A Topology of Multisided Digital Platforms
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A Topology of Multisided Digital Platforms DANIEL A. HANLEY† TABLE OF CONTENTS INTRODUCTION ............................................................................. 272 I. AMASSING CHARACTERISTICS .................................................. 275 A. Supply and Demand Conditions .......................................... 275 1. Operational Costs ................................................................ 276 2. Consumer Costs .................................................................. 278 B. Network Effects .................................................................... 278 1. Risk Generation .................................................................. 280 2. Winner-Take-All................................................................. 289 II. ENTRENCHING CONDUCT ....................................................... 291 A. User Lock-In ........................................................................ 291 1. Inherent Platform Characteristics ........................................ 292 2. Purposeful Design ............................................................... 296 B. Data Collection and Utilization ............................................ 296 III. EXPLOITATIVE CONDUCT ....................................................... 308 A. Leveraging ............................................................................ 308 B. Gatekeeper / Police Power ................................................... 319 1. Removal, Regulation, and Rulemaking................................ 321 2. Monitoring, Copying, and Competitor Deterrence ............... 328 3. Discriminatory Conduct ...................................................... 336 CONCLUSION ................................................................................. 337 A PPENDIX ...................................................................................... 346 † J.D., 2019, University of Connecticut School of Law; Policy Analyst, Open Markets Institute. I want to take an opportunity to thank Attorney Robert Langer of Wiggin and Dana. This article is an expanded version of the final assignment written for his State Unfair Trade Practices class I took in the fall of 2017. I would also like to thank Professor Kiel Brennan-Marquez for his instrumental commentary and feedback. I am also grateful for the edits and contributions from Professor James Kwak, Tyler Margid, Stephani Roberts, Matthew Buck, Krista Brown as well as Sandeep Vaheesan and the rest of the Open Markets Institute staff. I would also like to thank my wife, Sloane Hanley. This article could not have been written without her support. Lastly, I would like to thank the entire staff of the Connecticut Public Interest Law Journal for their exceptional work. All errors are my own. 272 CONNECTICUT PUBLIC INTEREST LAW JOURNAL [Vol. 19.2 INTRODUCTION Digital platforms dominate the marketplace. The largest platforms– Google, Apple, Facebook, Amazon, and Microsoft (collectively known as “GAFAM”1)–have an unparalleled financial position in the marketplace,2 and collectively maintain at least a thirty-three percent market share in fifteen separate markets with user bases in the billions.3 These corporations are also consistently ranked as the largest companies on Earth by market capitalization.4 The GAFAM companies transact and function as intermediaries with both buyers and sellers, which designates them as multisided businesses– more commonly known as platforms.5 The conventional business model consists of transacting with only consumers or sellers, known as single-sided firms.6 Although the veracity and legal significance of this difference between single-sided firms and multisided platforms are debatable,7 this 1 This is phrasing economist Thomas Philippon uses. THOMAS PHILIPPON, THE GREAT REVERSAL 159 (2019). 2 As of November 2019, Alphabet has $121.2 billion in cash. Apple has $100.6 billion. Facebook has $52 billion. Microsoft has $136.6 billion. See Pippa Stevens, Here Are the 10 Companies with the Most Cash on Hand, CNBC (Nov. 7, 2019), https://www.cnbc.com/2019/11/07/microsoft-apple-and- alphabet-are-sitting-on-more-than-100-billion-in-cash.html. 3 See infra Appendix A & B. 4 List of Public Corporations by Market Capitalization, WIKIPEDIA, https://en.wikipedia.org/wiki/ List_of_public_corporations_by_market_capitalization#2019 [https://web.archive.org/web/20200102032943/https://en.wikipedia.org/wiki/List_of_public_corporatio ns_by_market_capitalization] (last visited Jan. 28, 2020). 5 Benjamin E. Hermalin & Michael L. Katz, What’s So Special About Two-Sided Markets?, in TOWARD A JUST SOCIETY: JOSEPH STIGLITZ AND TWENTY-FIRST CENTURY ECONOMICS 111 (Martin Guzman ed., 2018) (defining a platform as “an enterprise [that] facilitates exchange between two or more parties”). This article will use multisided market, multisided businesses, digital multisided platforms, and platforms interchangeably. 