Illusions of Dominance?: Revisiting the Market Power Assumption in Platform Ecosystems

Abstract

It is widely assumed that platform technology markets are inherently prone to converge on monopoly outcomes in which a single firm or a handful of firms enjoy market power due to a combination of network effects and switching costs. This assumption supports both proposed and enacted regulatory interventions under competition law that place significant limitations on a wide range of practices by platform incumbents. In this paper, I revisit this market power assumption from theoretical and empirical perspectives. As a matter of theory, informed by selected real-world examples, I show that the conditions under which a platform incumbent can plausibly exercise market power are substantially more demanding than is commonly assumed. As a matter of empirics, I provide evidence from the food-delivery and cloud-computing markets, showing that widespread attributions of market power to leading platforms in these markets lack persuasive evidentiary support. Contrary to conventional wisdom, both theory and evidence cast significant doubt on the standard view that platform ecosystems are prone to converge on entrenched monopolies that justify preemptive intervention by competition regulators.