By David Parker & Federico Bruni
The nature and the extent of online platforms’ market power is a hot topic in competition policy. One recent contribution to the debate is a working paper by Andrea Prat (Columbia University) and Tommaso Valletti (Chief Economist at DG Competition). The paper considers situations where online platforms capture consumers’ attention through content propositions and sell this attention to advertisers. In this environment, the authors conclude that platforms can exploit their market power and extract profits from upstream monopolies, by threatening to give visibility to potential entrants. While an interesting contribution, this approach doesn’t necessarily capture how platforms operate in reality. Moreover, its application to social media platforms alone seems to ignore that upstream suppliers have multiple alternative routes to access customers beyond social media. If this approach were to be applied, therefore, competition authorities would need to take a wider view of advertising markets than the authors suggest.
