Natural Monopoly Regulation in Platform Markets

Technological change and digitalization have enabled a wave of multi-sided platform markets where network externalities, big data and algorithmic matching contribute to concentrated market structures and monopolistic tendencies. Yet the assessment of conditions under which such tendencies may be natural and efficient remains underdeveloped, and the consequential determination of the appropriate regulatory tools and institutions associated with natural concentration unexplored. This thesis evaluates the applicability of the natural monopoly framework to three case studies of platform markets: horizontal search engines, e-commerce marketplaces, and ride-hailing platforms. It demonstrates that technological change and the increasing predominance of multi-sided platforms overall increase the likelihood of natural monopolies, although natural concentration is neither inevitable, nor necessarily the consequence of multi-sided network externalities. On the contrary, natural monopoly conditions are often the result of a complex interplay between supply side economies of scale, access to data, and the strength of both direct and indirect network externalities, all factors that vary substantially across markets and that may be independent of the platform model. The thesis reaches this conclusion by placing the three case studies along a spectrum of natural concentration. At one extreme, it characterizes horizontal search as naturally monopolistic, due to high-fixed costs and low marginal costs, the value of data and direct externalities among users that generate such data. At the opposite extreme, it concludes that e-commerce marketplaces, while benefiting from scale economies and network effects, are not natural monopolies and instead benefit from the competitive advantage offered by efficient logistics. In between, ride-hailing platform markets are a more ambiguous case that may or may not give rise to natural monopolies depending on the specific conditions of each local market. Based on this framework, this thesis evaluates alternative regulatory instruments that can address market power while at the same time embracing efficient concentration. The dissertation in particular demonstrates how the institutional dimension of intervention critically affects the trade-offs between imperfect policy instruments, arguing that policy approaches require more complementarity between regulation and competition as opposed to clear-cut choices between ex-ante and ex-post approaches to market power.S.J.D.2021-11-13 00:00:0