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Vera Demary / Barbara Engels / Christian Rusche Expertise 24. September 2020 Differentiated Treatment of Business Users by Online Platforms

Online platforms have gained importance in the past couple of years. They are present all over the world and in many sectors of the economy. Their main purpose is to facilitate transactions between various user groups. Hence, online platforms can be defined as online spaces in which users are brought together by a platform operator, in order to facilitate an interaction (the exchange of information, a commercial transaction, etc.).

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Differentiated Treatment of Business Users by Online Platforms
Vera Demary / Barbara Engels / Christian Rusche Expertise 24. September 2020

Differentiated Treatment of Business Users by Online Platforms

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German Economic Institute (IW) German Economic Institute (IW)

Online platforms have gained importance in the past couple of years. They are present all over the world and in many sectors of the economy. Their main purpose is to facilitate transactions between various user groups. Hence, online platforms can be defined as online spaces in which users are brought together by a platform operator, in order to facilitate an interaction (the exchange of information, a commercial transaction, etc.).

In contrast to other business models, online platforms usually do not produce the product or service or own the asset that is being exchanged between users; they are assetlight. Platform business models possess distinctive characteristics. Network effects, data analysis, and economies of scale allow them to grow large quickly. In many markets, these characteristics exert extensive effects on competition. Once online platforms reach a critical mass of users, network effects can lead to their self-enforcing growth, and in many cases their dominant market position. This situation places a responsibility on those dominant platforms not to distort competition, particularly in cases where a platform performs the role of “gatekeeper” between its various user groups, and its actions can therefore produce effects on the competitive environment within a specific market.

Differentiated treatment of business users is one way in which online platforms can distort competition. In this context, differentiated treatment refers to the application of dissimilar conditions to similar business users, goods or services. The main focus of this paper is on business users of platforms and, therefore, it mainly refers to intra-platform competition, which includes preferencing certain types of business users. In that sense, the vertical integration of online platforms is relevant for such platform behaviour if the platform acts both as a platform operator and as a platform business user. In the case of e-commerce, this means that an online marketplace operator also sells its own products via the platform. Differentiated treatment can also mean exclusionary leveraging which can occur in interplatform competition. This is not fully covered by this study because such an analysis has to take into account businesses that are not active on the platform. Nevertheless, a platform entering the market of its own business users and favouring its own new offers on the platform in order to gain market power is also a form of exclusionary leveraging which is indeed covered by this study.

Differentiated treatment can affect competition in two ways. First, if a platform’s differentiated treatment disadvantages certain business users, it influences competition between business users. Second, competition can also be influenced by so-called “self-preferencing” on the part of vertically integrated platforms. Such businesses not only operate the platform but are also business users of the platform – for instance, they sell their own products via the marketplace. Vertical integration is desirable for online platforms because it enables them to develop new revenue streams and exploit opportunities that arise from analysing data generated by the platform. The inherent danger of vertical integration lies in the opportunity it provides the platform to abuse its favourable position. Since the platform directly controls the ecosystem in which it competes alongside independent business users, it could employ the rules to its own advantage

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Differentiated Treatment of Business Users by Online Platforms
Vera Demary / Barbara Engels / Christian Rusche Expertise 24. September 2020

Vera Demary / Barbara Engels / Christian Rusche: Differentiated Treatment of Business Users by Online Platforms

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German Economic Institute (IW) German Economic Institute (IW)

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