Periodic Reporting for period 1 - DIGECON (Competition and regulation in the digital economy)
Reporting period: 2022-09-01 to 2025-02-28
The digital economy is of growing importance for society, but its development challenges the traditional approaches to competition policy and regulation, based on a benchmark of perfect competition that regulatory authorities aim at approaching in relevant markets. In the digital era, economies of scale and scope are more the rule than the exception, network effects and multi-sidedness are pervasive, information and data are shaping industries, the boundaries of relevant markets are becoming blurred, and industry dynamics are on a new scale. These features make the perfect competition benchmark and the focus on individual markets less relevant, calling for a new conceptual framework for the analysis of competition in the digital economy.
The proposed research aims at breaking new ground in this area, so as to shed light for competition policy and regulation. Three related themes are addressed.
From markets to ecosystems. Competition policy traditionally relies on relevant markets, identified through demand- or supply-side substitutability. Yet, in practice, consumers look for a broad range of goods, and their purchasing patterns (e.g. one-stop shopping or single-homing versus multi-stop shopping or multi-homing) are partly driven by transaction costs (e.g. informational frictions). This is particularly so in the digital era, where Internet users look for a broad range of services (communication, search, social interaction, news, streaming, online shopping, gig services, …). This, in turn, induces platforms to develop ecosystems, giving rise to complex patterns of complementarity and substitutability and raising key coordination issues for innovation and development.
Competition for attention. A key feature of online markets is that different types of digital services compete for consumers’ attention. Accounting for consumers’ limited attention can thus help understanding competition, within platforms as well as across platforms. This, however, requires an appropriate modelling of consumer attention, accounting for behavioural biases, network effects and inertia, and of that practices that can be used to steer consumer attention within a platform.
The organization of vertical chains. The digital revolution has sometimes redefined the allocation of tasks within vertical chains. For example, Amazon not only acts as a reseller as well as an agent for third-party sellers; it is moreover vertically integrated in the case of private labels. As a result, platforms are now both competing and cooperating with their partners. These new forms of coopetition call for a better understanding of “who does what” in digital markets.
The proposed research aims at breaking new ground in this area, so as to shed light for competition policy and regulation. Three related themes are addressed.
From markets to ecosystems. Competition policy traditionally relies on relevant markets, identified through demand- or supply-side substitutability. Yet, in practice, consumers look for a broad range of goods, and their purchasing patterns (e.g. one-stop shopping or single-homing versus multi-stop shopping or multi-homing) are partly driven by transaction costs (e.g. informational frictions). This is particularly so in the digital era, where Internet users look for a broad range of services (communication, search, social interaction, news, streaming, online shopping, gig services, …). This, in turn, induces platforms to develop ecosystems, giving rise to complex patterns of complementarity and substitutability and raising key coordination issues for innovation and development.
Competition for attention. A key feature of online markets is that different types of digital services compete for consumers’ attention. Accounting for consumers’ limited attention can thus help understanding competition, within platforms as well as across platforms. This, however, requires an appropriate modelling of consumer attention, accounting for behavioural biases, network effects and inertia, and of that practices that can be used to steer consumer attention within a platform.
The organization of vertical chains. The digital revolution has sometimes redefined the allocation of tasks within vertical chains. For example, Amazon not only acts as a reseller as well as an agent for third-party sellers; it is moreover vertically integrated in the case of private labels. As a result, platforms are now both competing and cooperating with their partners. These new forms of coopetition call for a better understanding of “who does what” in digital markets.
From markets to ecosystems. A first project centers on a key feature of ecosystems, namely, benefits for users stemming from procuring multiple goods and services from the same supplier. These synergies generate efficiency gains, but also confer strategic advantages to ecosystems. Analyzing their implications has led to a novel theory of harm for conglomerate mergers.
A second project focuses on the interplay between platform competition and innovation, in a setting capturing key features of the rivalry between platforms such as Apple/iPhone and Google/Android. The analysis casts doubt on policies designed to foster platform competition, and points to possibly unintended effects of interoperability policies.
A third project studies the interplay between standards and innovation in ecosystems and compares the relative merits of late versus early standard setting, in contexts in which the intrinsic values of the alternative platforms or technologies are initially uncertain, and substantial added value comes from add-ons created by third-party developers.
Finally, I completed or initiated three projects related to antitrust policy towards ecosystems, namely, on predation (a competition concern revived in connection with the emergence of Big Tech giants), on the commitment procedure (said to provide a more effective procedure in rapidly evolving industries), and on the interplay between platform interoperability and innovation by third-party complementors.
Competition for attention. The research here has so far focused on steering practices. A first project has centered on steering by a monopolist through the positioning of its products. A second project explores the implications for price discrimination. Preliminary findings suggest that a firm can indeed find it profitable to charge different prices for otherwise identical products, and to show first the pricier products.
