, a capacity where Grab is likely to become monopolistic in these markets as well as merits and efficiency the two-side platform can bring to For this achievement, the paper provides a significant explanation on application of some economic efficiency theories, particularly the Kaldor-Hicks efficiency, according to OECD (2009) proposal that customer welfare need to be balanced among both sides of market Keywords: Uber, two-side business, competition, economic efficiency, and customer welfare Introduction There is an undeniable fact that technology has played a significant role on development process Indeed, this recognized trend has long history theoretical analyses, which occasionally determined technological changes as endogenous growth rather than neutral or exogenous effect, especially after Paul A Samuelson’s review and development in 1965 (Samuelson 1972:160) As a result, there has been a deep variation in the conomy form which has been transferred into the knowledge based economy in recent years, and countiously reachs to the digital economy now pertaing to the progress of 4.0 industry More important, technology is a crucial ground in process of convergence In the macro economics, countries own and utilize much advanced technology will develop more, and it means that the low-level economies can reach the same growth ratio as, or even higher than, previous developed ones In the micro economics, firms and companies easily justify the market with their rich intellectual properties Therefore, it is no exaggeration to say that the digital economy is time for evolutionary business fashions of “app” In actual, we not find difficulty in telling this story with many leading cases such as Facebook, Google, Airbnb, or Uber 137 One of feasible new models of business that attracts more attention is two-side business To respect with the success of good representatives as Google, Airbnb or Uber, we can recognize that two-side business can stand still without any innovative technologies The dependent path achievements of Google, Airbnb or Uber show that they benefit a lot from internet, technological application and especially effective interactions in the 4.0 environment However, there is a remaining fact that many actors engaged into business with their useful “apps”, even into such new model of business in certain cases, was left behind In Vietnam, for example, many taxi with their “apps” as Mai linh and Vinasun face challenges in competing with Uber This reality leads to some doubts about benefit of technology, and questions what genuine strengthening for the market dominance is In addition to technological application, that only one influentially visual factor can be recalled is the newly effective model of business itself It means that along with beneficial technology such a model in turn provides much advantages and successful players are those who can exploit the leverage of style’s characters In other words, the market power of dominant two-side business firms need to be explained by their business fashion Several publications relevant to two-side business pointed out the features of big two-group of users’ data, indirect network effects as well as its non-neutrality of the price structures Take Uber for case analysis, there are identified similar factors on its achievement Almost all competition authorities acknowledge the issues, however, they still encounter a challenge of looking up adequate evaluating frames of two-side business market concentration For that situation, this paper will call for a consumption of Kaldol-Hick efficiency standard to overcome such an obstacle in final For that goal, this writing will be divided into five sections The following section will devote a space for literature review on two-side business as well as its model’s advantages Section three leads to analyze the Uber case, from the factual business activities and its competitive pressure to significant points on the Court of Justice of the European Union (herein after as “EUCJ”) decision then some remained challenges in the current merger case between Uber and Grab in Southeast Asian markets Section four will follow with a circumstance by some proposals in OECD approach The final section would be Conclusion where some remark findings should be noted with research limitations which need to be for further study Two-side business: Its features and decisive elements Back to history, we can identify the fact that two-side platform is not a new design really Originally, similar mechanisms existed for long, such as “village matchmaker” or “insurance exchange” in Ancient Athens It is just one more decade to generate such as business model as “a diverse set of diverse set of industries” whose two-sided features “have important economic implications” (OECD 2009:23) As a result, the theory on two-side business has recently emerged Rochet and Tirol are initiate frontier and become outstanding representatives for this establishment Their research contributions were primitively published since about 2000 (Rochet and Tirole 2002) then officially braced by a seminal article in 2003 and in progress followed by subsequent papers in 2006 and 2008 (Rochet and Tirole 2003; Rochet and Tirole 2006; Rochet and Tirole 2008) The study has been further contributed soon after that by Armstrong (Armstrong 2006; Armstrong and Wright 2007), Caillaud and Jullien (Caillaud and Jullien 2003), Evans (Evans 2003; Evans and Noel 2007; Schmalensee and Evans 2007), Parker and Van Alstyne (Parker and Van Alstyne 2005) and ongoing others (OECD 2009:23) The