How to Level the Digital Platform Playing Field
New research explains why data redistribution is critical to a more competitive platform ecosystem
By Paula Klein
As digital marketplaces and platforms continue to dominate many market sectors, the lack of competition is a growing concern: Do the giants have too much control? Should governments intervene, as they do in the EU? So far, U.S. corporate resistance to both government regulations and open information sharing seem to favor maintaining the status quo.
However, new research makes the case that information-sharing among platform competitors can actually benefit corporate innovation and economic welfare. Further, incentivizing collaboration and transparency might ease data bottlenecks and correct market failures.
A recently published research paper explains how this can be achieved. The authors, Georgios Petropoulos, a research associate at the MIT IDE and the MIT Sloan School of Management, Bertin Martens, Geoffrey Parker, and Marshall W. Van Alstyne, explore the implications of a regulatory intervention that enforces a mandatory information-sharing mechanism. They argue that such a mechanism could ensure market efficiency and higher welfare standards.
Large platforms can still operate and succeed, but consumers would have more chances to visit alternative platform providers and interact with more sellers.
At a recent IDE seminar, Petropoulos presented the paper and said that platform market performance can largely be based on who owns the most data. “Better information leads to better products and services for the platform,” he said. “But it also can help to create better algorithms because the data is used as a training set,” to build customer recommendations, personalization, and relationships.
Data Rules
Having greater quality and variety of data improves the algorithms and makes the platform more attractive — and therefore, more difficult for smaller competitors.
Petropoulos sees data distribution instead of data concentration spurring competition and easing market entry, which he calls a data bottleneck. “A platform can be super-successful, but it keeps all the information for itself,” he said, adding, “and that can generate market failures.”
As an example, Google and Facebook have enormous market power. “That drives up the prices advertisers have to pay,” Petropoulos said. Here’s why: When a platform monopolizes the demand side, it can charge a very high price to the supply side based on unique access to information that creates network value.
The research findings imply a need for “a mandatory information-sharing mechanism from big tech to their competitors.
That helps the latter improve their network value proposition and become more competitive in the market,” Petropoulous said. But this mechanism would also have to emphasize data value and ownership.
Price Regulation
The price of information in this sharing mechanism matters, too, Petropoulos said. “Price regulation over information sharing, such as the one applied in the EU, increases the incentives of big platforms to collect and analyze more data,” he said. But, he added, “it has ambiguous effects on competitors that depend on the exact relationship between information and network value.”
The research paper develops a product-differentiation model of competition between two platforms to study private and social incentives to information-sharing. It concludes that
the EU model, as well as some U.S. antitrust proposals, are a good start. But they require further adaptation and allowances to accommodate providers and recognize the huge role of data concentration.
Four key points are highlilghted in the study:
1. The problem of data concentration — where a few platforms get the most value from their data advantage — leading to market failures
2. The need for data value redistribution
3. More symmetric data and information structures lead to more competition and efficiency
4. Competition benefits platform consumers and business users.
Read the full paper, Platform Competition and Information Sharing.
