Regulation of Hybrid e-Commerce Platforms

This is part of our KS-Comp Update series brought to you from our Antitrust & Competition practice. On February 17, 2022, Keystone attended two panel discussions on economic incentives and public policy related to “hybrid” e-commerce platforms—that is, e-commerce platforms that offer products sold by the platform itself in addition to those sold by third parties. The panels, part of the virtual event “Regulating ecommerce platforms? Economics and Policy,” contained several thoughtful perspectives that are likely of interest to those who follow and engage in competition policy regarding e-commerce platforms. The below is a short summary of some of the key ideas discussed. The panels were jointly organized by the Competition Research Policy Network of the Centre for Economic Policy Research (CEPR) and by the Centre for Competition and Innovation at the University of Mannheim. Economics of hybrid e-commerce platforms The speakers on the first panel were Federico Etro (University of Florence), Özlem Bedre-Defolie (ESMT Berlin and the CEPR), and Andrei Hagiu (Boston University), who discussed recent economic research related to the incentives faced by hybrid e-commerce platforms. Among the key points the panelists made were the following:

• Platform incentives. Professor Etro explained that, in the short run, a platform that adopts a hybrid model faces two competing incentives. The first is the platform's incentive to boost its own sales by raising commissions on goods sold by third-party sellers, which makes the platform's goods relatively less expensive. The second is the platform's incentive to reduce commissions on goods sold by third-party sellers to increase transactions. Professor Etro indicated that whichever of the two effects is stronger is case-specific.
• Efficiencies of hybrid model. The panelists all agreed that, at least in some cases, the hybrid model generates efficiencies beyond those generated by non-hybrid platforms. As an example, Professor Hagiu pointed out that a hybrid platform can offer products that “fill in gaps” in product categories offered by third-party sellers.
• Structural versus behavioral remedies. The panelists generally agreed that a blanket prohibition on hybrid platforms would not be appropriate, pointing to the possible efficiencies of the hybrid structure and hybrid platforms' pro-competitive incentives. Professors Bedre-Defolie and Hagiu spoke about the benefits of behavioral remedies, which could include banning self-preferencing or the use of sellers' proprietary information to inform a platform's own selling activities. Professor Hagiu suggested the requirement of an API that allows approved third parties to audit a hybrid platform's recommendation engine.

Policy options for regulating e-commerce platforms The second panel focused on policy options for regulating hybrid platforms. The panelists were Antonio Buttà (Italian Competition Authority), Greg Crawford (University of Zurich and CEPR), Amelia Fletcher CBE (University of East Anglia), Alexandra Geese (Member of the European Parliament), Thorsten Kaeseberg (German Federal Ministry for Economic Affairs and Energy), Sarah Miller (American Economic Liberties Project), and Steve Tadelis (University of California, Berkeley and CEPR). The panelists discussed the following topics, among others:

• Bright line rules. A major topic of conversation among the panelists centered on whether the regulation of hybrid platforms should include bright line rules – for example, a blanket prohibition on self-preferencing by a hybrid platform (without a corresponding requirement that the self-preferencing have resulted in anticompetitive effects). Alexandra Geese and Thorsten Kaeseberg spoke about the speed with which digital industries evolve and the resulting need for bright line rules to avoid the rapid disappearance of competitors, among other harms. Professor Tadelis expressed concern with bright-line rules given their potential to prevent future innovation. The host of the panel (Cristina Caffara, Charles River Associates and CEPR) also noted that even supposedly bright-line rules could, in practice, be ambiguous.
• Specific legislative initiatives. The panelists discussed several governmental initiatives related to the enforcement of platforms. Several panelists spoke about the European Digital Markets Act, which regulates those large online platforms that fall within the legislation's definition of a “gatekeeper.” Other initiatives included the Italian antitrust enforcer's recent abuse of dominant position case against Amazon, enforcement and regulatory activities in Germany (including powers by the German government to prohibit certain self-preferencing practices), and the United Kingdom's declaration that Amazon is subject to the national grocery supply of conduct.

You can find the on-demand recording of the event on YouTube here and below:

If you have any questions about this post or about Keystone's competition practice more generally, please contact Jennifer Redmond, Jim Robson, Nadia Shepard, or any other member of the Keystone team.Keystone is an innovative strategy and economics consulting firm delivering transformative ideas to global brands, government bodies, and law firms. Keystone's competition practice was recognized in the Global Competition Review's most recent ranking of the world's leading consultancies for antitrust economics. Keystone and Keystone experts contribute to and engage with thought leadership regarding the evolving fields of competition law and policy as they relate to technology businesses.