Analyzing Competition in the Online Economy

Abstract

Since economic analysis of the workings of the online economy is in its early stages, detecting anticompetitive behavior remains challenging. There have been some insights from models that explain how two-sided markets work, but the practical uses of these models are limited thus far. More research is necessary on the definition and operations of platforms of different sizes and with different objectives, for example, the identification of data clustering and flows related to product clustering and information production and the relationships between data, information, and innovation. Furthermore, corporate culture, which can produce cultural clashes within an organization, may influence both (anti)competitive behavior and innovation. The cultural issue becomes even more complex when evaluating whether a merger would result in both innovation and the abuse of market power. This paper develops an overview of the technology and operations of the online economy as a start toward informing competition and antitrust policy. We present a technical overview that becomes a starting point for understanding potential areas of excessive market power. We also examine market dynamics from the large platforms’ points of view to understand where they believe the online economy is heading.