Platform Competition in Online Digital Market

Abstract

The Internet has dramatically changed social and industrial dynamics. Two decades after the rise of the modern Internet, more and more major businesses and industries are being run on software and delivered as online services. On one hand the Internet is generating an immense economic value, on the other hand it has a disruptive impact on a large number of markets. This paper consists in both economic theory and policy analysis regarding the internet industry. The former aspect refers to network effects, product differentiation, multi-sided platform, etc.; with the latter we discuss the potential market power, consumer lock-in effect, incentives for innovation, etc. We first summarized the main features in the digital era: direct and indirect network effects, economies of scale, differentiated services accessed by internet users, etc. Consequently a market structure exhibits both “superstar” effects and “long tail” effects. Considering the success of some large internet player and the potential competition concerns, the paper discusses the role of dynamic competition, in the lens of market competition. The study applies also the new tools and models of economic analysis relevant to the internet and the audiovisual market, such as multi-sided platform, dynamic competition, etc. We claim that some indicators of market power in a single-sided market have to be reviewed under multi-sided scenario. Besides addressing the importance of competition, this paper emphasizes that the ideal regulatory regime should safeguard and encourage innovation. Rapid innovation and its adaptation is no doubt the central feature of the internet, and is also the main driver of economic growth.