TILEC Work In Progress: Peerawat Samranchit and Jasper van den Boom

The dynamic of leveraging in digital ecosystem

Competition in digital markets has sparked debates on the future of competition law on multiple aspects. This article studies three common leveraging practices used by incumbent platforms from both stand-alone and ecosystem perspectives. These include tying/bundling (plus self-preferencing), margin squeeze, and merger. We identify offensive (making more profit) and defensive (maintaining market power) incentives of these behaviors. In addition, due to network effect and economies of scope, which are prevalent in digital platforms, each stand-alone practice could create effects that permeate through an ecosystem. A pro-competitive practice from a stand-alone viewpoint could eventually strengthen the market power of an incumbent’s ecosystem, making it harder for potential entrants to enter successfully. Hence, it is not sufficient for competition authorities to assess each case on a stand-alone basis. Instead, they should consider its effect on the whole ecosystem. We review several cases that were decided by the European Commission, such as Google/DoubleClick, Microsoft/Skype, and Facebook/Whatsapp. We find that the Commission tends to assess these cases on a stand-alone basis. This paper explores how the Commission should take the effects of leveraging in digital ecosystems into account in their assessment of competitive effects in each of the three leveraging practices.