HYBRID

Digital markets, although characterized by lower entry cost and low costs to operate a business, are often highly concentrated. Large firms like Google, Apple, Facebook, Amazon and Microsoft have emerged, fostered by large economies of scale and network effects. These firms, often called “GAFAM”, have dominant positions, enabling them to exert market power. Exercising market power might be harmful to the economic welfare. Dominant firms may abuse their positions with excessively high prices or unfair trading practices, going against the principle of the European competition law. These concerns are echoed by manifold antitrust cases around digital platforms, often initiated by the European Commission (e.g. Google Search Shopping, 2017, Google Android, 2017, Google Search Adsense, 2019), but also by national competition authorities (e.g. see the proceedings against MFN clauses of hotel booking platforms in several countries). In this project, we focus on Amazon, which is a case in point for such a large firm under public scrutiny. The structure as a “hybrid” sales platform puts Amazon in a dual role: On the one hand, it acts as a market place operator; on the other hand, it acts itself as a retailer on its own marketplace. This dual role gives Amazon the potential and possibly incentives to distort competition. A core function of platforms is to decide how to present information about different products and the product providers to customers. This allows hybrid platforms to give preference to their own sales offers. At the same time, Amazon has a strong market position. Thus, it is unclear to what extent Amazon guides sellers through selective offer placement as a marketplace operator. This condition may require regulatory interventions and, very recently, these concerns have also led to a new investigation by the European Commission (See European Commission, 2020). The theoretical economic literature on the topic of steering by intermediaries and distortion incentives of vertically integrated platforms is growing fast. Yet, empirical investigations about Amazon functioning of the market place and its exact business strategy are relatively scarce. This project aims to fill this gap. We study how Amazon as a hybrid platform manages competition in its own market place, taking into account competition with other hybrid platforms. Specifically, we focus on how the Amazon sales platform presents its customers with information about various products and product providers. At Amazon, search queries guide product selection, together with a key design element: the “buy-box”. Customers can add or buy products from a particular seller directly into their shopping cart using this clearly visible buy box. The vast majority of transactions are processed via the buy box and the selection algorithm is non-transparent. Often the assigned seller is Amazon itself. The aim of this project is to conduct three empirical studies to reveal the determining factors for the buy box, and to classify them economically. This will serve us to characterize empirical patterns that can be used to test existing theories on the strategic behavior of the hybrid sales platform. Building on these findings, we will further develop a theory on the functionality and effects of the platform on third parties and their welfare effects.