theory of two-side business presents central questions of competition policy According to Rochet and Tirol, it is easily for two-side platforms seeking the market power due mainly to their advanced model Under OECD literature review (OECD - Competition Committee 2009:23–25), some valuable features of two-side business can be drawn down First, the two-side business makes coordination of “interdependent demands of two distinct groups of customers” Of course, these customers need to interact with each other Second, the platform can “internalize the indirect network externalities across these two groups”, and third, resulting in a 138 price resort in which the customers in the different sides can face to dissimilar price (OECD 2009:24) Among them, the “indirect network externalities” plays a core pillar strengthening platform’s power For the first fundamental element, the existence of two distinct groups of customers, the relevant theory identifies that they must be those who needs to communicate to others coming from opposite side However, they cannot make contact by themselves That is why they have demands of a two-side platform where they can rely on to “intermediate transactions” We can find out this characteristics on the model of exchange platform, the Apple Store, or even a free to the air television channel who “uses content to attract viewers then sells access to those viewers to advertisers” (OECD 2009:29) For the second fundamental element, the existence of indirect network effects, it means that the value a customer in one side can benefit depends on the increasing number of customer in the other side Take a search platform of Google for an interesting instance, we can recognize that it is more useful to advertisers if Google has a large number of researchers Similarly, users looking to buy somethings reach more advantages if there are more advertisers displaying their products Of course, this kind of effects happens when the platform matters and take advantage of it The indirect externalities mechanism anyway reveals the importance of users’ data In other words, the more users the platform attracts the more value the platform gains In steads of maintaining an ignorance of interesting indirect network effects, the platform finds all ways of adding customers and might need to utilize many traditional types of marketing It is certainly challenging and cost the platform a lot in advance But the platform easily fails with only the belief that it also holds a strongly similar “app” and no much enough motivation to adventure its business model curiosities In fact, the third fundamental element is a substantial strategy to seduce users and then gain merit for its platform Under approach of “non-neutrality of the price structure”, the twoside platform steals from this side to offset for lost revenue in the other It means that the price set up for this group of customers depends on the one for the opposite Of course, the platform will provide the lower cost for the group that it would like to increase the quantity which in turn allures the rest side who might concern a rising number of customers in the opposite in priority Interestingly, the amount of latter group of customers after that become attraction to the former group This effective process does happen frequently And the platform never loses its motivation to maximize its profit under the applicable best choice One research conducted in 2011 shows that the platform tends to fully increase the fee on the side of product sellers at expense of a full sellers’ surplus and charges or even subsidizes on a side of buyers That is because “increasing the buyer-side fee may discourage innovation and that, when all sellers innovate, a higher seller-side fee may stimulate innovation in equilibrium” Certainly, under effective twoside business fashion, the platform has sufficient conditions to “serve buyers with all levels of willingness-to-pay even at a positive optimal price” (Lin, Li, and Whinston 2011:22) It is a worthy note that such price structure can be designed on the basic conditions that customers in two groups are in distinction or “heterogeneous” (Ambrus and Argenziano 2009), but in closed beneficial relationship However, they cannot interact and compensate directly because of high transactions costs Or even in the case they can make a deal together, the platform with its justifications by the ownership of big-data of customers’ potential partners can restrict or give a better option on platform In doing so, moreover, the two-side platform also finds a room for applying some levels of pricing discrimination For these outstanding features, two-side business easily brings market power to two-side business platforms, and result in more concentration on the two-side markets (OECD 2009:43) More extremely, some analysis pointed out that “market power is more harmful in two-sided markets than in standard markets” (Weyl 2009:43) Of course, this circumstance often comes with a risk that strong players there can abuse their market dominance or even monopoly attacking on competition or social welfare On OECD’s theoretical literature review, there are also some specific discipline on this specific type of market 139 One of them is an act of anti-competitive pricing Under two-side business characterized by indirect externalities mechanism non-neutrality of the price structure, a platform consequently proposes two different prices for two group of customers on two-sides It would be a lower price, or even zero or no payment with some monetary gifts, on