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Why the Dynamics of Competition for Online Platforms Leads to Sleepless Nights But Not Sleepy Monopolies

37 Pages Posted: 3 Aug 2017 Last revised: 25 Aug 2017

David S. Evans

Global Economics Group; University College London

Date Written: July 25, 2017

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.

Keywords: Online Platforms, Internet Giants, Dynamic Competition, Attention Markets, Digital Economy, Antitrust for Digital Economy, Competition Policy for Digital Economy, Competition Policy for Online Platforms, Indirect Network Effects, Multisided Platforms

JEL Classification: D21, D22, D42,D43, K21, L12, L13, L26, L41, L42, L86, L96, O31

Suggested Citation

Evans, David S., Why the Dynamics of Competition for Online Platforms Leads to Sleepless Nights But Not Sleepy Monopolies (July 25, 2017). Available at SSRN: https://ssrn.com/abstract=3009438

David Evans (Contact Author)

Global Economics Group ( email )

111 Devonshire St.
Suite 900
Boston, MA 02108
United States

University College London ( email )

Gower St
London WC1E OEG, WC1E 6BT
United Kingdom

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