The Internet of Platforms and Two-Sided Markets: Implications for Competition and Consumers

64 Pages Posted: 20 Mar 2017 Last revised: 14 Aug 2017

See all articles by Rob Frieden

Rob Frieden

Pennsylvania State University - College of Communications

Date Written: March 1, 2017

Abstract

This paper will examine developments in the Internet marketplace that limit and condition access in light of growing incentives to offer prioritized management and delivery at a premium price. Commercially-driven interconnection and compensation arrangements support biased networks rather than open ones. Single ventures, such as Amazon, Facebook, Google and Netflix have exploited, “winner take all” networking externalities resulting in the creation of dominant platforms and walled gardens. Advocates for network neutrality claim that limited and “pay to play” access will threaten a competitive marketplace of ideas by imposing higher costs on unaffiliated, disfavored and cash-poor content providers. Opponents argue that Internet Service Providers (“ISPs”) should have the flexibility to customize services and accrue marketplace rewards for superior products and services.

The paper identifies four types of government responses to price and quality of service discrimination that can exploit, or remedy choke points within the Internet ecosystem where large volumes of traffic have to traverse a single ISP network, or service provider platform. Governments can refrain from regulating access and accept aspects of market concentration as proper rewards to ventures offering desirable content and carriage services. Alternatively, they can impose access neutrality requirements to offset harmful discrimination and market dominance. Between these poles, governments can apply antitrust/competition policy remedies, or rely on expert regulatory agencies to respond to complaints.

The paper examines case studies where ventures have created walled gardens and platforms as an intermediary between consumers and content providers. In some instances, government-imposed remedies offered a solution to a transitory, or possibly nonexistent problem. In other instances, governments have created an administrative process for responding to complaints and resolving valid disputes.

The paper concludes that governments should have a duty to remedy marketplace distortions generated by firms operating platforms in an anticompetitive manner. Rather than anticipate such an outcome, governments should offer remedies when and if they receive valid complaints documenting harm to consumers and competitors. Additionally, regulators should implement robust transparency and truth in billing safeguards that possibly can prevent most conflicts, or help identify practices that harm consumers and competitors.

Keywords: Internet platforms, walled gardens, market power, positive network effects, open Internet, network neutrality

JEL Classification: K23, L43, L82, L86, L96

Suggested Citation

Frieden, Rob, The Internet of Platforms and Two-Sided Markets: Implications for Competition and Consumers (March 1, 2017). Available at SSRN: https://ssrn.com/abstract=2935292 or http://dx.doi.org/10.2139/ssrn.2935292

Rob Frieden (Contact Author)

Pennsylvania State University - College of Communications ( email )

102 Carnegie Building
University Park, PA 16802
United States
814-863-7996 (Phone)
814-863-8161 (Fax)

HOME PAGE: http://www.personal.psu.edu/faculty/r/m/rmf5/

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