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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; Yale University

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, E. 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 ( email )

One Memorial Drive
Cambridge, MA 02142
United States
(857) 998-4513 (Phone)

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

Yale University ( email )

28 Hillhouse Ave
New Haven, CT 06520-8268
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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