9 Sources of power in the digital economy

Competition authorities are starting to pay attention to giant digital firms, especially those with user data and high market power, as there are ways in which they could be participating in anti-competitive behaviour. Firms have different ways in which they can keep their market power including taking advantage of their networks and innovation, particularly if they are large enough, as is the case with conglomerates. Bourreau and de Streel (March, 2019) summarised how anticompetitive behaviour could occur given digital firms’ size, competition, and particularities. They divide this behaviour into four main categories: bundling products (abuse of dominance), product proliferation and essential components (abuse of dominance), acting as gatekeepers (abuse of dominance) and finally via strategic acquisitions (vertical and horizontal mergers). Let’s go through them to elucidate their behaviour. 

• Bundling products, as its name hints is the act of selling complementary outputs with a single product to maintain their dominance. Think of the computer example from the abuse dominance section, buying a computer also entails an operating system Microsoft Windows or Mac OS. Microsoft has been recently investigated for bundling: buying Office or Microsoft 365 included Teams, therefore taking advantage of their productivity packages popularity to increase its visibility. After the European Commission investigation, Microsoft launched an Office 365 version without Teams.
• Product proliferation and essential components, similarly to product bundling, relates to building complementary products or using their data to take advantage. It is also known as self-preferencing. For example, Amazon collected data from products most sold on its platform and used it to decide where to expand its product range (Zhu and Liu 2018).
• Act as gatekeepers: firms can put up barriers to other firms using the market power they have, taking advantage of their network effects. In the case of social platforms, they can take advantage of their network position and limit access to their users, or limit what their users can engage with. Firms can also act as gatekeepers of the products or services firms can access. An example of this is Google’s search model, where it can choose which webpages to show according to certain words.
• Strategic Acquisitions: firms of a certain size have sufficient internal financing to make strategic acquisitions, buying companies that could become their competitor or even make them obsolete. A clear example of this is when Facebook bought Instagram as it realised it was becoming a big competitor attracting people of younger ages.  

Although some of the examples show ways in which firms have taken advantage of their dominance, for competition authorities it has been hard to assess when it should be impeding acquisitions or intervening in the companies’ evolution, as they can be impeding innovation. An example of a decision by competitive authorities for which they later expressed regret was the merger of Facebook and Instagram, as it gave Meta (the parent company) higher market power.