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Why digital platforms pose a challenge for market regulation

Professor Jan Krämer examines market power in the digital platform economy. His analyses show that users may not be the most vulnerable.

What rules apply in digital markets? Information systems scholar Professor Jan Krämer, holder of the Chair of Internet and Telecommunications Business at the University of Passau, examines how paying with data is changing the balance of power between market players. Krämer works closely with the research group Data Policies, funded by the Bavarian State Ministry of Education, Cultural Affairs, Science and the Arts under the framework of the Centre Digitisation.Bavaria (ZD.B).

Money versus data. Things are simple with money: money has a set value and can only be spent once. Data is different and more complicated. You can share data and still retain access to said data. The value of this data may also vary greatly for different market players. ‘Data has a different value for the people sharing it than for the platform receiving it’, Professor Krämer says in a video interview. Most individuals have no way of assessing data or storing it on large servers. However, data gains value from its quantity and its processing, which is one reason why users may not be aware of this value. 

Video-interview with Professor Krämer (in German)

Data versus services. Data is particularly valuable for large platforms such as Amazon, Facebook or Google, which use it to arrange content and position products so that users will find them quickly. Companies pay money for this purpose. Recently, platforms have been offering services like this in exchange for data. One such example is Google’s Accelerated Mobile Pages project. Websites that use this turbo news service receive a prominent position in the results of mobile web searches, due to their much faster loading times. In return, Google is provided with access to the website’s connection data and usage statistics.

A similar model is used for ‘Fulfilment by Amazon’. This service allows online shops to entrust their entire shipping process to Amazon, and as recompense the world’s largest online retailer gains valuable insight into transactions, product popularity and customer behaviour outside of its marketplace. The companies using these seemingly convenient services pay a high price for the privilege: as Professor Krämer explains, they assume full business liability. Data analysis gives large platforms a valuable insight into which products work and which do not, and successfully ‘tested’ products can then be incorporated into their own range. ‘It is like a large testing ground’, according to Professor Krämer.

Professor Andreas König und Dr. Lorenz Graf-Vlachy von der Universität Passau diskutierten mit Forscherinnen und Forschern aus der ganzen Welt, was Führungskräfte brauchen, um in einer zunehmend instabileren Welt zurechtzukommen.

We were delighted to welcome researchers from all over the world to Passau to discuss the following question: How do we develop executives who are able to manage in an increasingly unstable world? By Prof. Dr. Andreas König and Dr. Lorenz Graf-Vlachy

Data monopoly versus competition. Competition law is designed to protect consumers. Traditionally, a monopoly causes prices to rise and is, therefore, bad for consumers. A company with a strong presence on the market may also attempt to eliminate the burgeoning competition. This is something that competition law is designed to prevent. ‘However, on digital markets, a market-dominant position does not initially cause any detriment to consumers’, Professor Krämer explains. It is convenient for users to be able to maintain contacts via one single platform. They also benefit from a high level of competition between the content providers vying for position on said platforms. ‘Customers are ultimately perhaps better off, as they receive products and services at even more favourable rates’, Professor Krämer says. 

Old laws do not apply to digital market regulation. According to Krämer, thus far rather little research has been devoted to the phenomenon of data sharing in return for more prominent placement on platforms. This topic is being tackled by Krämer and his team in the ‘Platform Neutrality and Data-Driven Business Models: B2B Data Sharing as Payment for Prominence of Content Providers on Online Platforms’ project, funded by the German Research Foundation (DFG). The project’s information systems scholars are developing game theory models to show how the balance of power on the market changes if particular services are provided in exchange for data. 

The project is building on a study on the same topic. One finding: small organisations and start-ups only gain temporary competitive benefits from data sharing – in the long term, they risk landing themselves in a predicament, and the large online platforms once again profit from it.