Posted by Social Science Research Network
Why the Dynamics of Competition for Online Platforms Leads to Sleepless Nights But Not Sleepy Monopolies
By David S. Evans (Global Economics Group)
Abstract: Recent claims that online platforms have secured permanent monopolies, protected by barriers to entry from network effects and stockpiles of data, and should be the focus of intense antitrust and regulatory scrutiny, are inconsistent with the economics, technology, and history of online competition. Online platforms face dynamic competition as a result of: disruptive innovation that provides opportunities for entry; competition from online platforms that have secured a toehold in one area but compete across multiple areas; the fragility of category leadership resulting from the fact that network effects are reversible and entry costs are low; and the prevalence of ad-supported models which result in seemingly disparate firms competing for consumer attention and advertiser dollars. The last two decades of online platform competition demonstrate that category leaders are often toppled, unexpectedly, through some combination of technological change, business model innovations, and cross-platform rivalry. The palpable threat of displacement prevents online platforms from taking their customers for granted. The history of online platform competition also provides empirical refutation of the proposition that data on users protects platform leaders from competition or puts an insurmountable obstacle before entrants. All this points to online platforms facing sleepless nights since any online platform that tries the quiet life of monopoly risks catastrophe.