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Is Big Data an Entry Barrier? What Tinder Can Tell Us

2017-01-11 21:18:07 0 comments

by on April 2, 2015

Big data, and its effects on online markets, has been thrust into the center of the tech policy chattering class debate.  In the last few weeks, events have been held on both sides of the Atlantic focusing on the concept of big data as an entry barrier.  (The topic has also come up in speeches by FTC Commissioners [and a paper], in discussions surrounding the EU’s forthcoming Digital Single Market strategy, and is the frequent topic of recent academic writing.)  Specifically, the concept being debated is whether the accumulation of data by Internet companies hinders competition because the new entrants will not be able to compete effectively with the first mover in the marketplace.  In this post, I will address why startups and entrepreneurs should not be overly concerned.

In a stylized view of the Internet economy, as a platform (such as Google, Facebook, Amazon, Pinterest or Twitter) achieves scale and gains users, it acquires more data.  This data leads to product improvement, which leads to more users and, subsequently, more data.  The process repeats.  According to proponents of the data as a barrier to entry theory, this leads to an unbreakable positive feedback loop that makes effective competition impossible.

However plausible this argument sounds, a review of the short history of the Internet economy, which has been characterized by intense competition and frequent disruption, seems to cast doubt on the soundness of the theory.  (See Andres Lerner’s discussion of the User Scale – Service Quality feedback loop.)  Besides the common examples of Facebook overtaking Myspace and Google overtaking prior search competitors (who, at the time, were predicted to be unassailable largely on account of the User Scale – Service Quality feedback loop discussed above), a casual look at online markets illustrates how competitive the market is.  Why are online markets so competitive even though some firms are believed to have an unassailable advantage in big data?

First, this view of Internet markets is extremely simplistic.  Data is just one input of many in the process of innovation and market success.  Second, unique economic characteristics of data — such as it being non-rivalrous and the diminishing marginal returns of data — mean that the accumulation of data, as opposed to other barriers to entry like intellectual property portfolios or high-fixed capital costs, in and of itself does not function as much of a barrier at all.  When you couple these characteristics with the fact that data, and the tools to use and analyze data, are readily available from numerous third party sources, the notion of an iron-clad data feedback loop falls apart.

I’ll break this down piece by piece.

1) Data is non-rivalrous and non-exclusive

Some have compared data to oil, referring to it as the essential input of the 21st century.  Although, rhetorically, this analogy has superficial appeal, it is also misleading, as Geoff Manne and Ben Sperry point out:

“But to say data is like oil is a complete misnomer. If Exxon drills and extracts oil from the ground, that oil is no longer available to BP. Data is not finite in the same way.”

In economic terms all information, including data, is non-rivalrous and non-exclusive (Matt Schruers has touched on this before).  In other words, if Twitter knows that I am a male, in a relationship and like sports, Facebook can also know those things.  Twitter knowing these things neither prevents Facebook from knowing those things nor using that knowledge to better their product to serve my tastes.  Therefore, as an input, data does not function as a barrier to entry, as say exclusive spectrum ownership or access to rare-earth minerals serve as a barriers to entry in the mobile telecommunications space (to pull two examples from the technology policy world).  In these cases, purchasing the exclusive rights to operate on a segment of a nation’s airwaves, by definition, means it is not available to other competitors.  This limits the number of firms that can provide nationwide mobile communications services.  As for rare-earth elements (REE), mobile phone manufacturers need these to build their devices.  When one firm consumes a REE in the manufacturing process, it is no longer available to other firms.

Furthermore, users tend to multihome, meaning they use many online platforms at the same time.  Whether that means using both Google and Bing, or Pinterest and Twitter, the fact that someone built a successful product does not mean that consumers will use that product exclusively.  In the online matchmaking world (which I will discuss in more detail later), consumers often use many online dating products at the same time.  What does this mean in terms of data?  Multiple companies have access to the same user data at the same time, and the use of one Internet platform does not deprive other Internet platforms from obtaining the same data from the same users.

To the extent that data, especially basic consumer behavior and preference data, is deemed essential to competitive success, the fact that no firm can control it or exclude others from using it means that it does not function as a barrier to entry in the way a finite, excludable resource could.