The organization of vertical chains. A first project aims to predict “who deals with whom”. The first findings are encouraging, in the sense that the predictions are sensible (e.g. higher substitution calls for narrower networks). We are currently studying the implications for merger control.
A second project focuses on digital marketplaces such as Amazon, which use the marketplace to compete with third-party suppliers. This dual role – referee and player – has prompted the concern that the platform can use the information on sales to identify successful products and introduce me-too private labels, thus exposing innovative sellers to hold-up. The analysis suggests that the threat of such hold-up may also provide a useful tool for disciplining successful sellers. This is because, the platform, acting as a “private regulator”, has an incentive to reach a balance between attracting consumers and sellers. By contrast, each individual seller tends to consider the consumer base as given, and thus has an incentive to exploit the market power generated by successful products. We find that, while the objective and behavior of a private regulator differs from that of a public one, such private regulation benefits both consumers (by disciplining sellers) and sellers (by expanding the consumer base).
A third project has focused on the resilience of supply chains. Specifically, it is shown that “all-receive” tenders, in which every supplier bidding below the reserve is paid what it asks for, constitutes a better procurement tool than traditional first-price or second-price tenders when suppliers can be subject to liquidity shocks leading to bankruptcy.
A second project focuses on the interplay between platform competition and innovation, in a setting capturing key features of the rivalry between platforms such as Apple/iPhone and Google/Android. The analysis casts doubt on policies designed to foster platform competition, and points to possibly unintended effects of interoperability policies.
A third project studies the interplay between standards and innovation in ecosystems and compares the relative merits of late versus early standard setting, in contexts in which the intrinsic values of the alternative platforms or technologies are initially uncertain, and substantial added value comes from add-ons created by third-party developers.
Finally, I completed or initiated three projects related to antitrust policy towards ecosystems, namely, on predation (a competition concern revived in connection with the emergence of Big Tech giants), on the commitment procedure (said to provide a more effective procedure in rapidly evolving industries), and on the interplay between platform interoperability and innovation by third-party complementors.
Competition for attention. The research here has so far focused on steering practices. A first project has centered on steering by a monopolist through the positioning of its products. A second project explores the implications for price discrimination. Preliminary findings suggest that a firm can indeed find it profitable to charge different prices for otherwise identical products, and to show first the pricier products.
The organization of vertical chains. A first project aims to predict “who deals with whom”. The first findings are encouraging, in the sense that the predictions are sensible (e.g. higher substitution calls for narrower networks). We are currently studying the implications for merger control.
A second project focuses on digital marketplaces such as Amazon, which use the marketplace to compete with third-party suppliers. This dual role – referee and player – has prompted the concern that the platform can use the information on sales to identify successful products and introduce me-too private labels, thus exposing innovative sellers to hold-up. The analysis suggests that the threat of such hold-up may also provide a useful tool for disciplining successful sellers. This is because, the platform, acting as a “private regulator”, has an incentive to reach a balance between attracting consumers and sellers. By contrast, each individual seller tends to consider the consumer base as given, and thus has an incentive to exploit the market power generated by successful products. We find that, while the objective and behavior of a private regulator differs from that of a public one, such private regulation benefits both consumers (by disciplining sellers) and sellers (by expanding the consumer base).
A third project has focused on the resilience of supply chains. Specifically, it is shown that “all-receive” tenders, in which every supplier bidding below the reserve is paid what it asks for, constitutes a better procurement tool than traditional first-price or second-price tenders when suppliers can be subject to liquidity shocks leading to bankruptcy.
From markets to ecosystems. The project on user synergies and conglomerate mergers has led to a first draft posted on my TSE webpage; a more complete draft is under preparation. The project on the interplay between platform competition and innovation has led to a paper posted on my TSE webpage and submitted to a scientific journal. The project on the interplay between standards and innovation is still ongoing.
The project on predation has led to a forthcoming publication in the Rand Journal of Economics. The project on the commitment procedure has led to a working paper posted on my webpage; a revision is being prepared for submission. The project on the interplay between platform interoperability and innovation by third-party complementors is still ongoing.
Competition for attention. The project centered on steering through positioning has led to a publication in the Journal of Political Economy. The project on price discrimination is still in progress.
The organization of vertical chains. The projects on endogenous channel networks and on the dual role of digital marketplaces are still ongoing. The project on the resilience of supply chains has led to a paper which has been submitted to a scientific journal.
The project on predation has led to a forthcoming publication in the Rand Journal of Economics. The project on the commitment procedure has led to a working paper posted on my webpage; a revision is being prepared for submission. The project on the interplay between platform interoperability and innovation by third-party complementors is still ongoing.
Competition for attention. The project centered on steering through positioning has led to a publication in the Journal of Political Economy. The project on price discrimination is still in progress.
The organization of vertical chains. The projects on endogenous channel networks and on the dual role of digital marketplaces are still ongoing. The project on the resilience of supply chains has led to a paper which has been submitted to a scientific journal.