one group and a higher price on the other On the classical background of the lower price can be charged as predatory pricing and the higher price can be determined as excessive pricing To pertain to a complicated definition of market in two-side business model, the risky situation can be more illustrated by substantial chances of typing, exclusive dealing, or some kinds of coordination among competitors Another central concern is to merger regulation The achieved policy question there is “whether the operation will create or enhance market power or facilitate its exercise” With a respect that “markets where two-sided platforms operate tend to be concentrated”, the mergers among platforms there “raise a special interest among competition authorities” (OECD 2009:43) Under an assumption that the post-merger platform will be much stronger, it has evidence to say that several harmful impacts could be created seriously The question whether the economics of scale in mergers maintain interests or the customer welfare tends to be stolen is extremely the case However, there is an alongside question whether the general principles in simple competition policy can be still adequate to evaluate competitive impacts under two-side business fashion It is clearly that two-side platforms will be able to disappear or at least not persistently characterized by indirect externalities mechanism non-neutrality of the price structure when competition agencies impose prohibitions on their course of prices The badly similar outcomes can be emerged on the merger regulation if competition actors just have extreme care of stronger post-merger platforms’ expense at market or customers without enough consideration on efficient allocation of resources or expansion and deep consumption of big-data’s gains The Nobel Prize in Economic Science found Jean Tirole’s analysis of market power and regulation attractive, then awarded him in 2014 One of his important theoretical research contributions is to provide a unified theory relevant to competition policy and regulation on some newly specific markets such as platform markets His achievement reveals a significant balance approach on a situation of dominant firms in which there are something good such as reducing costs or encouraging innovation, but something bad sometimes such as permitting dominant firms’ excessive profits or distorting competition Tirole, according to industry’s specific conditions, therefore mentions much about production chains as well as transactions’ efficiency as a case of mergers By his analysis, “it is doubtful whether undercutting should be banned” because the conclusion that “setting prices below production costs is one way of getting rid of competitors” is not “necessarily true of all markets” (Nobel Media 2014a; Nobel Media 2014b) Jean Tirole’s researches as well as other further studies, which are mainly covered in OECD review, offer the new perspective for competition regulation on two-side business model More specifically, Attila Ambrus and Rossella Argenziano in 2003, with more subsequent added in 2008, much concentrate on the network externalities and customers choices with respect to how much customers “care about the externality” In order words, they try to point out how much customers value if there are a lot of consumers from the other side of the market on the same platform As a result, the analysis concludes that this business fashion normally “can lead to asymmetric market structures, with multiple differently priced networks coexisting in the market” Especially, under the “attractiveness” customers in one group generate for the other group and vice versa as well as their transactions’ marginal cost, even in heterogeneity, “consumers simultaneously choose networks or decide to stay out of the market” (Ambrus and Argenziano 2009:3,30) Interestingly, Bardey, Cremer, and Lozachmeur in their analysis model of a given price structure proves that customers in both sides (customers and providers) “value the same index of quality”, and “the common network externality has a cumulative effect on prices” with the relevant recognition that “its effect on one side’s price is, partially or entirely, shifted to the other side of the market” (Bardey, Cremer, and Lozachmeur 2014) If these two-side market’s benefits 140 are in ignorance, what will happen instead of backfire That is partially why there are more extreme in interference to two-side markets than to others (Weyl 2009:42) Uber case analysis 3.1 The fact In addition to Google, Youtube, Facebook and many exchange channels, Uber has officially launched in San Francisco (US) in 2009 (Uber website 2018) then in up to 632 cities worldwide now (Uber website 2018) Its quick development really makes many people surprise with a given slogan that “taxi company without any car” Logically, this deep traditional firms on market Uber seeks into under hardship conditions Many old taxi firms cannot explain about Uber’s hit as well as why they have been left behind even they had longtime justifying on the market This also make local policy makers confused in front of the question whether Uber need to be allowed or prohibited While the theory on two-side business can be used for proving the Uber’s success and dominance, it is also new and even strange to a few one Many discussions simplified Uber business basing on the general advances of technologies, especially just emerging 4.0 economy They base their consideration on the Uber’s ownership of Uber app However, this argument hit stones when many old taxi companies has