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08.06.2018

No. 427: Market observatory in the digital economy – A model for the analysis of online platforms

No. 427: Market observatory in the digital economy – A model for the analysis of online platforms

(full version only available in German)

Authors: Christian Hildebrandt, René Arnold

Summary

For several years, online platforms have reached strong positions in some of the most important areas in the digital economy. They reduce search and transaction costs while also increasing economic efficiency and they can shape markets both online and offline. Because of powerful economic mechanisms such as network effects and feedback effects with different impacts and interdependencies, there are tendencies towards monopoly in cases of digital platforms such as search engines, social networks and market places. Thus, in recent years some online platforms have gained market dominance.

According to this background it seems to be appropriate and necessary to establish an ongoing market observatory of online platforms in order to be able to analyse these complex business models. On the one hand, this enables insights on market structures and on the other hand, the collection of information may enable the identification of harmful effects for competition and end users, which can be used as a basis for faster interventions of competition and regulatory authorities.

As a conceptual model in terms of building blocks, the Data Revenue Attention Model (DRAM) uses a functional perspective on online platforms as it provides a structured approach for an economically intuitive analysis. The idea of a market observatory of the online platform economy is supported by the DRAM such that it helps to focus on the crucial aspects and effects within each building block. The DRAM is built such that the analysis of online platforms can be conducted in a timely manner while keeping focus. The DRAM has not the aim of collecting information and building evidence that can be used in legal procedures of competition and regulatory authorities.

In this context there is a key insight gained during this research project. For a successful systematic market observatory it is helpful to further develop the term and concept of market power in an interdisciplinary way consisting of economists, lawyers and computer/data scientists. There is an unprecise mixture of the "dominant market position" and the "abuse of market power" leading to a blurry definition of market power in the internet economy because of its unique features. While focussing on the relationship between a company and the consumers it is expedient to also strengthen the focus further with respect to the relationship of a platform company and its business users, i.e., the potential for crowding out and discrimination.

Discussion Paper (in German language) is available as pdf-file and can be ordered for a fee of 7 Euro incl. VAT.

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