Definition
A platform market refers to a market wherein a business acts as an intermediary and brings together two or more groups of users who benefit from interacting with one another. The intermediary creates value by facilitating connections and transactions between different user groups rather than producing and selling goods or services directly.
For instance:
Amazon acts as an intermediary and connects buyers and sellers;
Uber connects passengers and drivers;
Airbnb connects guests/travellers and hosts.
It is interesting to note that the value of the platform increases for the users on one side when there are additional users on the opposite side. Put simply, the more users join a platform on one side, the more attractive it often becomes for users on the other side.
Commentary
1. Origin of the term
The modern theory of platform markets is largely attributed to the work of Jean-Charles Rochet and Jean Tirole1 who explained how platforms facilitate interactions between distinct user groups and how participation on one side of the platform influences participation on the other. However, the concept of an intermediary platform is not new. Before the rise of digital platforms, newspapers and shopping malls long functioned as intermediary platforms by facilitating interactions between different groups of users. The primary difference between these traditional platforms and digital platforms is that the former operated offline as against the latter which operates online.
2. Economic rationale
The economic rationale for platform markets lies in their ability to reduce transaction costs, search costs and coordination problems. Platforms derive value from connecting different groups of users who would otherwise find it costly to identify and engage with one another. A key characteristic of a platform market is the presence of indirect network effects: the value of the platform for users on one side increases with the increase in the number of users on the other side. For instance, a greater number of users attract more advertisers on social media platforms, while a greater number of sellers on an e-commerce intermediary attract more buyers. In the case of direct network effects, the value of the platform increases with an increase in the number of users on the same side, for instance, WhatsApp.
Unlike traditional markets, digital platforms often employ asymmetric pricing strategies wherein they charge one group of users and subsidize or offer free access to another. Search engines and social networking platforms, for instance, often offer services to users free of charge while capitalising on user engagement to generate advertising revenue. As a result, competitive harm cannot always be assessed through traditional price-based analysis alone.
3. Competition law significance
Platform markets have emerged as a central concern in the field of competition law because of their distinctive structural characteristics such as network effects, economies of scale, data accumulation, and ecosystem integration. These characteristics can reinforce long-term and durable market power. As a result, they have prompted a re-evaluation of traditional approaches to market definition, assessment of dominance, and consumer welfare analysis. Thus, competition regulators are increasingly focussing on practices such as self-preferencing, discriminatory access conditions, restrictions on interoperability, and acquisitions of nascent competitors, to name a few.
While raising competition concerns, platform markets create substantial efficiencies. They facilitate innovation, reduce transaction costs, enhance consumer choice, and create new opportunities for economic activity. Competition law therefore seeks to distinguish between legitimate platform success and conduct that unlawfully forecloses competition.
Illustrative legislative initiatives across jurisdictions to address competition law concerns in digital platforms
European Union: The Digital Markets Act has established a regulatory regime for digital markets.
United Kingdom: A digital markets regulatory framework has been established by the Digital Markets, Competition and Consumers Act, 2024.
India: The Competition Act, 2002 remains the principal legal framework governing competition concerns arising in digital markets, though deliberations on adopting a specific digital market regulation framework are underway.
The increasing significance of digital platforms is reshaping competition policy worldwide. Thus, platform markets remain a central focus of contemporary competition law and policy debates.
J.C. Rochet and J. Tirole, ‘Platform Competition in Two-Sided Markets’ (2003) 1(4) Journal of the European Economic Association 990.↩︎
