Within the dynamics of a multi-sided platform there are three groups present, namely the users, complementors and platform owner. The platform owner provides the infrastructure through which complementors can offer their products to the users. Complementors thus compete with each other to sell their products on the platform to the users, and the platform owner captures value for providing the infrastructure.
Complementors however do not only face competition from their peers, but also from their platform owner since they tend to vertically integrated. Meaning that the platform owners produces a product itself and offers it on its own platform, e.g. Apple developing their own app. When a platform owner enters its own platform it affects complementor’s performance significantly, in some cases even resulting in complementors leaving the affected category or platform in its entirety. There are two main reasons why the vertical integration significantly affects complementors.
Firstly, there is an information asymmetry present between the platform owner and the complementors. It is no secret that platform owners harvest a vast amount of data regarding all the activity on the platform. These data are highly relevant for both the platform owner and the complementors, however they are largely only available for the platform owner. For example, Apple know exactly how much time all users spend on which applications.
Secondly, complementor’s products are sometimes made obsolete. Due to the fact that the platform owner often controls the ecosystem the platform it is in, the platform owner is able to only offer their own products. For example, Apple made walkie-talkie apps obsolete by only making their own version available on the apple watch.
Platform owners themselves argue that capturing value which previously belonged to the complementors is not the incentive of their vertical integrations. Amazon explains that by offering some products themselves, they are able to meet the unmet demand in popular categories. Platform owners also claim that the enter crowded categories to steer complementor’s innovation to other categories. Next to that, platform owners are in some cases able to offer better products to the users due to the information asymmetry with the complementors.
Since the true motivation for the market entry of the platform owner cannot be observed, discussions regarding antitrust regulations and ethics are taking place. However, there has not been an unambiguous answer to the question yet if the vertical integration of platform owners is to be considered fair competition.
The power of these huge platforms like Apple and Amazon is indeed debatable. Whether this is fair, or whether governments / lawmakers should step in, in order to even the playing field for smaller companies is in my view something which should receive more attention from those in power. Unfortunately, I do not foresee any improvements coming in the near future, as the influence of these immense corporations keeps growing and growing.
Interesting topic Florian. The digital platform economy is becoming more and more relevant, with companies like Amazon, Facebook and Alibaba the vertical integration of platform owners has become a hot topic. Although many of these companies claim their products improve the quality and make the platform more valuable, I do not think the vertical integration of platform owners can be considered as fair competition. When platform owners compete with complementors a conflict of interest arises that undermines natural competition. As you state in your article, platform owners own more exclusive user data and are able to control the ecosystem of the platform. When a platform owner would only offer their own product, the product is not able to innovate efficiently and complementors are discouraged in developing their own app. Monopolising data also prevents complementors to improve their product quality, ultimately degrading the value of the platform.