decided to consume technology and internet Interestingly, these taxi companies did not waste much time and cost to build and launch their apps In actual, they introduced their apps suddenly after Uber app jumped It means that it is not so difficult to achieve similar technology applications; and the utilization of such apps easily becomes a leading trend in digital economies, but the merits players gain is obviously different As a recognition of Vinasun, a professional driver taxi firm in Vietnam, the trade war among it and other non-professional drive taxi apps is exactly a race of financial investment Accordingly, many traditional taxi companies have a weak position in competing to new ones For that situation, Vina decides to make the new business strategy which deeply consume technological application, increase subsidy shared to drivers, provide beneficial policy covering whole social insurance and even count down its target revenue as well As a result, Vinasun has gotten in stuck still (Nguyen Manh 2018) It facts reveal that technology is important but still insufficient In comparative approach, there are many evidences showing that Uber’s differences are its pathway backing to deeply exploit traditional business strategies These are especially current marketing and business management regimes Of course, it must have an uncommon style applied In marketing, Uber seemingly affirms that: To have money to have all After calling for mass investment from venture and capital funds, Uber does not forget to deposit into new markets More important, Uber also brings a new culture to its coordinative drivers and customers, which many analysis names as sharing economy In Vietnam, for example, Uber has many marketing campaigns Its PR contents spread beyond itself label, not only focus on both its firm, brand and its managing team but also provide information for the newly useful option for travelling in the world of technology dominance in general It should continuously concern about Uber business management The most interesting proof is that Uber provide a system of “star” ranking for drivers as well as customers It is not for Uber’s policy on its incentive to users but for users to know their coordinators’ ranking point then make their decisions Traditional taxi firms may have some incentive to drivers in their salary or revenue distribution model but they in previous provide no room for drivers and customers to show their satisfied levels and basing on it to make their own recommend together It is eventually that Uber’s respect boosts motive of users in one side in front of the pressure coming from their coordinators in the other side Aa a result, this design tries to maximize a marginal of demands and usefulness 141 143 overall service whose main component is a transport service”(EUCJ 2017:para 40), and in final EUCJ therefore ruled that: An intermediation service such as that at issue in the main proceedings, the purpose of which is to connect, by means of a smartphone application and for remuneration, nonprofessional drivers using their own vehicle with persons who wish to make urban journeys, must be regarded as being inherently linked to a transport service and, accordingly, must be classified as ‘a service in the field of transport’ within the meaning of EU law Consequently, such a service must be excluded from the scope of the freedom to provide services in general as well as the directive on services in the internal market and the directive on electronic commerce.(EUCJ 2017:para 50) Respect to this judgement, Spain as well as other EU member states shall “to regulate the conditions under which intermediation services such as that at issue in the main proceedings are to be provided in conformity with the general rules of the FEU Treaty”(EUCJ 2017:para 47) In responses, France initially told the following story relevant to such technical regulations In details, the conflict among UberPop and professional taxi drivers had happened before the Uber Systems Spain case, which started since 2014, and 2016 the Regional Court in Lille (France) brought criminal proceedings against Uber France for “the unlawful organization of a system for putting customers in contact with non-professional drivers”(EUCJ 2018a:para 8,11,13) Under the respective case of Uber Systems Spain, EUCJ in 2018 once again took a view that “Uber France fixes the rates, collects the fare for each journey from the customer (before paying part of it to the non-professional driver of the vehicle) and prepares the invoices”(EUCJ 2018a:para 10,17) and non-professional drivers under such a case “transport passengers for remuneration”(EUCJ 2017:para 33; EUCJ 2018a:27) To parallel with judgements on the former case, EUCJ founds that UberPop activity is essentially identical to what offered by Uber Systems in Spain and came within “the field of transport”(EUCJ 2018a:para 22) It did not constitute “an information society service” as UberPop arguments(EUCJ 2018a:para 22) In other words, UberPop has no ground to maintain that its service generates “an information society service” as well as to brings its defense against a composition of technical standards and regulations on such a service Therefore, EU Member States “may prohibit and punish the illegal exercise of a transport activity such as UberPop without having to notify the Commission”(EUCJ 2018b:1) In general, these judgments become an important precedence Many countries, especially competition agencies where the services offered by Uber are making a muddle debate, find belief in the light of