Multi-sided platforms and innovation: A competition law perspective

Abstract

We propose a simple theoretical model emphasizing the importance of a multi-sided platform (MSP) in fostering innovation. This model aims to assess the effects of structuring industries around an MSP on innovation dynamics and emphasizes the impact of cross-platform competition. It teaches us how to encourage cross-platform competition in terms of competition policy. The outcome is threefold. To begin, the presence of an MSP is critical for market innovation. Second, our findings indicate that skewed market power in favor of the MSP may stifle innovation in this industry, even if the negative impact on the industry’s rate of innovation is not immediately apparent. Finally, we demonstrate that industries with multiple MSPs have a higher rate of innovation. The model’s conclusions emphasize the critical importance of preserving the contestability of digital markets through competition rules enforcement. Even if the inherent technical characteristics of this industry result in a situation of dominance, competition rules should aim to preserve the possibility of market competition through, among other things, interoperability requirements, data portability requirements, and control of exclusivity clauses.