What Drives and Defines Digital Platform Power?
The seemingly inexorable growth of the leading platform businesses coupled with the growing wave of complaints about platform businesses’ anti-competitive behavior has drawn attention to the conditions and strategies that give rise to dominance in digital marketplaces. A platform can impose itself as a necessary trading partner, and become a gatekeeper between its consumers and sellers, when these participants do not have alternative channels in which to transact and cannot viably opt-out altogether. Such conditions preclude competition, allowing the dominant platform to exclude sellers or rival platforms from providing certain services and to impose an excessive charge. The harm flows to consumers in the form of higher prices as well as lower quality, less diverse, and less innovative products.
The growing body of work on the drivers of value and competitive advantage in platform businesses, coupled with similar research on the conditions that leave platform participants (buyers and sellers) without alternative channels in which to transact, can be distilled into practical criteria for identifying platform power in major digital marketplaces. The criteria include: (1) Does the platform have exclusive access to a large body of consumers? (2) Is it difficult for users to multi-home or switch platforms? (3) Can sellers be replaced without substantial harm to the platform? (4) Do users benefit from network effects, requiring sellers to multi-home across platforms? (5) Does the platform have an established set of buyers and sellers, creating an effective entry barrier to rival platforms?
Read the full paper here.