The rapid growth in digital platforms and information technology are greatly affecting how consumers discover and purchase products, making online markets the most attractive advertising media for firms. The business model of most digital platforms where online ad is sold is that of a two-sided market, where one group has preferences regarding the number of users in the other group. This positive cross-side network effect endows dominant platforms with huge comparative advantages and this “winner takes all” tendency raises antitrust concerns. To present supplemental thoughts on how to enhance competition in digital markets, we study the recent changes involving search advertising related to the EU Commission Google Android case.
By Francesco Decarolis & Muxin Li1
With the rapid development in information technologies, digital platforms have flourished and reshaped the economies. The expansion in digital user base has been further accelerated since 2020, when we all experienced the global COVID-19 pandemic. The social distancing rules and lockdown policies during this crisis pushed a large majority of users to switch from in person to online activities, such as online meetings and shopping. Therefore, the proper design of digital platforms, as well as the mechanisms through which they compete, and, also, how competition is realized within the different platforms, is crucial to avoid waste and enhance social welfare.