Platforms and Ecosystems: Enabling the Digital Economy

Competition Policy and Antitrust and Innovation and Economic Growth

Article Snapshot

Author(s)

Michael G. Jacobides, Arun Sundararajan and Marshall Van Alstyne

Source

World Economic Forum Briefing Paper, February, 2019

Summary

Digital platforms alter the structure of markets and create complex business ecosystems. Platforms challenge traditional methods of management and regulation.

Policy Relevance

Digital platforms require new approaches to business strategy and governance.

Main Points

  • Digital platforms like Amazon, Lyft, and Zillow "invert the firm," growing rapidly by shifting production from inside the firm to outside.
     
    • Platforms grow without incurring costs of production.
       
    • Executives must shift from controlling resources to orchestrating partners' activity.
       
  • Several factors help predict when a firm will become a platform; this transformation is more likely when:
     
    • Information that users can share adds substantial value.
       
    • The sector is lightly regulated and can tolerate errors (shopping, but not nuclear power).
       
  • Platforms succeed by first creating value for users to gain critical mass, then by relying on network effects to capture a share of that value and monetize the platform’s services.
     
  • Digital workflows and data flows can be altered easily and quickly, allowing the redesign of industries and creating new business ecosystems.
     
  • With platforms, "winner takes all" dynamics may make it harder for later entrants to succeed; however, the unique features of a platform, not early entry, best explain a platform’s success.
     
  • Regulators are not well equipped to address the behavior of digital platforms; the "consumer welfare" standard in antitrust is insufficient.
     
  • Hierarchical firms will give way to platforms and ecosystems, and the burden of facilitating trust and governing commercial conduct will shift onto platforms.
     
  • Key factors in platform governance include the degree to which a platform will be neutral and open, the level of transparency, the control of algorithmic bias, property rights in data, and due process rules to resolve disputes and complaints.
     
  • Platforms should be viewed as regulatory partners rather than as the target of regulation.
     

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