June 2017

Platform businesses bring together distinct but interdependent sets of users in such a way as to improve the welfare of each side of the market. Their central value proposition is the reduction of transaction costs, which increases the number of viable exchanges in the market.

Whilst estimating the welfare effects of innovative businesses is difficult, a recent academic study using granular data put the consumer gains brought about by Uber in 2015 at $6.8 billion for the United States alone.

The rapid growth and large size of the leading online platforms has given rise to concerns from regulators and policymakers. Three areas of controversy stand out in particular: market definition, market power, and platforms’ use of data.

Whilst regulators have traditionally followed a comparably hands-off approach to the internet, this attitude is clearly shifting by recent public announcements in Europe and elsewhere. However, an understanding of the central economic features of platforms arguably cautions against increased interventionism.