Competition in the digital sector: limits to market power

Competition in the digital sector: limits to market power

In a context of unprecedented public attention on competition in the digital sector, academics and practitioners are developing new theoretical and empirical frameworks to analyse competition in these industries.

A recent paper by Prat and Valletti highlighted that social media platforms might try to exploit their market power and extract surplus from upstream monopolies advertising to customers through their platforms. According to the authors, social media platforms can do so by acting as an attention “bottleneck” and threatening to provide a route to market for entrants.

In the April 2019 David Parker and Federico Bruni have analysed the main limitations of this theoretical framework. They conclude that, if the mechanism that drives platform market power is about being the only way that an advertiser can reach a particular consumer, it would not be appropriate to restrict the focus of the analysis just to social media platforms, or any individual type of online platform. Instead, it is necessary to look  at all routes by which an advertiser can reach a particular customer — both online and offline.

You can read David and Federico’s full analysis of Prat and Velletti’s paper here:

Attention Oligopoly: Comments on the paper by Prat & Valletti