1. Regulation of digital and intangible assets
How digital platforms disrupt markets
Presented To
ACCC & AER Regulatory Conference
Presented By
Eliana Garcés
26-27 July 2018

2. Agenda What is a digital platform? Markets on digital platforms
Definition
Economic characteristics
Data
Markets on digital platforms
Efficiencies and barriers to entry
Platform intermediation
Data disruption
Take away points

3. What is a digital platform?

4. What is a digital platform? Definition
There is no definition of ‘digital platform’
One proposal
“A system of technology and connectivity standards that allows a variety of users to interact on a digital support in a variety of ways such as communicating, sharing content and information, or perform commercial transactions”
Regulators often narrow the scope of interest
Internet based
Commercial
B2C intermediary (latest EC regulation)

5. What is a digital platform? Economic Characteristics
Platform exhibit very large reductions in transaction costs
Low search costs
Cheaply interconnects a very large amount of people (hundreds of millions)
Information costs
Information on parties, products,
price comparisons, localized searches
Communication costs
Easy to use interfaces
Processing costs
Payment, delivery, posting, sharing, publishing

6. What is a digital platform? Economic Characteristics
Network effects
Each user’s valuation of the service increases with the total number of users (of same or different type)
Increasing returns to scale
The service becomes better and more efficient
as the size of the platform increases
Economies of scope
Offering a service becomes cheaper or better if some services are already offered

7. What is a digital platform? Economic Characteristics
Economic characteristics work
to amplify success
‘Know how’ and ability to realize efficiencies plays an important role in platform success
Successful platforms can grow fast and can ‘conquer’ a market
Successful platforms can often enter new activities efficiently
Users may experience economies of scope when using services on the same platform

8. What is a digital platform? Data
Platforms can easily collect data
Tracking on own sites
Provided by user (logged environments, user generated content)
Collected by tracking on third parties sites
Acquired from data sellers
Platforms can monetize data
Targeted advertising
Targeted content, targeted offers
Price discrimination
Forecasting, planning, market intelligence
Resale of data
Innovation input (AI)

9. What is a digital platform? Data
Data has an increasing impact in platform performance
Data can exhibit increasing returns to scale
Data is a source of economies of scope
Not all data is equal (Veracity, velocity, volume, value)
Data analytics capabilities matter
Platforms vary in their reliance on data for monetization
Business models will be impacted by the importance of data in profit generation (Apple iOS vs Android)

10. Markets on digital platforms

11. Markets on digital platforms Efficiencies and barriers to entry
Platforms can generate a virtuous loop that may be difficult to exactly replicate
Platform service
(Search, publishing, shopping)
Data collection
Service Improvement

12. Markets on digital platforms Efficiencies and barriers to entry
Regulators considering ‘entry points’ to address unfettered expansion
Data access and control – Example: more user control
Assessment of data intensive mergers
Possible anticompetitive effects of tying of services
Can also argue dynamic competition is working well

13. Markets on digital platforms Platform intermediation
Platforms may become powerful intermediaries
and may also compete with business users
Platform
(Search, publishing, shopping)
data
Own service
Data &
operation services ?
Rival service
Customers

14. Markets on digital platforms Platform intermediation
Regulators looking at possible abuse of gatekeeping role
Fair terms in B2B relations
Pricing restrictions, contractual terms, access to efficiencies, placement
Fairness in user relations, social considerations
Algorithmic ranking and decision making on what gets promoted
Search results , retail offers, news content

15. Markets on digital platforms Data disruption
Data monetization disrupts business models
‘Atypical’ commercial practices to incentivize engagement
Low and zero prices for services with high price elasticity of ‘engagement’
Favoring of content with high click-through rate
Online advertising puts all content in competition on platforms
Value is being increasingly appropriated by those who can capture the power of data analytics
Value chain control lies in data and user interface
More traditional businesses struggle to compete
Business reorganizations and acquisitions

16. Markets on digital platforms Data disruption
Data monetization disrupts privacy
Social trade-off: Data efficiencies rely on data collection
Optimal point of control for privacy is unclear
Regulators: What benchmark to use?
Users: Inconsistent behavior (privacy paradox)
Firms: Problem with incentives
Tension between competition and privacy
No overwhelming evidence of privacy as a dimension of competition
Restrictions to data usage impact small firms more (ex GDPR)

17. Assessment of platform conduct
Understanding platform business model is important for assessment of conduct
How does a platform make money?
What are its incentives? How does it coordinate different users?
Account for multisided-ness, interdependencies, externalities

18. Take Away Points
Platforms succeed by generating transaction efficiencies
Economic characteristics of platforms can result in the most successful ones ‘taking over’ a market
Data and its usage may reinforce this effect but is mostly a disruptive force
Must develop better analytical tools to discern efficient business model decisions from illegal conduct

19. Thank you!

20. PRESENTED BY
Eliana Garcés
Principal, Washington D.C.
Dr. Eliana Garcés is a Principal at The Brattle Group with broad experience in antitrust enforcement and regulatory design.
Dr. Garcés has held positions in both government and the private sector, including previous economic consulting experience in the United States. She was in the cabinet of Vice President Joaquín Almunia, the European Commissioner responsible for competition policy in In that position she supervised antitrust and merger investigations in information technology, telecommunications, financial services, and energy market. She holds a Ph.D. in economics from University of California and a Licenciaura in Economics from Universidad Autónoma (Madrid).
The views expressed in this presentation are strictly those of the presenter(s) and do not necessarily state or reflect the views of
The Brattle Group, Inc. or its clients.