Competition Policy in the Internet-Based Industries: Do We Need to Reboot the Debate?

Posted by Social Science Research Network

Competition Policy in the Internet-Based Industries: Do We Need to Reboot the Debate?

Ignacio De Leon (Inter-American Development Bank)

Abstract:      This paper exposes the limits of competition policy in the assessment of Internet-based industries. These limits are traceable to a static/structural paradigm in neoclassical economics that finds innovation an alien concept that is difficult to grasp and analyze under the basic equilibrium tenets of this mainstream paradigm. Accordingly, Internet-based industries run through online platforms are perceived by competition analysts awkwardly; two-sided markets do not align well to the conventional market power assessment done under competition policy. Proper assessment of disruptive or incremental innovation requires changing the analytical framework in order to make the causes of innovation taking place at digital platforms visible. The main determinant of innovation is the appropriability that innovators develop through dynamic capabilities and strategic use of Intellectual Property. Under this assessment, digital platforms fulfill an important welfare-enhancing role, in promoting reducing the search for information costs, stimulating further innovation by slicing, apportioning and recombining customers, as well as several other long run benefits.

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