Disruptive Technologies and Economic Regulation Dr V Sridhar International Institute of Information Technology Bangalore IIITB TwoSided Market Platforms 2SMPs TwoSided IT based Market Platform ID: 1028192
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1. “Regulatory Aspects of Two-Sided Markets”“Disruptive Technologies and Economic Regulation”Dr. V. SridharInternational Institute of Information Technology Bangalore (IIIT-B)
2. Two-Sided Market Platforms (2SMPs)Two-Sided IT based Market PlatformUser Set 1User Set 2Cross-Side Network EffectCab SeekersCab DriversPatientsDoctorsJob seekersJob ProvidersPublishersReadersInformation seekersProduct/ Service providersBuyerSellerSame-Side Network EffectRochet & Tirole, 2004
3. Taxonomy of 2SMPsIn emerging markets, many market verticals are relatively unorganized compared to developed markets; there is often information asymmetry leading to high search costs and arbitrage opportunities; E-Market PlacesDirectory ServicesAggregator PlatformsLiabilityRegulatory ArbitrageDisintermediationSearch CostEconomic Value-Add2SMPs reduce information asymmetry; improves efficiency of utilization of resources; disintermediate and minimize rent outflow; improves consumer and producer surplus
4. Characteristics of 2SMPsTypically 2SPs are not monopolies or near monopoliesHowever, competition is minimalMulti-homing is typicalUsers adopt more than one platformTypically platform differentiation is minimalAttaining “critical mass” is necessary for sustainability and building network effectsAsymmetric pricing is commonThe money side and subsidy sideWhich side to subsidize and by how much?Platforms reduce information asymmetryHence collect lot of user information to provide personalized servicesData Protection and Privacy issues abound
5. Regulatory QuestionsIncreasing economies of scale due to network effects: Predatory pricing to attain “critical mass”Effect: reducing competitionRegulatory response: time limit discountingHorizontal and vertical integrationEffect: reducing competitionRegulatory response: mergers and acquisitions – anti-trust regulationHoming: What if platform offers exclusive contract to sellers, setting the price slightly below that of competitors?Effect: reducing competitionRegulatory response: how serious is user lock-in?Use of information collected for un-intended useEffect: user privacy is violatedRegulatory response: mandatory user consent; user rights on the collected informationFirst Mover AdvantageEffect: Platform envelopment -> might lead to creating a high entry barrier for competitorsRegulatory response: Significant Market Power assessment and anti-trust regulationRole of digital platformsEffect: Technology only and hence disowns responsibility and liabilityRegulatory response: Mandatory compliance and level playing field with incumbents?
6. Regulatory GuidanceRegulatory rules for 2SMPs to be different compared to the traditional brick-and-mortar businessMandatory complianceCabs should run on LPG -> environmental protectionBackground check of housemaids -> improve securityContent editing in mobile news -> social harmonyBackground verification of Doctors -> patient wellnessFood safety check -> protect health of foodiesOther market regulatory rulesFare regulation -> reduces market efficiencyAdditional taxation -> increases platform costsFDI regulation-> reduces overseas investment Users and platforms considered as stakeholders in the trusted Self Regulatory Organization (SRO) with Government Omnibus oversight??