In this paper, I discuss some of the traditional sources of market power grounded in economics, and how they apply to online advertising markets. I discuss the idea that digital advertising has evolved technologies that are intended to dismantle many early network effects in online advertising. I then discuss how new digital technologies have evolved to reduce switching costs for advertisers. Last, I discuss briefly the question of whether data can be thought of as an essential facility for advertising.
One of the most rapid shifts in the digital economy has been a shift in the regulatory approach of many governments, from a focus on protecting consumers from false claims in advertising to considering digital advertising in the context of antitrust discussions and policy.2
Given the fact that online advertising companies are in the “crosshairs” of antitrust authorities, it is important to examine where their market power (if any) originates. Critics suggest that a combination of network effects, switching costs, and access to large amounts of data would give economics-based explanations for the rise of digital advertising platforms, and that the combination of these factors means that such markets will not “self-correct.”3 In this essay, I evaluate the extent to which such claims hold up from an economics perspective.
II. NETWORK EFFECTS IN ONLINE ADVERTISING MARKETS
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