Antitrust, Regulation and Digital Platforms
Paper Session
Friday, Jan. 6, 2023 2:30 PM - 4:30 PM (CST)
- Chair: Nancy Rose, Massachusetts Institute of Technology
Regulating Digital Platform Monopolies: The Case of Facebook
Abstract
Although they often offer services to consumers for low prices, or even freely, many digital platforms are thought to have significant market power due to their network effects and supply side economies of scale. However, the existence and magnitude of this harm to social welfare, and the distributional impact of possible antitrust remedies to ameliorate it, are disputed. We construct and analyze a general model of digital platforms, determining conditions under which government interventions raise welfare. We calibrate our model for the case of Meta's Facebook using a survey of over 57,000 US Internet users. Facebook creates $14 billion in surplus per month, concentrated among female and older users. We simulate six proposed policy interventions. We find a 3% tax on Facebook's ad-revenue raises welfare by 1.1%, by shifting Meta's incentives towards maintaining a larger platform. Achieving perfect competition, while preserving network effects, would raise surplus from Facebook by 4.8%. On the other hand, a horizontal or vertical breakup of Facebook that failed to maintain interoperability or promote competition could decrease social surplus by up to 84.7%. Finally, a ``data-dividend'' rebate of profits to users would increase surplus by 30.3%.Towards Efficient Information Sharing in Network Markets
Abstract
Digital platforms facilitate interactions between consumers and merchants that allow the collection of profiling information which drives innovation and welfare. Private incentives, however, lead to information asymmetries resulting in market failures both on-platform, among merchants, and off-platform, among competing platforms. This paper develops two product differentiation models to study private and social incentives to share information within and between platforms. We show that there is scope for ex-ante regulation of mandatory data sharing that improves social welfare better than competing interventions such as barring entry, break-up, forced divestiture, or limiting recommendation steering. These alternate proposals do not make efficient use of information. We argue that the location of data access matters and develop a regulatory framework that introduces a new data right for platform users, the in-situ data right, which is associated with positive welfare gains. By construction, this right enables effective information sharing, together with its context, without reducing the value created by network effects. It also enables regulatory oversight but limits data privacy leakages. We discuss crucial elements of its implementation in order to achieve innovation-friendly and competitive digital markets.Discussant(s)
Chiara Farronato
,
Harvard Business School
Ginger Zhe Jin
,
University of Maryland
Imke Reimers
,
Northeastern University
JEL Classifications
- L4 - Antitrust Issues and Policies
- L2 - Firm Objectives, Organization, and Behavior