EUCJ statement They recently after that are more convenient to stand Uber business activities on a position along with transport services, or a taxi service in particular It is really crucial, however, may be not enough for what essential to a process measuring the impacts of two-side business on the market Always, OECD gravely warns that evaluating frames which currently apply for traditional markets, only one side markets, are out of order with the new business standard (OECD Competition Committee 2009) To continuously consume outdate approach, such proceedings will not be able to identify the intrinsic nature of two-side platform and potentially create erroneous outcomes Back to what the paper discussed above, to find out the field of trade is very important task but not all needed Each legal system should base on that initiate and toward to the next track calculating what factual a shack coming from the business model itself It seems that many competition systems still much enjoy a preliminary finding and forget what they need to act for the next phase as OECD suggestion Spain and France, for example, are two legal systems lose their directions for a correctness regulation The reasons they call for legal interpretation by EUCJ is for their competition law achievements But they just confirm that service offered by Uber is a type of transport service, which is considered equally as traditional taxi service As a result, they apply what is signed as “tradition” to the new In doing so, they can state that such a service provided by Uber style is an “unfair practice” or even a criminal action if Uber does not meet “technical standards” as traditions of taxi service, which is displayed in old one side business model It clearly 144 left OECD warnings behind In reality such a remained prosecution has not yet generated much subsidiary concerns until the merger between Uber and Grab, another technological transport firm, conducted 3.3 A merger between Uber and Grab in South-East Asian In the merger case, Grab plans to acquire Uber entirely in the market of South-East Asian, where Uber and Grab are two leading non-professional driver taxi service suppliers In history, Uber inaugurated its service in Vietnam, Singapore, Philippine and Malaysia Grab taxi applications enters and share market with Uber soon after that To different from Uber, Grab departed from Singapore and has focused on South-east Asian Countries From some initial narrow market, Grab now launches its service not only countries above but also Indonesia, Myanmar and Cambodia (Grab website 2018) In March 2018, Grab made a successful deal with Uber, in which Grab “bought assets and driver contracts of Uber across South East Asia” Under such a regional purchase agreement, Uber will obtain 27.5% of entire shares owned by Grab for its exchanged assets and a pledge that Uber has to withdraw from Southeast Asian market (CCCS 2018b:para 1; PCC 2018a:para 1) This transaction after its publicity announcement brought a shock to all relevant parties, including customers, its partnership drivers and especially competition commissions in these countries On the fact that this merger is a cross border transaction, not only one but also many relevant countries stated they will monitor the acquisition Competition and Consumer Commission of Singapore (herein after as “CCCS”), Malaysia Competition Commission (herein after as “MyCC”) and Vietnam Competition Authority (herein after as “VCA”) informed their interventions in 27 March followed by Philippine Competition Commission (herein after as “PCC”)’s jump into the proceedings in April They all found clues indicating that the posttransaction is likely to create harms on competition if Uber gets out of markets and is barred no longer come back as a strongly independent player Although “there are many other enterprises which offer e-hailing services”, these commissions’ directions are essential to ensure that “competition in the e-hailing services is not disrupted by the merger between Uber and Grab” as MyCC representative manifestation (MyCC 2018) A few days early investigating, obviously, CCCS on the 30 of March in 2018 quickly responded to this no-notified merger case It stated that it had reasonable grounds for suspecting that the Competition Act “has been infringed by the transaction due to substantial lessening of competition in relation to the chauffeured personal point-to point transport passenger and booking services market in Singapore” According to CCCS, Uber and Grab “are each other’s closest competitors and have a significant combined market share”, and this close rivalry “can be seen from the surge in Uber’s fares following the recent outages of Grab’s app” (CCCS 2018d; CCCS 2018b:para 5) Under light of competition law, the marriage between them can exclude the competitive pressure such that easily create more concentration on the market Even without having to complete the investigation, CCCS decided to issue some proposed interim measures directions to the parties These “require the Parties to maintain their pretransaction independent pricing, pricing policies and product options in relation to the services, and not take any action which may lead to the following in the services market” More extremely, CCCS request the merging parties “not to obtain from the other party any confidential information” and lastly, “Grab shall ensure that Uber drivers joining Grab’s ridehailing platform of their own accord are not subject to any exclusivity clauses, lock-in periods and/or termination fees”.