2) The marginal returns on data diminish rapidly

To illustrate this point theoretically, one needs not go much further than Stats 101.  If one is to conduct a survey of voting preferences for an upcoming election, one needs to construct a large enough sample size to ensure accuracy.  However, each additional survey participant does not increase the quality of the survey by the same amount as the one before her.  For example, if a pollster has 5 respondents, adding a 6th proves extremely valuable.  If the pollster already has 100,000 respondents, then adding an additional one is almost insignificant.  Therefore, a survey that has 100,000 respondents is not twice as accurate as a survey with 50,000 respondents.  In fact, in both cases, the margin of error is less than 1%.  (For the stats nerds, accuracy generally increases as a square root of the sample size, so doubling the sample size equates to roughly a 41% increase in accuracy.  Hence, the rapidly declining returns to scale.)

[Although the above example has been simplified for clarity, a more thorough explanation of this concept’s applicability to “big data” can be found in Andres Lerner’s paper, paragraphs 61 – 76.]

To veer back into the real world, what are the practical effects of this mathematical reality?  This is why most Internet companies test algorithmic changes on a small subset of users (see Facebook and Google).  In this case, there is little competitive advantages to scale after a certain point.  And, as industries grow, the competitive advantage a larger rival has over a smaller rival becomes even smaller.

This mathematical reality leads to the conclusion that how companies utilize and parse the data is much more important than the sheer volume of data a company has.

3) Data is readily available in the marketplace

A quick read of the FTC’s recent report on data brokers makes clear how easily data is to obtain on the open market.  Although the report calls for greater transparency and accountability, it also makes clear that these services facilitate dynamic online competition:

[C]onsumers benefit from increased and innovative product offerings fueled by increased competition from small businesses that are able to connect with consumers they may not have otherwise been able to reach.

Although the report focused on nine of the biggest data brokers, the report also makes clear that there a many more companies and products in the market providing similar services to businesses.  Therefore, a startup company can avail itself of a similar set of data driven insights of the market leaders with large user bases, as the report notes:

Among other things, the analytics products offered by some of the data brokers enable a client to more accurately target consumers for an advertising campaign, refine product and campaign messages, and gain insights and information about consumer attitudes and preferences.

4) The market for data analytics is also robust

The market for data analytics, companies making tools to help customers derive insights from data, is also incredibly robust.  In 2015, the data analytics market is predicted be worth $125 billion.  Although it is beyond the scope of this article to go into great detail on this phenomenon, it is worth noting that companies looking to utilize the data they either have or acquire can quickly, and relatively cheaply (as compared to building these tools from scratch in house), benefit from the insights of big data.  There are even free, widely-used open source technologies that allow users to analyze large datasets (i.e. Hadoop).  And, as the FTC report discusses, many data brokers provide businesses with structured and analyzed data, not just raw data sets.

5) The value of data decreases rapidly over time

The value of big data is fleeting.  Historical data can be mined for trends, which can be helpful from a product improvement standpoint, but historical data is of little value for real-time decisions, such as ad targeting, thus limiting the advantages conferred to incumbents who have caches of historical data.  As noted in a paper by Darren Tucker and Hill Wellford, 70% of unstructured data is stale after 90 days.  As a result, most data processing and analysis is done in real time (or on a near-real-time basis).

6) Barriers to entry online are very low

Focusing on data as a barrier to entry in online markets belies the fact that the Internet is a dynamic marketplace that has drastically lowered barriers to entry.  The capital costs of starting and scaling a business online are significantly lower than in the offline world.  Worldwide reach, standardized technology and communications protocols, and rapid price decreases in things like cloud platforms and storage, means that it is cheap — and getting cheaper by the day — to build an online business.   As I have discussed previously, these characteristics allow firms to scale quickly but they also allow potential competitors to scale quickly and overtake them:

On the Internet, consumers can flock to the best product or service en mass almost instantly. This means the best product or service often quickly gains impressive market share. However, the same dynamics that precipitated the rise of companies like Google and Facebook also place extreme competitive pressure on them.

In fact, the widespread availability of data (and data processing tools) lowers barrier to entry more than it entrenches current incumbents.  You don’t even have to start out with users anymore to obtain data about consumer preferences and online behavior.  Thus, on the first day of a product’s launch, a company can have already designed a product that is informed by consumer preferences and that has the programming infrastructure to respond intelligently to specific customers.

