Platform Liability and Innovation

Abstract

We study a platform’s incentives to delist IP-infringing products and the effects of holding the platform liable for the presence of such products on innovation and consumer welfare. The impact of platform liability on innovation can be either positive or negative and critically depends on the existence and nature of cross-group network effects. A necessary but not sufficient condition for platform liability to benefit consumers is that it leads to more innovation. We consider various extensions that allow us to identify additional forces that strengthen or weaken the desirability of liability for innovators and consumers.