In a recent article published in the Journal of Industrial Economics, Econic Partners’ Guillaume Thébaudin, alongside Marc Bourreau and Adrien Raizonville, study competition between ad-funded platforms and their incentives to provide interoperability to consumers. The authors demonstrate that while interoperability can emerge naturally between symmetric platforms, in asymmetric markets, where a dominant platform has a large installed base, interoperability may fail to emerge. However, in such cases, mandating interoperability between asymmetric platforms is not always the socially optimal solution, challenging a common assumption in digital market regulation.
The views and opinions expressed in this article are those of the authors as independent researchers and do not necessarily reflect the views of Econic Partners or its clients. Econic Partners did not provide any financial support in connection with the preparation or publication of this article.
Abstract
Platform interoperability is considered a powerful tool to promote competition in digital markets when network effects are at play. We study the incentives of two competing ad-funded platforms to provide interoperability in a setting where consumers can single-home or multi-home and decide how much time to spend online. When the platforms are symmetric, perfect interoperability emerges in equilibrium and is socially efficient. When a larger platform has an installed base of customers, its incentive to make its services interoperable is lower than for the smaller platform. Interoperability does not emerge in equilibrium if the installed base is sufficiently large. However, mandating interoperability between the asymmetric platforms is not always socially optimal.
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This article was first published in The Journal of Industrial Economics: https://onlinelibrary.wiley.com/doi/10.1111/joie.70018