7) Ideas matter more than data

So, what insights can be derived from the preceding discussion of the economic characteristics of data?

Undeniably, more data helps companies refine and evolve their products, but this is true across all sectors of the economy.  Traditional retailers, such as Tesco and Walmart, actively collect a myriad of data about consumers’ shopping preferences.  Individual stores produce heat maps to determine the most trafficked floor space, which dictates where retailers place certain products.  In the auto industry, companies like Volvo collect data on their cars through thousands of sensors that both help service current automobiles and inform later design changes.  These processes mirror that of online companies that use data to better tailor their products to consumer preferences.  Indeed, this is testament to how competitive these markets are and the need for constant product improvement to stay relevant.

However, a trove of data is not hugely important to building a better product and succeeding in the marketplace.  The quality of service offered to users is the single biggest determinant of success for new Internet products and services.  In terms of building a successful business model to compete with incumbents, it helps to build a better mousetrap.  Or, in other words, attack the same problem in a different way.

Google achieved success over other search engines by conceiving of a better way of matching users queries to relevant websites.  The fact that Yahoo and AltaVista had a lead in the race for data didn’t matter much when Google conceived of a better way to do things.  In the case of Facebook, it built a social network that users liked better (even though social networks like Myspace and Friendster had large user bases and data advantages).

Or, for a possibly more illustrative cutting-edge example, it helps to look at the evolution of the market for Internet-powered dating services.  If ever there were a market where data would serve as a barrier to entry, online dating would be a perfect example.  Given the complex,  varied, and poorly understood nature of human affection, possessing a large user base (and their detailed personal information and preferences) and troves of data about human attraction and relationship compatibility should give early movers in the online dating space an unassailable advantage.  Yet, Tinder — an online dating app that launched less than 3 years ago — is adding a million users a week and is already valued at over $1 billion.  Given the nature of this market, and the theoretically large data advantage rivals such as, eHarmony and OkCupid enjoyed, the iron-clad feedback loop theory of data should have meant that Tinder shouldn’t even have tried to compete, let alone achieved significant success.  But, the founders of Tinder — like Internet entrepreneurs that went before them — thought they had a better idea.  In the case of Tinder, this was the “double opt in”.  In other words, the fact that Tinder didn’t have a matchmaking algorithm (and loads of matchmaking data) didn’t matter.  As one GQ author puts it:

The key to Tinder—the “double opt-in”—is an idea born of real-world experience (this is what you want in a bar—to know that the person you want to hit on wants you to hit on him or her) as opposed to sophisticated computer metrics.

The process Tinder’s founders created through the mobile application — the double opt-in where users declare secretly who they are attracted to and are only matched after both say yes — immediately posed a challenge to the established dating websites and their algorithms.  Now, Tinder has million of users and, according to its own stats, facilitates 21 million matches a day, which gives it a mountain of data through which it can refine its product and tailor its user experience.  (Given that many of Tinder’s users use multiple online dating services, this also illustrates the multihoming concept discussed previously.)  But that data isn’t going to protect the company from the next entrepreneur that thinks she has a better approach from starting a mobile dating app.  In fact, a number of Tinder competitors have emerged, with different ideas on how to best facilitate matchmaking.  For example, Hinge, which combines Tinder’s location-driven approach with your friend information from Facebook and your past preferences, is trying to solve what its founder saw as a problem with Tinder for many users: the randomness factor of Tinder that makes the app uncomfortable for some users.  According to a Hinge spokesman, “If Tinder feels like meeting a stranger at a bar, Hinge feels like getting warmly introduced at a cocktail party.”

Hinge is also a great example of the role of data in online competition.  Although Hinge uses data it gains from its users to improve its matching algorithm, the fact that other dating platforms already had a lot of data did not prevent it from entering the market.  A Hinge factsheet explains its process:

Think of setting up your pickiest friend. First, you’d think of all the people you know who he/she might like to meet. Then you would prioritize those recommendations based on what you know about your friend…. Finally, over time you would start to learn his/her tastes and refine your recommendations. That’s exactly how Hinge’s algorithm works.

