Separation: A Cure for Abuse of Platform Dominance?

Abstract

Political candidates, legislators and academics have made proposals to separate services provided by dominant digital platforms from activities that rely on these services. Although the platforms have different economic and technical characteristics, common themes that motivate these proposals are the incentives of platforms to favor their own products and to suppress investment by imitating rivals. As has been shown in other contexts, this paper demonstrates that structural separation does not eliminate incentives for platforms to discriminate in the provision of service quality. Furthermore, the ability of vertically integrated platforms to imitate rivals does not necessarily harm consumers. Structural or functional separation can address some complaints lodged against activities by dominant platforms, but experience demonstrates that separation requirements are difficult to administer and can harm innovation. Public policy should rely on a mix of antitrust enforcement and regulation to address concerns about privacy, data security, and potential influence of major platforms in politics and the media, as well as the abuse of market power.

Keywords: platforms, antitrust, market power, separation

JEL Classification: L12, L41, L86