How Internet Platform Intermediaries Operate

16 Pages Posted: 14 Aug 2018 Last revised: 16 Aug 2018

See all articles by Rob Frieden

Rob Frieden

Pennsylvania State University - Dickinson School of Law; Pennsylvania State University, Bellisario College of Communications and Penn State Law

Date Written: July 30, 2018

Abstract

This paper examines how Internet ventures operate as intermediaries serving both upstream sources of content and applications as well as downstream consumers. Alibaba, Baidu, Amazon, Facebook, Google, Netflix, Tencent and other Internet “unicorns” have exploited “winner take all” networking externalities quickly accruing billion-dollar valuations. Courts and regulatory agencies acknowledge the substantial market shares these ventures have acquired, but most refrain from imposing sanctions on grounds that consumers accrue ample and immediate benefits when platform operators use upstream revenues to subsidize downstream services. Consumers also gain when intermediaries eschew short term profits to acquire greater market share and “shelf space.” Governments may over-estimate the opportunities for consumers to migrate to alternatives but underestimate the harms to competition and consumers occurring on either, or both sides of an intermediary’s platform. The paper considers how governments can respond to the onset of price and quality of service discrimination within the Internet ecosystem. They can refrain from regulating access and tolerate market concentration as proper rewards to ventures offering desirable services. Alternatively, they can impose a variety of sanctions for competition policy violations, unfair trade practices, consumer harms and unreasonable access discrimination. Between these poles, courts or expert regulatory agencies can use a narrower focus providing remedies after considering the merits of complaints from aggrieved parties. The paper concludes that most governments have failed to revise and recalibrate tools that examine potential marketplace distortions and the potential for harm to competition and consumers. Regulatory agencies and courts have generated false positives, resulting in market intervention where no major problem exists, but also false negatives, where undetected major problems cause harm without remedy. The paper recommends a recalibration of market definition and analysis, including examination of both downstream and upstream impacts.

Keywords: Two-Sided Markets, Internet Platforms, Internet Intermediaries, Positive Networking Externalities, Winner Take All

JEL Classification: K21, K23, L14, L16, L42, L43, L44, L51, L86, O32, O38, Z11, Z18

Suggested Citation

Frieden, Rob, How Internet Platform Intermediaries Operate (July 30, 2018). Available at SSRN: https://ssrn.com/abstract=3222992 or http://dx.doi.org/10.2139/ssrn.3222992

Rob Frieden (Contact Author)

Pennsylvania State University - Dickinson School of Law

Lewis Katz Building
University Park, PA 16802
United States

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

Pennsylvania State University, Bellisario College of Communications and Penn State Law ( 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/

Register to save articles to
your library

Register

Paper statistics

Downloads
69
Abstract Views
317
rank
330,274
PlumX Metrics