In this case, data about individual users improves the apps performance, but not having detailed information on users did not prevent market entry.

Since its launch, Hinge has grown rapidly (even as Tinder is still rapidly expanding) and recently secured significant venture funding.  And, according to recent statements by its CEO, it is growing its user base by 20% a month.


The evolution of the online dating platform mirrors the evolution of other sectors of online competition. (In the above video, Hinge’s CEO likens his approach to competing with Tinder to how Facebook took on MySpace).  Data is a useful input, but a slightly different idea or algorithm can easily lead to the dethroning of the current market leaders, which parallels the success stories of Google and Facebook.

If the online dating market shows us anything, data can help you improve your product or better monetize traffic, but it does little to protect you from competition — especially when a company has better idea.

This writing is originally posted on Project Disco Blog and reposted here with permission from the author.

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The KFTC was right the first time: Android is a boon to Korea's economy

2016-08-06 14:09:35 0 comments

Geoffrey A. Manne (Executive Director of the International Center for Law and Economics)*

Android is one of the world’s most successful open platforms. It has undeniably engendered a remarkable level of economic growth and creativity in the mobile economy — particularly in South Korea. From providing consumers with greater choice and lower prices to facilitating unprecedented innovation by app developers and device makers, Android’s operating system is at the center of the mobile revolution[1] — and it is no exaggeration to say that Android has placed South Korea squarely at the forefront of the global mobile economy.

So why is Android the focus of renewed antitrust attention and complaints that Google’s business practices around the mobile OS are harming competition in Korea?

In 2011, in response to similar complaints from two Korean search giants, Naver and Daum, the Korea Fair Trade Commission (KFTC) engaged in a thorough investigation into Google’s Android-related business practices. The investigation ended in 2013 with the KFTC rejecting all of the allegations against the company.

But in light of the European Commission’s recent Statement of Objections alleging harms to competition in Europe, there have been calls in major media publications for the KFTC to carry out exactly the same investigation again, even though competitive conditions haven’t changed since the last investigation.

The KFTC should once again reject these calls for regulation that benefits competitors rather than consumers, and remain one of the vast majority of world antitrust regulators[2] that have found no basis to bring a challenge against Google.

The European Commission’s complaints against the company are fundamentally based on the theory that Google’s aim is to “preserve and strengthen its dominance in general internet search.” But it can hardly be said that bundling Google Search with Android serves to “preserve” Google’s dominant search position in Korea. For one thing, despite some recent gains, Google’s search market share[3] has long been negligible compared to its primary domestic competitors, and Android has done little to dent their dominance. And if the practice is meant to lift Google up from its relatively weak position in search, it has been decidedly unsuccessful thus far.

Google simply doesn’t have the ability (nor the inclination) to harm consumers or competition in Korea in the manner alleged by the European Commission.

In Korea, Google, with its branded Android operating system, remains a significant but — importantly — non-dominant player. While some Android devices install Google services, many others do not.[4] Nor do Google’s practices lock device manufacturers into Android at all, as Samsung’s burgeoning Tizen operating system ecosystem demonstrates.

The KFTC looked at these facts in 2013 and concluded that Google had not engaged in behavior to harm competition. If anything, the economic conditions supporting that conclusion have only gotten stronger since.

Today manufacturers are deploying Android to power phone and tablets but also watches and TVs. Developers are building an ever-widening array of apps and software for this ecosystem, bolstered by the cross-device interoperability that Android affords. In fact, among the apps being sold in Google’s (global) Android app store, South Korea boasts the fifth highest number of developers.[5]

Meanwhile, the average South Korean smartphone user downloads 40 apps,[6] more than in any other country — nearly all of them free. Whatever else may be said about the bundling of Google Play with Android, it can’t be seriously argued that it has harmed the ability of South Koreans to access the apps of their choice, including apps made by Google’s Korean search competitors, several of which are among the app store’s top downloads.[7] 

One has only to look at Korea’s vibrant[8] and informed[9] mobile marketplace to see there is no evidence to suggest that Google has harmed app developers’ incentives to innovate, either. Korean mobile app companies are thriving. Color-Note, a Korean mobile media business, has exhibited remarkable growth. And KakaoTalk,[10] a Korean messaging platform, not only minted a billionaire, but was one of the companies at the forefront of integrating messaging platforms with a wide range of other apps — a technological development now being wielded by Facebook’s Messenger app to challenge the supremacy of app stores[11] like Google’s.