(CCCS 2018a) As a result, the relevant parties submitted their presentation to CCCS and “have agreed to extend the initial shut-down date of the Uber ridehailing app in Singapore from April 2018 to 15 April 2018” (CCCS 2018c), but just closed its app after May by CCCS extension (CCCS 2018d:para 4) PCC moreover provided many worthy notes from its collected data Specifically, Grab in Philippine after the acquisition would exceed 93% of registered vehicles, which substantially results in the situation “Grab 145 being able to profitably increase its prices given its market share as riders will not shift to other modes of public transportation” According to this authority’s quick measure, the Uber refusal wihout chances reentering into the market seems to be not beneficial and such that “barriers to entry are not insignificant” The analysis also pointed out that “entry into the relevant market will not be timely, likely, and significant such that a new entrant will not serve as a competitive constraint against Grab” In practice soon after releasing such a deal, Grab’s price structure indicates that “prices are increasing, while quality of service is deteriorating, to the detriment of the riding public” Altogether, PCC pointed a view that post-transaction “creates or strengthens Grab's dominance in the relevant market” and concerns the coming days where the transaction “has resulted and will likely continue to result in substantial lessening of competition in the relevant market”(PCC 2018c; PCC 2018b; PCC 2018a:para 3) PCC thereby immediately ordered Uber and Grab to comply many initial interim measures as CCCS (PCC 2018c; PCC 2018a) All competition commissions finished their first phase of investigation and has moved to the second phase now However, there are difference among their approaches in order for a goal solving many obstacles that follow with the new business structure of a technological service Once again, this status continuously makes much noise in debate There are two opposite respects, for each, with particularly complicated concerns If such competition agencies follow with EUCJ judgment and considered Uber as well as Grab service as a type of transport service for technical regulations, they must take account into the definition of relevant market which will be expanded too much In that case, Uber and Grab’s market share, which almost these legal systems rely on for finally concluding their market power, will be smaller By contrast, they need to pay attention on the newly particular business model This confused perspective is clearly exhibited in such current competition agencies analysis They mentioned the service as “transport passenger and booking services” but they did not count the drivers or occupation of traditional taxi firms during measuring the Uber and Grab market power Extremely, they at least one time stated the situation where Grab will be “near monopoly” after acquisition that only result from the fact professional driver taxi services are not calculated Particularly, it is likely that such competitions agencies base their evaluation on the old frames applied for one side market They not care about the feature of two-side business where Uber and Grab make their performance as mentioned It seems that only CCCS tends to open its mind when it latterly decided that “ Uber is not obliged to extend the app” beyond the date of May (CCCS 2018d:para 4) It means that Uber can legally stop their performance the merger plan can be conducted It is because Singapore competition law as many other legal systems introduces the modern approach in merger control Instead of closing the transaction, CCCS release it first and can provide some remedies later when it finds some anticompetitive harm form such as case In doing so, CCCS in its permission to Uber and Grab deal also notifies that it “may impose such appropriate directions (or accept such appropriate commitments from the Parties) to remedy, mitigate or eliminate any adverse effects of such an infringement” (CCCS 2018d:para 5) Interestingly, CCCS also recognized the enhanced design of Uber service It identified that “barriers to entry are likely to be high due to strong network effects (i.e the larger the number of drivers that are available on a ride-hailing platform, the larger the number of riders will be attracted to use that platform, and vice versa)” after Uber disappears (CCCS 2018b:para 5) In particular CCCS provided more explanation for its validation: Many drivers are constrained by exclusivity arrangements such that they can only drive for one ride-hailing platform This makes it difficult for a new ride-hailing platform to attract drivers Further, a new entrant would likely have to invest a significant amount of upfront capital in order to attract drivers and riders to move over from the incumbent ride-hailing platform, so as to build up a critical mass of users The new entrant would likely have to continue sustained investment in order to compete with the incumbent ride-hailing platform (CCCS 2018b:para 5) 146 The applicable economic efficiency theories 4.1 OECD’ insufficient suggestions No matter what ways the competition authorities asked for, a conclusion they would like to seek is to demonstrate the Grab market power after its acquisition of Uber As what CCCS pointed out, it is not so complicated to display when competition agencies follow with an ideal of Uber or Grab model equivalent to its theory on two-side business Still, the concern lasted is how competition authorities can formulate to the market dominance in such a case, which