The effect of platform integration on competition and innovation

June 21, 2021
Two contrast steel architecture adjacent building, London, UK

Digital companies have profoundly reshaped the economy. They have opened new distribution channels, reorganized supply chains, transformed how businesses reach their customers, and affected people not only as consumers but also as citizens. Not surprisingly, as the reach of these companies grows, so does the level of public scrutiny over their business practices. Recently, several policymakers and commentators have expressed concerns about many digital companies’ dual role as marketplaces used by third-party sellers and as sellers on the same marketplace.  For example, platforms have both the ability to steer customers towards their own products and to appropriate, through imitation, the profits associated with the most successful products on their platforms. Both practices could harm consumers. In light of these concerns, some have proposed a structural separation, a prohibition for the most prominent digital platforms to play both the role of the player and umpire.

While these are not new concerns, there is a burgeoning economic literature which studies the incentives of platforms to move up or down the supply chain and the effect of such entry on prices, innovation, and ultimately consumer welfare. In this article Andrea Asoni discusses some of the most recent studies and what they teach us about the effects of an outright ban on platform integration. The economic literature suggests that the effects of platform integration depend on the characteristics of the platforms and the industry, and that platforms acting in their own self-interest might be aligned with and ultimately benefit consumers, competition, and innovation. These findings suggest that a fact-based, case-specific approach to the analysis of platform integration is better than a broad-based policy that may not fit all circumstances. Hence, legislation or regulation imposing a general ban on platform integration could end up doing more harm than good.

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