Platforms' Treacherous Turn

Abstract

Digital platforms can take a ‘treacherous turn’, where they initially set advantageous terms and conditions only to reverse them once demand has become sticky. Transaction costs economics has long recognized the harm from such opportunism, especially in the presence of relation-specific investments. Such investments are the norm in the platform economy, where opportunism is being rediscovered under labels such as ‘open early, closed late’. Despite economic recognition of the phenomenon, however, antitrust law is lagging behind. Its micro-rules of liability, for example on excessive pricing and refusal to supply, do not adequately capture treacherous turn strategies; neither do related rules from contract law or sectoral regulation. Hence, we propose adopting a targeted quasi-per se rule to fill the treacherous gap. Unless the platform can advance a plausible business justification, the rule imposes a remedy freezing the previous terms in place.

Keywords: digital platforms, relation-specific investments, opportunism, open early closed late, disruption of supply

JEL Classification: K20, K21, L40, L41