normally happens accordingly the relevant theory Of course, it is so challenging with schools of relevant researches’ analysis in which “the choice of optimal price balance”, which the regulation and competition policy try to look for, generally conflicts “welfare criteria”, especially the price in such a case tends to “raise prices on the “unpressured” side of the market” also No matter what and how, social welfare is thereby a key issue competition agencies need to pay more attention (Weyl 2009:41, 43) Basing on the careful review, OECD suggests that member states need to base their measures on the original nature of business model Especially, the welfare analysis plays a key role in balance the benefit and drawback of two-side business structure, which of course “can be very challenging” (OECD 2009:34) OECD at first requires that policy measures should take into account all parties’ welfare It means that that is not only the welfare of one group of customers but all those on both sides of the market Moreover, welfare of the platform should be included also The process hence needs much more information rather than only one simple proxies such as a particular group of customer (OECD 2009:34) The next notice is that “price variations might not track welfare variations” In a usual theoretical background, price and welfare loss “move in the same direction” and “welfare changes can be inferred from price changes” But that ideal theme is familiar with the operation of one sided companies In the two-side markets, or in “markets with externalities” in general, this tendency may not happen At a consequence, “prices and social welfare loss may move in opposite directions” and price and consumer welfare are parallel in the same line It reveals that it more important to measure “welfare variations directly” than to measure price variations (OECD 2009:34) To evaluate the impact of two-side platform on social welfare under such an analysis, however, one cannot look up information on the one side of market only By contrast, “the mix of sellers and buyers is critically important” (OECD 2009:44) Because of the characteristics of the indirect network externalities and the specific price structure in accordance with two-side market, the prices among two groups of customers tends to be different It means that the welfare obtained on each side of platform “might move in opposite directions” It is really complicated to balance these effects on both sides (OECD 2009:35) Rather than, it should mention on the “aggregate” benefit Take a merger case for specific analysis, OECD began with the point that “markets where two-sided platforms operate tend to be concentrated” and concluded that “mergers in these markets will naturally raise a special interest among competition authorities” However, the effective perspective for measuring the impact of market power in such a merger case should be follow with “the interrelated effects on both customer groups served by the platform” It means that the correctness belonging to the business model is when one considers “not only the price level but also the price structure” Interestingly, “the equilibrium post-merger prices” under “the balance of indirect network externalities across the two-sides of the market”, “could result in some prices increasing and others falling” Especially, the customers can pay more on average but in aggregate “they could get more as well” In addition to an assumption, OECD agian repeat the advantageous feature of the business model saying “the sellers may have a better selection of buyers to choose from, and the buyers may have a better selection of sellers to choose from” (OECD 2009:43–44) It means that the believable theories applied for a balance of the “aggregate” welfare has still left behind 147 4.2 Considerations of Pareto Efficiency This paper here calls for two leading theories on economic efficiency in order to find fix ground for OECD concern about aggregate welfare These are Pareto Efficiency and KaldorHicks Efficiency Under the former’s pespective, there are two concepts should be acknowledged; Pareto-optimal and Pareto-superior Pareto-superior introduces a efficient status when there is at least one person’s welfare improved without other person’s welfare stolen In such a process, an alternative allocation of resource, or a rotational distribution of utility or the welfare, happens but no conflicts or adverse effects offered Clearly, there are “winners but no losers” (Coleman 1980:515) when Pareto efficiency brings better off welfare to one without making worse off to another This process therefore need to be in progress When the allocated welfare could be not improved and better, its status reaches Pareto-optimal exactly It is because in that place “any further reallocation of them can enhance the welfare of one person only at the expense of another” (Coleman 1980:512–513) In order words, Pareto-optimal is when there is no Pareto superior to it Pareto efficiency is applicable for several measures However, it seems to be fail in some hardship situation In practice, the social welfare is relative amount, and it is so hard to say that no one can be adversely affected if others were brought an increasing welfare Especially, with an assumption that Pareto improvements increase total welfare, the Pareto efficiency falls down in situations the total further welfare is not surely plus The two-side business improving welfare is such a case 4.3 Suggestions for application of Kaldor-Hicks Efficiency Regarding Kaldor-Hicks Efficiency, it is generally understood