Platform Revolution

Competition Policy and Antitrust and Innovation and Economic Growth

Article Snapshot

Author(s)

Sangeet Paul Choudary, Geoffrey Parker and Marshall Van Alstyne

Source

W.W. Norton & Company, 2016

Summary

Platforms are businesses that serve two groups of users, as eBay serves both sellers and buyers. Platforms produce many benefits for society, but disrupt traditional markets. Managers must adopt new strategies to succeed in these markets.

Policy Relevance

Platforms challenge regulators to find new ways to protect the public. Requiring platforms to reveal data about their operations could help.

Main Points

  • Fast-growing platforms include Airbnb, Alibaba, Uber, Facebook, Amazon, Upwork, and Twitter; any industry in which information is a key ingredient could become a platform.
     
  • For platforms, positive network effects increase value for users as the platform grows.
     
    • More Uber passengers attract more Uber users.
       
    • Successful platforms have frictionless entry, so the network can grow easily.
       
  • The design of a successful platforms begins with the core interaction, one kind of interaction that is at the heart of the platform’s mission.
     
  • Platforms conquer and disrupt existing industries:
     
    • Platforms eliminate inefficient gatekeepers; editors stood between readers and authors, but Amazon’s Kindle lets authors reach readers directly.
       
    • Platforms unlock new sources of supply, as Airbnb taps into unused real estate.
       
  • Launching a platform raises a “chicken or egg” problem; some platforms seek consumers first, others, producers, and others launch with a “big bang,” attracting both.
     
  • Mature platforms often become more open, as Apple now provides toolkits to welcome more developers. But Google’s Android has become more closed to aid quality control.
     
  • Some platform markets are winner-take-all; the fierce competition between Uber and Lyft suggests that ride-sharing might be such a market.
     
  • Platforms raise new issues in the regulation of insurance, labor, taxation, platform access, privacy and security, and pricing.
     
  • Regulation will not always help the public, as traditional businesses can “capture” regulators to reduce platform competition, but some regulation is usually beneficial.
     
  • Regulation could be reconceived to ensure that platform policies and behavior are transparent, so that users can rely on reviews and other information to avoid problems.
     
  • Market dominance alone will not justify regulatory intervention; regulators should look for negative externalities (such as encouragement of crime) or abuse of a dominant market position.
     

 

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