Consumers in South Korea are among the most savvy tech adopters in the world. The country’s embrace of the Android platform has served to encourage immense innovation, and developers, device manufacturers, consumers and competitors have all benefitted as a result. 

Korea should not blindly follow Europe when it comes to internet regulation. The KFTC has already conducted an investigation into Google’s practices in the country and found no evidence of harm to competition. Korea has a thriving digital ecosystem and is a global leader precisely because regulators have focused on supporting Korean innovation. They should continue on that path to continued economic success.


* Geoffrey A. Manne is the founder and Executive Director of the International Center for Law and Economics, based in Portland, Oregon. In 2015 he was also appointed to the U.S. Federal Communications Commission's Consumer Advisory Committee, where he chairs the Broadband Working Group. Manne is an expert in the economic analysis of law, drawing on two degrees from the University of Chicago. He specializes in antitrust, telecommunications, consumer protection, intellectual property, and technology policy.

[1] Readwrite, “How We Are Entering The Second Phase Of The Mobile Revolution,” available at

[2] Truth on the Market, “Oh competition, we stand guard on thee”, 2016/04/19, available at:

[3]ReturnonNow,“2015 Search Engine Market Share By Country”, available at:

[4] For instance, Devices running Fire OS such as the Amazon Fire Phone and Tablet series do not carry any Google apps. C.f.

[5] Yonhap News, "Last year in South Korea Google Play apps overseas sales grew year-on-year by 4 times” , 2015/03/19, available at:

[6] Mashable, “The average smartphone user downloads 25 apps”, 2013/09/05, available at:

[7] AppAnnie, “Top apps on Google Play South Korea, May 2016”, available at:

[8] Yonhap News, "S. Korea’s smartphone market growth forecast to turn negative this year” , 2013/10/14, available at:

[9] Korea Times, “Korean’s change phones most often”, 2013/04/07, available at:

[10] Forbes, “Mobile Master: KakaoTalk Creator Becomes One Of South Korea's Richest Billionaires”, 2014/09/24, available at:

[11] CultofAndroid, “Facebook Messenger wants to be your chatty pipeline to the world”, 2015/04/25, available at:

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Android antitrust should be seen from careful, multifaceted views

2016-08-06 13:53:55 0 comments

Jung-Haeng Lee (Co-Founder and Developer, VCNC)*


I am an Android developer. I developed an Android-based social networking service called “Between”  in 2011, which became a very popular service in Japan, Singapore, Taiwan and Thailand, etc. I, as a developer who has grown with the expansion of application market, feel frustrated with the recent discussion about Android monopoly.

Last month, the European Commission made headlines in many media with its antitrust charges against Google. Google was also brought to a similar inquiry by the Fair Trade Commission of Korea in 2013, which was later cleared by the commission. The news from Europe has triggered voices advocating re-investigation in Korea, but this needs a cautious approach.


Declared open source for everyone, Android has continued rapid growth by attracting a number of manufacturers and telecommunication service providers to its ecosystem, and now it is the mobile platform with the most number of users. Android’s open policy served as a stepping stone for manufacturers to enter the smartphone market faster with lower costs, and telecommunication service providers have taken advantage of Android to offer mobile internet services to many users. Such openness has served as a driving power for Android to grow as a global mobile platform. On the other hand, fragmentation is a serious problem for developers. Open platforms like Android are prone to fragmentation, or the proliferation of several incompatible versions of the same operating system. Google has made huge strides to solve some of the jarring fragmentation issues facing developers since 2011 and the pain from the fragmentation has been actually relieved. It is irony and even sympathetic, though, that the efforts with a good intent has brought Android antitrust issue to Google. I’d like to elaborate what it means to Android developers, including myself.  Let’s take a closer look at the fragmentation issue here.