as a situation when those who has increasing welfare can pay compensation to those whose welfare diminishes In Kaldor-Hicks Efficiency, the most important consideration is to whether the aggregate welfare is plus or minus It is different from Pareto principles that there are both winners and losers, and in Kaldor-Hicks Efficiency it is acceptable when the extra welfare the winners get is bigger than what the others lose The increasing welfare in that case is more enough to theoretically compensate to the losers It should note that such a compensation to losers under Kaldor-Hicks is “not in fact paid” (Coleman 1980:513), which can be in mechanism of reallocation or redistribution after that It is questioned that whether OECD partially base its discussion on Patero principle This concern appears when OECD utilized a term of “the deadweight loss” (OECD 2009:34), which is normatively used in Pareto approach This is more importantly illustrated by its criticism on “the welfare maximizing conditions for markets where two-sided platforms operate” and a demand of “social optimum” If this is an OECD factual approach, however, it loses the fix direction when mentioning “a given situation it is not socially optimal”, and then gives a respect “direction policy measures should take to increase welfare” only even it might still “be extremely hard” And once again, “welfare improving measures” at the end come without any significant proposals and following recommendations (OECD 2009:35) It is clearly Pareto efficiency is not a full case of two-side business assessment In the twoside market, when a two-side platform make a price strategy including an increase in one side along with a decrease in the other side, there are always both the obtainers and losers OECD thereby depends on an increasing number of customers in the opposite side, meaning that there are more options for losers, in order to encourage the trade off in on side The question here is whether such flexible choices can be balancing to what lost In case it is essentially possible, competition agencies find difficulties in making comparison in calculation between the direct monetary cost (due to high price) and the indirect potential benefit (capable options), or in other sense between a quantity variable and quality variable respectively It should turn to Kaldor-Hicks standard Accordingly, competition authorities need to balance amount of money gained or lost among two groups of customers With an assumption that both two groups of customers have substantial capacity reaching the potentially rising deals from another side, it is desirable when the actual welfare increased in one side is more than as such decreased in the other side In order words, the two-side 148 platform, with its indirect network externalities as well as non-neutral price structure, could not be charged as an evil if it results in plus aggregate welfare for all customers among two-sides However, even in the case “the price increase on one side of the market is totally shifted to the other side”, the platform can consume its charging fee much more than actual on side service providers’ remuneration (Bardey, Cremer, and Lozachmeur 2014) In such circumstances, it would be considered as anti-competitive effects, or as an infringement, if and only if a platform brings profits for itself Take Uber’s price increase for factually specific consideration It is socially beneficial if Uber asks for more payment form passengers in order provides more enough balancing return, meaning as the plus total customer welfare, for drivers Uber decision can be considered as unlawful act if such passengers payment is only for its increasing ratio on connection service price Conclusion Technology is clearly a significant base for economic development and provides more opportunities for new styles of business to depart To engage in two-side business fashion, Uber brings not only benefits but obstacles, especially for its rivals It also creates challenges on competition policy and regulation Many countries find it attractive and confused Basing on newly developing theory to two-side markets, particularly on OECD literature review and recommendations, the writing point out decisive effects of itself two-side business model; big two-group of users’ data, indirect network effects as well as its non-neutrality of the price structures; with a significant conclusion that technology is clearly important but insufficient in application of new fashions of business strategies Moreover, the paper also introduces crucial discussion on assessment of anti-competitive impact that can go along with two-side market Of course, two-side platforms tend to obtain market dominant and lead monopolistic, which is more substantial in mergers among two-side platforms To impose extreme supervision on this market status proposes meaningful outcomes but may create backfire sometimes The evaluation process therefore need to base on the feature as well as efficiency of such a business design Take consumer welfare for a central policy question as OECD suggestion, this research opens a 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Competition Committee 2009:23–25), some valuable features of two- side business can be drawn down First, the two- side business makes coordination of “interdependent demands of two distinct groups of customers”... and Wright 2007), Caillaud and Jullien (Caillaud and Jullien 2003), Evans (Evans 2003; Evans and Noel 2007; Schmalensee and Evans 2007), Parker and Van Alstyne (Parker and Van Alstyne 2005) and