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Online platforms: Economic and societal effects STUDY Panel for the Future of Science and Technology EPRS | European Parliamentary Research Service Scientific Foresight Unit (STOA) PE 656.336 – March 2021 EN Online platforms: Economic and societal effects Online platforms such as Google, Amazon, and Facebook play an increasingly central role in the economy and society. They operate as digital intermediaries across interconnected sectors and markets subject to network effects. These firms have grown to an unprecedented scale, propelled by data-driven business models. Online platforms have a massive impact on individual users and businesses, and are recasting the relationships between customers, advertisers, workers and employers. This has triggered a public debate on online platforms' economic dominance and patterns of pervasive data collection. This study presents an analytical synthesis of the literature, to assess the effects of online platforms on the economy and society. The report provides evidence of positive impact, and documents a set of important issues not fully addressed by existing European Union regulation and enforcement. The consensus is that there is a need to strengthen the current law enforcement and regulation of the platform economy. This report welcomes the proposed digital markets and digital services acts, and offers a series of policy options for competition and innovation, working conditions and labour markets, consumer and societal risks, and environmental sustainability. AUTHORS This study has been written by Professor Annabelle Gawer, Surrey Business School, University of Surrey (main author), Dr Nick Srnicek, King's College London, at the request of the Panel for the Future of Science and Technology (STOA) and managed by the Scientific Foresight Unit, within the Directorate-General for Parliamentary Research Services (EPRS) of the Secretariat of the European Parliament. ADMINISTRATOR RESPONSIBLE Mihalis Kritikos, Scientific Foresight Unit (STOA) To contact the publisher, please e-mail [email protected] LINGUISTIC VERSION Original: EN Manuscript completed in March 2021. DISCLAIMER AND COPYRIGHT This document is prepared for, and addressed to, the Members and staff of the European Parliament as background material to assist them in their parliamentary work. The content of the document is the sole responsibility of its author(s) and any opinions expressed herein should not be taken to represent an official position of the Parliament. Reproduction and translation for non-commercial purposes are authorised, provided the source is acknowledged and the European Parliament is given prior notice and sent a copy. Brussels © European Union, 2021. PE 656.336 ISBN: 978-92-846-7745-0 doi: 10.2861/844602 QA-03-21-077-EN-N http://www.europarl.europa.eu/stoa (STOA website) http://www.eprs.ep.parl.union.eu (intranet) http://www.europarl.europa.eu/thinktank (internet) http://epthinktank.eu (blog) Online platforms: Economic and societal effects Executive Summary Today, all 'big tech' companies are digital platforms. They are among the most valuable firms in the world. The combined market capitalisation of just four companies Alphabet-Google, Amazon, Apple, and Facebook exceeded US$5.7 trillion in December 2020. This amount is greater than the market capitalisation of the entire Euronext stock exchange and a third of the value of the whole Standard & Poor's 100 index of United States stocks. Amidst a global recession caused by the Covid-19 pandemic, these companies have not only been resilient, but in fact, leading beneficiaries of the widespread moves towards remote work, social distancing, and online shopping. This study aims to provide a thorough overview, based on a state-of-the-art literature review, of these platform companies' most significant effects on the economy, on workers, and more broadly on society. This report provides evidence of the positive impact of online platforms. It also documents a set of important issues not fully addressed by existing European Union (EU) regulation and enforcement. The consensus is that there is a need to strengthen the current law enforcement and regulation of the platform economy. This report welcomes the proposed Digital Markets and Digital Services acts, and offers a series of policy options for competition and innovation, working conditions and labour markets, consumer and societal risks, and environmental sustainability. These policy options aim to address the issues and mitigate the risks associated with online platforms to ensure that the digital economy operates in a way that sustainably benefits people, businesses, and society. Characteristics of Digital Platforms Online platforms play a prominent role in creating digital value that underpins current and future economic growth in the EU. This report uses the terms 'platforms', 'online platforms' and 'digital platforms' interchangeably, to mean digital services that facilitate interactions via the internet between two or more distinct but interdependent sets of users (whether firms or individuals). Examples of such online platforms include online marketplaces, app stores, search engines, social media and platforms for the collaborative economy. Despite the variety of sectors that they operate in and the diversity of activities they facilitate, online platforms share common economic, business, and governance characteristics in creating and capturing value. These include: the generation of economies of scale and scope; network effects, which can lead to winner-take-all monopolistic positions; business models involving cross-subsidisation across platform sides; pervasive data generation, and data capture and usage; and the fact that platforms act as private regulators of their ecosystems which include businesses and individual users, effectively running as private turfs the business relationships, data exchanges, and transactions that they facilitate. Digital platforms create value by facilitating exchanges/transactions and through fostering innovation. They provide a structure that can take advantage of digital technologies' low search costs to generate efficient matches between globally connected users. Platforms also increase the efficiency of trade through lower search costs and low reproduction and verification costs. Digital platforms also facilitate innovation by enabling third-party firms such as software developers to build enormous quantities of complementary products or services. Platforms' Effects on Consumers, Businesses, Competition, and Innovation Digital platforms are uniquely positioned to create and capture value in the digital economy. Platform services can bring substantial benefits to consumers while being provided free of charge to users. Yet digital goods generate a large amount of consumer welfare that is currently not captured in gross domestic product (GDP) measures. While GDP is often used as a proxy for well-being, consumer surplus is a better measure of consumer well-being. Research on this issue routinely demonstrates that consumers place a significant financial value on a range of online services, assigning multiple thousands of dollars of value to search engines and digital maps. Digital platform companies also make large investments in research and development. Amazon, Alphabet (the parent company of Google), Microsoft and Apple all feature in the top 10 companies for I STOA | Panel for the Future of Science and Technology global spending on research. These high levels of investment in research and innovation are likely to deliver significant benefits for these businesses, their consumers, and society. In addition, innovation platforms such as Apple's iOS or Google's Android provide business opportunities for millions of application developers who innovate on new applications, facilitating the development of apps that they can then distribute globally through app stores. Propelled by their deep reach into our lives, shaping how people work, communicate, shop and entertain themselves, digital platform companies have reached a place of centrality in the economy. That centrality to the economy has only deepened during the Covid-19 pandemic. Yet there is also a wide range of discussion around the ways in which the largest digital platforms have abused their power. These issues include anti-competitive practices, mass-harvesting of user data, and failure to tackle illegal or harmful digital content. These issues are further detailed in the report. Platforms' Effects on Employment and the Social Fabric In the platform economy, a wide variety of novel jobs have emerged. Following much of the literature, these different jobs can be categorised into (1) on-demand work and (2) crowdwork. These jobs are organised via digital platforms, including apps and websites, and all of them focus on short-term work (hence they are often called the 'gig economy'). While organised digitally, on-demand work requires offline labour involving tasks such as cleaning, ride sharing, delivering, caring, maintenance, etc. that must be physically carried out in geographically specified locations. Crowdworkers use platforms to find clients who require their services, which are then provided virtually rather than in-person. The most prominent element of platform work is how it often relies upon and expands a non-standard employment relation. Much platform work relies on contracts where workers are not defined as employees, but instead as (depending on the language of particular legal systems) 'independent contractors',
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