Platform ecosystems are becoming increasingly important in today’s business landscape. How can platform firms or tool developers impact market power? How could regulations prevent potential harm to consumers? Joey van Angeren, Milan Miric, and Hakan Özalp discuss this in their paper, published in the Academy of Management Perspectives journal.
The Academy of Management Perspectives journal has recently published a paper titled Platform Ecosystems: Bottlenecks, and M&A Activity: Implications for Platform Regulation by Joey van Angeren (KIN Center for Digital Innovation), Milan Miric (University of Southern California), and Hakan Özalp (Amsterdam Business School).
The research delves into the growing role of platform ecosystems, where more and more companies are becoming part of interconnected networks. In these ecosystems, various actors - notably the platform itself but also other actors - can gain control over strategic bottlenecks that determine how others may create and capture value. Control over bottlenecks comes with significant possibilities to exert market power, which could harm consumers. Therefore, there is a growing interest in how to best regulate platform firms as well as other powerful ecosystem actors.
The study examines the evolution of the console gaming industry from 1990 onwards, exploring the shift in bottlenecks and the resulting shifts in ecosystem interdependencies and strategic acquisition patterns. In this context, the bottleneck shifted from platforms to distributors, back to platforms, and then to tool developers. These dynamics offer key insights into market power within platform ecosystems and digital markets more broadly, with important implications for regulation:
- Regulate beyond platforms: The study suggests that regulationshould go beyond platform firms. An example of this is the Unity runtime fee controversy, where non-platform actors had a significant impact on other ecosystem participants, highlighting the importance of regulating powerful players throughout the ecosystem.
- Regulation needs to adapt: Regulatory frameworks targeted at digital markets must be dynamic, accounting for shifting bottlenecks and evolving power dynamics within ecosystems. If regulations remain static or narrowly focused, they risk missing emerging sources of market power and potential harm to consumers.
- Adopt a broader view: Policymakers in the digital space are urged to take an ecosystem-centric approach to regulation rather than a more conventional market-centric approach. Ecosystems transcend markets, which makes it crucial to explicitly consider the relationships between all ecosystem participants.
In summary, this study enhances our understanding of how platform ecosystems work and provides valuable insights for regulators and business leaders navigating the challenges of digital markets.