Regulating platform competition in markets with network externalities : will predatory pricing restrictions increase social welfare?

We consider a dynamic platform competition in a market with network externalities. The incumbent platform enjoys a focal position such that consumers expect other consumers to join it, while the entrant platform may enjoy a quality advantage. 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 efficiency. Asymmetric regulation improves welfare when the size of the market remains constant over time and when platforms are shortsighted. Otherwise this policy may lead to inefficient entry