Let the Right 'One' Win: Policy Lessons from the New Economics of Platforms

35 Pages Posted: 16 Nov 2014 Last revised: 9 Dec 2014

E. Glen Weyl

Microsoft Research New York City; Princeton University - Julis Rabinowitz Center for Public Policy and Finance

Alexander White

Tsinghua University - School of Economics & Management

Date Written: December 8, 2014

Abstract

Many of the leading controversies in competition policy in the last two decades, especially those surrounding the Microsoft case, reflect the challenges posed by platform industries. Unfortunately, too often economists and policymakers have drawn the wrong lessons when thinking about such industries. Central to our analysis is a more realistic view of the process of consumer coordination. Platforms often use “usage revenue later” strategies to ensure that consumers coordinate on their platform. This greatly mitigates the possibility of inefficient lock-in or excessive dominance by a leading platform, but it makes inefficient fragmentation a greater danger. Thus regulation, rather than competition policy, may be more appropriate in addressing potential market failures arising in platform industries.

Keywords: platforms, network effects, lock-in, fragmentation, excessive entry, winner-takes-all, heterogeneity

JEL Classification: D42, K21, L12, L43, L51, L86, L96

Suggested Citation

Weyl, Eric Glen and White, Alexander, Let the Right 'One' Win: Policy Lessons from the New Economics of Platforms (December 8, 2014). University of Chicago Coase-Sandor Institute for Law & Economics Research Paper No. 709. Available at SSRN: https://ssrn.com/abstract=2524368 or http://dx.doi.org/10.2139/ssrn.2524368

Eric Glen Weyl (Contact Author)

Microsoft Research New York City ( email )

641 Avenue of the Americas
7th Floor
New York, NY 10011
United States
8579984513 (Phone)

HOME PAGE: http://www.glenweyl.com

Princeton University - Julis Rabinowitz Center for Public Policy and Finance ( email )

Princeton University
Princeton, NJ 08544-1021
United States

Alexander White

Tsinghua University - School of Economics & Management ( email )

Mailbox A-44
Weilun Building
Beijing, 100084
China

HOME PAGE: http://alex-white.net

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