The Economics of Platforms: A Theory Guide for Competition Policy

Abstract

Over the past 20 years, the development of the internet has transformed the global economy and had an impact on almost every aspect of our lives. Designed primarily as a means of communication, the internet has revolutionized the way we produce and exchange services and goods, whether they are digital or not. A simple comparison of the world’s most valuable companies in 2007 and in 2018 is a clear testimony of this change. Not only have standard brick-and-mortar firms progressively disappeared from the list, but companies of a new kind have emerged at the top. Since the development of computers in the 1990s, tech giants like Apple and Microsoft have taken over, at least partially, from more traditional firms operating in banking, insurance or the oil industry. But the past 15 years have seen another wave of companies – like Amazon, Alibaba, Baidu, Facebook, Google, Airbnb, Booking.com or Uber, to name a few – whose business model is mainly to facilitate interaction between individuals and/or businesses. These companies rely on different business models but they belong to the same general category, now known as platforms, and share many characteristics. The objective of this report is to discuss these common features in order to explain the functioning of markets with platforms. The main focus of this report will be on whether competition can be effective.

Keywords: Paltform, digital, competition policy

JEL Classification: L00, L1, L4, L12, L13, L14, K21