Fragmentation: A headache for users and the ecosystem

If Android apps do not run the same way on different Android devices and cause various problems, it does not only mean a headache to the developers and manufacturers: Users themselves also face the challenge of checking if an app runs smoothly on their devices. Fragmentation was an issue in Android’s early days. Developers used to spend a lot of efforts to test their apps on various Android devices, sacrificing precious time to develop functions that really matter. Fragmentation hindered them from developing better Android apps.


This would not only pose challenges to developers. With continued fragmentation, Android app developers would not be able to test their apps for all Android devices, hence give up on minor devices with a smaller number of users. This would in turn encourage users to choose popular devices that run well with many Android apps, ultimately leading to only few, widely-used survivors in the market. Smaller Android device manufacturers would be in trouble, and technical innovation through competition among various devices would be hindered. This would not only interfere with manufacturers but also obstruct users’ freedom of choice.


In addition, if users keep experiencing troubles in using Android apps on their devices, they would end up choosing another, non-Android platform. If this continues, it would result in overall decreases in the number of Android users and developers will have less incentive to develop Android apps. Reduced market size for Android would damage Google, as well as all developers, manufacturers, and telecommunication service providers involved in the Android ecosystem. As such, fragmentation is a serious problem that may significantly impact the entire Android ecosystem.


Anti-fragmentation agreements: a god-send for developers

One of the efforts Google has made to resolve the fragmentation issue has been to give  manufacturers the choice to adopt the anti-fragmentation agreement (AFA) and the compatibility definition document (CDD). They serve as guidelines for manufacturers to apply Android to their devices, thereby making stable devices that would allow Android developers to develop apps without facing the fragmentation issue. Thanks to years of efforts, Android has made its ecosystem, which used to experience serious fragmentation, more stable


Google’s such actions have raised antitrust issues, claiming that Google uses the AFA to force manufacturers to preload its apps in Android devices, which would constitute abuse of the market-dominant position of Android. But even signing the AFA, Google allows manufacturers to simultaneously preload other apps that have the same functions. In addition, users are allowed to substitute for Google apps by downloading other basic apps by themselves.


Android enhances consumer choice through allowing multiple app stores

Questions around Android’s app store, Google Play, are also worth addressing here. To developers, having only one big app store covering the whole world is more beneficial, as they would be able to sell to Android users worldwide rather than only to Korean customers. A big app store like Google Play Store is needed for the Android ecosystem. But this does not necessarily mean that Google is blocking other markets. Google allows other businesses to run Android app stores. Devices marketed through telecommunication service providers have their own Android markets, and ones sold by Samsung contain Samsung’s own Android market app. In other devices, Android market apps can be downloaded on the web. Considering various aspects, many developers often use other companies’ Android app stores rather than Google Play  iStore.


In this way, Google has been striving to resolve the fragmentation issue and at the same time to keep Android’s distinctive openness. Google’s endeavors geared towards resolving fragmentation should be seen from a separate viewpoint from antitrust. Android’s antitrust issue should be approached in consideration of many aspects. A wrong choice may greatly affect the Android ecosystem. It requires a prudent decision that comprehensively considers the opinions of all interested parties in the Android ecosystem including developers, telecommunication service providers, and manufacturers.

*VCNC develops Between, a social network service for couples and other applications.

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Understanding Online Markets and Antitrust Analysis

2016-07-15 22:35:26 0 comments

D. Daniel Sokol (University of Florida)*

Antitrust analysis of online markets is a hot topic around the world.  In a number of jurisdictions, online markets already have been subject to antitrust review in merger or conduct cases.  In other jurisdictions, these issues are in a nascent stage of policy.  A number of lessons can be learned from the cases to date involving online markets with regard to optimal antitrust policy.  What these cases tend to share are some basic features as to how online markets work.  I identify four areas in which online markets may be different from traditional markets for antitrust purposes. 


1.      Market definition is more complicated and competition online is not always like for like


Online markets challenge traditional antitrust analysis because online services are often available to users for free. That is, consumers do not pay a monetary price for a free service.  Instead, consumers provide attention and information that is often used to direct relevant advertising to consumers. The economics literature refers to markets with more than one “side”.  A firm (or “platform”) that brings distinct types of economic actors together to interact (e.g., online auctions, dating, search engines, payment systems) operates in a multi-sided market.


