This ERC project comprises three groups of sub-projects addressing different but related questions about competition in digital markets. Projects in the first group analyze how the competitive forces in the market, coupled with technological innovation, are transforming the competitive landscape of digital advertising. Advertising in the internet era is mostly about capturing the attention of consumers browsing the web. This requires both detailed data to tailor the ad to the right consumers and fast algorithms to bid on the online auction platforms where ad space is sold. These needs have given rise to a major shift from advertisers' individual bidding to delegated bidding by highly specialized intermediaries. In turn, by concentrating demand of many advertisers within a few large intermediaries, this evolution has triggered the emergence of buyer power as a countervailing force to the highly concentrated supply of online ad. Thus, while supply is still mostly in the hands of a single firm, Google, its market power has been at least in part curtailed by intermediaries. But are advertisers benefiting from this evolution or is concentration among intermediaries creating a double marginalization problem? This crucially hinges on the functioning of the intermediary market and, specifically, on the contracting between advertisers and intermediaries. The first group of projects explores these problems by using new data and contributing to understanding whether in one of the most highly concentrated and economically relevant digital platforms the market is fixing itself.
Public interventions, in the form of ex ante regulation or ex post antitrust sanctions, represent a different and hotly debated response to the concerns on competition in digital markets. But what would be the proper way for public regulators to foster competition in digital platforms? Is what we know about regulating natural monopolies that sell to rational consumers (Viscusi, Harrington and Sappington, 2018) adequate for digital platforms? Or should we consider these as environments that are apt for competition – not being natural monopolies – but also characterized by users that do not conform with the homo economicus model? These are the types of questions explored in the second group of projects. A key feature is the attention to combine how users’ biases - such as a default effect (Thaler and Sunstein, 2008) for the search engine used – interact with the market structure and, hence, with how an effective public intervention should be organized.
Finally, a third set of questions addressed by the third group of projects concerns the interplay of competition and privacy. In several digital platforms – most notably in those selling products like apps, movies or music – sellers’ revenues often come from three sources: charging a price to consumers, exposing them to advertisements (and, hence, earning from the sale of ad space) or acquiring their data. In the latter case, the revenues are typically produced by the subsequent resale of the data to advertisers and other specialized intermediaries. If until recently consumers seemed relatively unconcerned about the value of their personal data, there is mounting evidence of a growing price that consumers are willing to pay to preserve their privacy. However, not all platforms give consumers the right to their data (for instance, opting out of personalized ads is not an option on Facebook) and there are many open questions regarding what is the best market design for “attention oligopolies” (Prat and Valletti, 2019) and digital platforms more broadly.
