Digital platforms function with algorithms, which are designed to collect and process big data, with decisions made based on that data. Moreover, digital platforms show data-driven network effects. These data-driven network effects, economies of scale and scope, and control of data create high barriers to entry. Moreover, digital platforms require high up-front sunk costs and have low marginal costs. This cost structure accelerates the high economies of scale and scope further and facilitates thereby market concentration of big data in the hands of a few players. That is why digital platforms might become dominant.
The current approach to assess dominance relates to the consumer welfare standard. The standard measures the benefits or harm to consumers in the form of lower or higher prices, respectively. The difficulty with the consumer welfare standard in the digital economy is that it is not feasible to conduct price analyses of online platforms because of rapid price fluctuations and personalized pricing facilitated by algorithms. Further, price is not the most appropriate criterion in competition analysis involving online platforms, as many services are offered for free, although, in fact, consumers pay through the provision of personal data.
EE&MC is benefiting from academic studies on this matter performed at the related research institute ECE in Maastricht, the Netherlands. The studies reveal that for the assessment of dominance in the digital economy forms other than price need to be incorporated in the analysis.