6 David S. Evans, The Antitrust Economics of Multi-Sided Platform Markets, 20 YALE J. ON REG. 325, 336–39 (2003) (contrasting and detailing some of the differences between two-sided/multisided firms and single-sided firms). 7 Brief of Open Markets Institute as Amicus Curiae in Support of Petitioners, at 7, Ohio v. American Express Co., 138 S. Ct. 2274 (2018) (No. 16-1454) (stating, “there is no consensus on what constituted a ‘two-sided’ market, and the parameters of leading definitions can be read broadly. Drawing sharp lines on the basis of a vague and contested definition is a mistake, as it will confuse courts and enable legal arbitrage.”) (footnotes omitted), https://www.supremecourt.gov/DocketPDF/16/16-1454/23961/2017 1214162630698_16-1454%20Open%20Markets%20Amicus%20Brief.pdf. For arguing that platforms are not different, see PHILIPPON, supra note 1, at 252 (stating, “What the data tells us here is that the assumption that tech firms are somehow thoroughly different from dominant companies of previous generations doesn’t stand up.”) (emphasis added); see also HAROLD FELD, THE CASE FOR THE DIGITAL PLATFORM ACT: MARKET STRUCTURE AND REGULATION OF DIGITAL PLATFORMS 4 (2019), https://www.publicknowledge.org/assets/uploads/documents/Case_for_the_Digital_Platform_Act_Har old_Feld_2019.pdf (stating “Drawing on the lessons of the last 100+ years of telecommunications and media law, we see that digital platforms raise many of the same policy challenges that the rise of the telephone and radio broadcasting created in their day.”) (emphasis added). For arguing that platforms are different, see also John M. Newman, Antitrust in Digital Markets, 72 VAND. L. REV. 1497, 1502 (2019) (stating, “This [a]rticle contends that digital markets are different, such that they deserve–indeed, demand–unique treatment under the antitrust laws”) (emphasis added). 2020] TOPOLOGY OF MULTISIDED DIGITAL PLATFORMS 273 article will accept the current schema that platforms operate under different conditions than their single-sided counterparts.8 Nevertheless, being able to transact with both buyers and sellers has led to the domination of platform businesses, specifically the GAFAM companies. The dominance of these digital platform companies and the various anticompetitive behavior they have engaged in warrants scrutiny of their industry and business operations. Scholars have attempted to use the current antitrust framework and construct new regulatory rules that aim to curb the market power of multisided platforms.9 While many of these recommendations are laudable and necessary, particularly with the numerous antitrust investigations currently taking place against the GAFAM companies,10 this author believes that without explaining both the goals and effects of the anticompetitive behavior of multisided corporations, the proverbial cart is being put before the horse. Stated differently, for purposes of this article, the debate is not that multisided platforms can engage in and operate under different business activities, or even the extent to which a corporation being multisided or having multisided operations is or should be legally important to the determination of antitrust liability.11 Instead, this article details precisely what the goals and effects are of the conduct digital platforms engage in to 8 The currently held view is that multisided platforms are different. American Express, 138 S. Ct. at 2280 (stating, “[t]wo-sided platforms differ from traditional markets[.]”). Economists have determined that there are two types of multisided platforms: transactional and media. However, this article will not distinguish the anticompetitive conduct by type of platform. This author has not found literature determining that the anticompetitive conduct described in this article is exclusively limited by the type of platform. For purposes of completeness, “[T]ransaction[al] platforms [do] not provide either side [of the market] with anything of intrinsic value, but rather provides instrumental value by facilitating transactions between the two sides.” Erik Hovenkamp, Platform Antitrust, 44 J. CORP. L. 713, 724 (2019). The most common example is that of a credit card. The issuing credit card company acts as an intermediary between the purchaser of a good or service and entity providing it. Other examples include operating systems, offer-listing sites, and reservation services. Media (also called non-transactional) platforms involve the dissemination of some valuable content from one side to another. See generally id. A common example of this kind of platform is the online video service YouTube.