Platform Competition and Interoperability: The Net Fee Model

Résumé

Is more competition the key to mitigating dominance by large tech platforms? Could regulation of such markets be a better alternative? We study the effects of competition and interoperabilty regulation in platform markets. To do so, we propose an approach of competition in net fees, which is well-suited to situations where users pay additional charges, after joining, for on-platform interactions. Compared to existing approaches, the net fee model expands the tractable scope to allow variable total demand, platform asymmetry and merger analysis. Regarding competition, our findings raise two concerns: adding more platforms may lead to market contraction or the emergence of a dominant firm. In contrast, we find that interoperability can play a key role in boosting user participation and reducing market dominance. Broadly speaking, our results favor policy interventions that improve the quality of market competition, as opposed to those that merely give rise to more competitors.