In a multi-sided market, very different kinds of services may compete for business.  For instance, social media companies like Facebook and Twitter offer users a very different service as compared to gaming app Candy Crush or search engines like Google and Bing. Yet, they all compete directly for ad budget. Indeed, Facebook also competes for offline advertising budgets such as TV and print ads fact. In this way, competition is not always like for like online. Often the free service being offered to the user may differ, while the advertising being sold is close substitutes.


Market definition is the first step of traditional antitrust analysis.  In one-sided markets, an increase in price or decrease in output provides guidance on how to undertake antitrust analysis using a traditional SSNIP test.  However, market definition is more complicated in a multi-sided market because the traditional tools are more limited due to how the different sides of the markets interact with each other. For example, one side of the market may see no price increase while another will.  Thus, in multi-sided markets, the use of market shares for market definition purposes is something that should be carried out very cautiously.  Understanding the multi-sided nature of internet markets is very important to market definition analysis. 


2.      Success may be ephemeral because entry barriers are low


Online markets are constantly transforming.  Indeed, online markets typically have innovative challengers against incumbents.  Challengers may overtake incumbent firms through new ideas and technologies.  User data can be a powerful driver of these innovations, however as an input it is plentiful and easily accessible by new entrants: consumers can share information with as many services as they like. 


To succeed, these new entrants must develop valuable products and services in order to attract consumers. In some cases, more data does not translate into a better product as data is most relevant when it is about how a company and its consumers use its own product. It is the quality of the insights and not the quantity of data that will inform success. The success of taxi apps like Uber and Kakaotaxi are a clear mark of this: they had the insight that consumers want to order taxis on demand and thus were able to challenge traditional taxi companies, in spite of the fact these incumbents possessed large amounts of data about their users.


3.      Users multi-home and have low switching costs


Traditionally, antitrust analysis is concerned about switching costs from one platform to another.  However, in online markets, competition is often only a click away resulting in low switching costs and  multi-homing.


For instance, take the example of someone who needs to book a flight from Hong Kong to Madras.  A consumer can easily switch from a general search engine (e.g., Naver) to another search engine (e.g., Google or Baidu), a social network (Facebook or Tencent), a specialized travel search engine (Ctrip, Expedia, or Kayak), via website and/or app.  Thus, any incentive that a firm may have to bias its search results would be significantly limited. As Alex Chisholm, Head of the UK Competition and Markets Authority recently put it “The barriers to switching for consumers is very low in online markets. If I am unhappy with my search engine, I can stop using it at a click of a button."


4.      There is a need to analyze all sides of a market when examining a multi-sided market


Indirect network effects take place in situations where additional users improve the use of a product or service better, though not due to direct interaction across users. Rather, additional users allow a platform to determine what its users want via trial and error in search results.  This in turn improves the quality of search results. 


In a multi-sided market, all sides of the market need to be analyzed because the benefits of indirect network effects can only be achieved when multiple agents are coordinated, and participation of each agent is ensured.  For example, in a one-sided market, consumers and producers are often considered as a whole, whereas in multi-sided platforms consumers with different preferences could be separated and treated as independent groups. The increasing use of the platform of one consumer group would create an externality to other groups; therefore, particular attention has to be paid to the indirect network externality at the demand side. Without a multi-sided platform, the “value-creating” interaction among multiple agencies could be extremely costly.



5.      Conclusion


The case for antitrust intervention in online markets requires great caution because of a number of factors: proper market definition, accounting for possible low entry barriers, multi-homing and low switching costs, and the need for a proper analysis of all sides of a market.  Often, multi-sided markets produce significant benefits to consumer welfare in what are dynamic and fast moving markets. Mistaken antitrust intervention in such markets threatens innovation.  Given these significant concerns, antitrust authorities and courts should closely examine the facts of a particular case to ensure that facts and economic analysis align well with legal theories in multi-sided markets before bringing such cases.  Further, the nature of multi-sided markets suggest that before deciding on potential remedies, an antitrust authority should reexamine the market to see if its particular dynamics have already changed. 

Daniel Sokol is a Professor of Law at the University Of Florida Levin College Of Law. Sokol is also a Senior Of Counsel in the Washington, D.C., office of Wilson Sonsini Goodrich & Rosati, where his practice focuses on antitrust counseling. 

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