Understanding Online Markets and Antitrust Analysis

Competition Policy and Antitrust

Article Snapshot

Author(s)

Jingyuan Ma and Daniel Sokol

Source

Northwestern Journal of Technology and Intellectual Property, Vol. 15, pp. 43-52, Spring 2017; University of Florida Levin College of Law Research Paper No. 17-22

Summary

This paper considers the application of traditional antitrust analysis to online markets. This paper identifies several ways in which online markets differ from regular markets. Most online markets are multi-sided, and entry barriers are low.

Policy Relevance

Online markets change rapidly. Careless application of traditional antitrust concepts to online markets can harm innovation and consumers.

Main Points

  • The definition of markets online is complicated and challenges traditional antitrust analysis.
     
  • Many online markets are “multi-sided” markets; in these multi-sided markets, a platform provides services to consumers for free and uses consumer data to direct advertising to consumers; different platforms, such as Google and Facebook, compete against one another for ad revenue.
     
  • Competition authorities sometimes misidentify multi-sided markets by considering only one side of the market; furthermore, when a service is provided for free, one cannot use traditional methods to calculate market share.
     
  • The availability of cloud computing, low app development costs, and the ease of collecting and analyzing data means that entry barriers in online markets are low; Snapchat and Instagram quickly made inroads on Facebook, though they started with a far smaller user base.
     
  • Traditional antitrust analysis focusses on the costs consumers face in switching from one platform to another; online, the cost of switching tends to be low, and most consumers use more than one platform (called “multi-homing”).
     
  • Online markets are typically multi-sided, and involve both direct and indirect network effects.
     
    • In a one-sided market, “consumers” are treated as a single group; in a multi-sided market, consumers with different preferences should be considered separately.
       
    • The benefits of a multi-sided market require participation and coordination of many different groups.
       

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