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Such interaction is known as indirect network effect, which arises as more consumers join one or the other side of the market. In cases where the indirect network effect is not very significant, a one-sided market definition might be appropriate. However, if the indirect network effects are substantial, the implementation of the hypothetical monopoly test to only one side of the market could lead to a fallacy in the assessment of the platform’s constraints.
When effecting a price increase on one side of the market, not only will its demand for the platform decrease, but also due to the indirect network effects, that of the other side too. In turn, this impact on the second market will also trigger once more a repercussion in the demand of the first affected market. Therefore, the prices that the two groups are charged are highly dependent on the indirect network effect and, usually, the group causing the greater effect will be charged a lower price than the other.
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