“Digital platforms force a rethink in competition theory” (FT)

Great FT article on how to think about monopolistic power in the digital platform age.

Pre-digital v. digital (my emphasis):

“In pre-digital days, the question an economist would ask is whether the efficiencies gained by big or merging companies would be passed on to consumers in the form of lower prices. Another key question was whether it would still be possible for new entrants to break into the market.

“Digital platforms make these questions harder to answer. The basic economic theory, developed by Jean Tirole and others, establishes that in such markets one “side” will cross-subsidise the other. So the signal prices send about competition is completely different from in a traditional market. Platforms also generally expand into neighbouring markets, so the standard market definition exercises done by competition authorities are doubly uninformative. Big digital companies argue that the consumer benefit they provide through free services is immense. So where is the harm?”

The money quote (again, my emphasis):

How can potential challengers develop new technologies to topple an incumbent if they have to compete with an apparently zero price? For that matter, how will investment in physical networks or content get funded if an incumbent using the network and content captures all the profit downstream?”

* * * * * * * * * * * *

At present, I have the content companies specifically in mind with regard to the last quote above. Big Tech has effectively unlimited fire power to throw at content creation, which they simply add on for free to existing services. (See this article today via the NYT.)

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