Amazon collects a wealth of digital data about consumers and merchants on their marketplace. The data is used to optimize recommendation algorithms, customize search experiences, and even learn from third-party merchants what private-label products to offer. But what if we could use that same data to determine whether merchants and consumers would be better or worse off if Amazon faced more competition? The choice of which level of competition is best for platform ecosystems, such as Amazon’s, is not simply a dichotomous choice between complete monopoly and perfect competition. Our research on platforms and network effects suggests that the best policies may not lie at either extreme of laissez-faire or competition at all costs. Finding the best policy often requires a careful analysis of the trade-offs.
To Regulate Network-Based Platforms, Look at Their Data
Historically, antitrust authorities have taken a laissez-faire approach under the assumption that it is better to err on the side of not intervening when there is uncertainty. This has allowed companies like Google and Facebook to go on a shopping spree to acquire early-stage competitors that could have become a threat if left independent. But recent signals, such as the appointment of Lina Khan as the Chair of the Federal Trade Commission, suggest that the tide may be turning, and big tech may find themselves in the position of having to either defend their dominance as beneficial to their ecosystems or risk losing it.
But a complete overhaul of antitrust policy in the era of platform companies requires a careful balance of the benefits of scale and those of competition, a balance that we have only just begun to study empirically in a handful of cases. A better understanding of these networks can help societies fully reap the benefits of digital innovation, while mitigating emerging harms.