Digital Platforms and Antitrust
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ARTICLE SUMMARY
Digital platforms create value for users and make markets more efficient. But some platforms gain excessive market power. Antitrust agencies and regulators must adopt new methods to preserve the benefits of platforms but reduce harm.
POLICY RELEVANCE
Traditional antitrust methods fail to address concerns about digital platforms. Regulators should support transparency and data sharing.
KEY TAKEAWAYS
- Digital platforms connect two sides of a market (usually sellers and buyers), lowering costs and creating significant value for participants.
- A system enjoys "network effects" when it becomes more valuable to users as the number of users grows; platforms often create value for users because of network effects.
- Traditional antitrust methods may fail to address concerns that a digital platform enjoys too much market power.
- When digital goods are offered free and measures of service quality are lacking, observers struggle to assess the level of competition.
- Traditional merger reviews will not block a platform’s acquisition of a startup that could become a serious rival.
- When digital goods are offered free and measures of service quality are lacking, observers struggle to assess the level of competition.
- Digital platforms could harm consumers in several ways:
- If a platform becomes the only channel by which producers can reach consumers, platforms could charge excessive prices for advertising.
- Algorithmic pricing can facilitate tacit collusion and price fixing.
- Platforms can use data to manipulate users into accepting low-quality goods.
- Once a platform gains market power, innovation might slow as rivals are discouraged.
- If a platform becomes the only channel by which producers can reach consumers, platforms could charge excessive prices for advertising.
- Antitrust agencies should tailor actions against digital platforms to satisfy these criteria:
- The platforms' creation of value from network effects should not be reduced.
- The platform should be governed by transparent rules, and value should be distributed fairly among participants.
- Artificial entry barriers should be eliminated, fostering dynamic competition.
- The platforms' creation of value from network effects should not be reduced.
- To estimate the value provided by a platform, regulators should ask users how much they would accept to give up the platform; one survey shows that users would give up Facebook for $48, suggesting that consumers have derived $231 billion in value from Facebook since 2004.
- Merger authorities should consider whether two firms are likely to become direct competitors if the merger is not allowed; if the answer is yes, a merger may make consumers worse off.
- Regulators should regularly engage with platforms to address concerns about tacit collusion, as platforms are better positioned to detect abnormal pricing.
- Ex post antitrust measures should be used as a last resort when ex ante regulation fails; regulation should:
- Support data sharing, to ensure that consumers can use multiple platforms and switch between platforms, and to give small firms access to data.
- Require platforms to follow nondiscrimination rules for suppliers, so that a platform’s own services do not have an advantage.
- Support data sharing, to ensure that consumers can use multiple platforms and switch between platforms, and to give small firms access to data.
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About Geoffrey Parker
Geoffrey Parker is Professor of Engineering at the Thayer School of Engineering at Dartmouth College where he also serves as Director of the Master of Engineering Management Program. He is also a Visiting Scholar and Research Fellow at MIT’s Initiative for the Digital Economy. Professor Parker has made significant contributions to the field of network economics and strategy as co-developer of the theory of “two-sided” markets. His current research includes studies of distributed innovation, business platform strategy, and technical/economic systems to integrate renewable energy.
See more with Geoffrey Parker
About Marshall Van Alstyne
Marshall Van Alstyne is the Questrom Professor in Management, Professor of Information Systems, and Department Chair of Information Systems at Boston University's Questrom School of Business. He is one of the leading experts in network business models. Professor Van Alstyne conducts research on information economics, covering such topics as communications markets, the economics of networks, intellectual property, social effects of technology, and productivity effects of information.
