Interoperability: The Wrong Prescription for Platform Competition

In this paper we assess the potential effects of recent proposals to mandate interoperability as a competition remedy for digital platforms. We find that mandating interoperability for digital platforms may harm competition and innovation. Interoperability standards for digital platforms may reduce differentiation and result in fewer functionality options for users. Interoperability may also weaken platforms’ incentives to compete through innovation and pricing. Interoperability may discourage Schumpeterian competition and entrench incumbents. The process of establishing interoperability standards may result in excess inertia as well as inferior technology and design choices for standards. The benefits of interoperability for digital platforms may be relatively small when multihoming costs are low and there is a high degree of differentiation across platforms. We urge caution in adopting policies that would mandate interoperability for digital platforms as such policies may do far more harm than good.

By Jay Ezrielev & Genaro Marquez¹

I. INTRODUCTION

Interoperability is the ability of different systems to work together by exchanging information.² Recently, there have been a number of calls for mandating interoperability as a competition remedy for digital platforms.³ For example, the recent House of Representatives Judiciary Committee’s Subcommittee on Antitrust, Commercial, and Administrative Law majority staff report stated that, “in the absence of