No platform? On the economics of P2B exchange
22 November 2017
The picture that emerges from the EC surveys of consumers and business regarding platforms is not of a market in which users are routinely abused. Rather, what we observe is a market where users are broadly happy, although they agree that things could always be better. Crucially, they have ways to make their discontent heard.
Establishing monopolistic abuse requires proving not just that platforms have the ability, but also the incentive to fleece customers. Economic analysis of platform markets under competitive conditions does not suggest that there is an incentive to abuse either paying or non-paying business customers.
It is argued that market power makes the conclusions from a competitive model inapplicable. However, in a world in which users multi-home across platforms, the notion that businesses have to bargain with platform monopsonies is dubious. Multi-homing costs vary by platform, but studies suggest that multi-homing prevails across a range of platforms.
The other objection, that users are imperfectly informed, is difficult to test because users will not know ex ante what results they would like. However, if results were consistently unsatisfactory one would expect an erosion of the platform’s user base over time. Markets may not be informationally efficient at any point in time, but they are dynamically efficient: user information improves over time.
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