{"id":4627,"date":"2024-10-08T09:53:59","date_gmt":"2024-10-08T07:53:59","guid":{"rendered":"https:\/\/www.rivistaeco.com\/?p=4627"},"modified":"2024-10-08T09:53:59","modified_gmt":"2024-10-08T07:53:59","slug":"the-promises-and-pitfalls-of-digital-platforms","status":"publish","type":"post","link":"https:\/\/www.rivistaeco.com\/en\/2024\/10\/08\/the-promises-and-pitfalls-of-digital-platforms\/","title":{"rendered":"The Promises and Pitfalls of Digital Platforms"},"content":{"rendered":"

Digital platforms can make life easier or more difficult for citizens. The key to ensuring the benefits while mitigating the negative aspects lies in regulations that can adapt to the continuous changes in the market. European legislation attempts to balance innovation with fair competition and consumer protection.<\/span><\/i><\/p>\n

Digital platforms like Amazon or Facebook provoke strong reactions. Supporters highlight their ability to democratize and personalize access to goods, services, and information in previously unimaginable ways. Critics focus on market dominance, excessive data collection and misuse, and their role in spreading misinformation. As is often the case, the truth lies somewhere in between.<\/span><\/p>\n

The Value of Platforms<\/b><\/h3>\n

There is nothing new in what digital platforms offer. Amazon allows you to purchase products available from local retailers, Airbnb offers alternatives to hotels, and Google provides information found in encyclopedias or newspapers. What is innovative is how they enable access to these services. Their role is to facilitate valuable interactions between various users: buyers and sellers, drivers and passengers, guests and hosts. They do this by collecting and aggregating vast amounts of information, which is used for three key tasks as explained in the study “Peer-to-Peer Markets” co-authored by Chiara Farronato: search and matching, pricing, and trust.<\/span><\/p>\n

First, platforms assist in “search and matching.” It would be impossible to examine hundreds of options for toilet paper on Amazon if the platform didn’t curate the order in which users see the alternatives. Similarly, Uber would not be used if passengers had to contact all nearby drivers individually for a ride. Second, platforms use the collected information to set prices. Sometimes this means allowing sellers to set the price, as with Airbnb hosts. Other times, like on Uber, they use detailed data on overall demand and supply to set prices that balance the market, adjusting as necessary. Finally, and perhaps most importantly, they help ensure trust. Imagine telling your grandparents you will stay at a stranger’s house found online while visiting Rome. The likely reaction would be horror. Digital platforms have convinced us to participate in otherwise risky exchanges by collecting extensive customer reviews to continuously monitor providers and eliminate those who do not comply with the rules.<\/span><\/p>\n

The role of platforms as information aggregators is valuable for several reasons. The most obvious is personalization. Netflix, for example, tailors recommendations to your viewing history and preferences, eliminating the need to settle for what is available on a limited number of TV channels. Personalization is possible only with a vast product offering, which digital platforms enable by lowering entry barriers. Consider taxis: in most cities, a taxi driver needs a license or permit. Uber has replaced the costly initial screening with continuous monitoring, making ride-sharing more accessible. Reduced entry barriers allow service providers to enter a profession even if they cannot or do not want to work full-time. Flexibility in choosing when and where to work is crucial for providers with uncertain schedules, such as those caring for family members, holding part-time jobs, or temporarily unemployed. This type of flexibility is particularly rare in low-skilled jobs. It also benefits consumers, especially when their demand is highly fluctuating, as in the vacation accommodation market. Hotels tend to have a fixed number of rooms available year-round. But the demand for accommodation is not stable: people travel en masse during holidays and stay home during other periods. Thus, hotel rooms are full during holidays (and many travellers cannot find accommodation) while many of those rooms remain vacant off-season. Airbnb hosts, on the other hand, respond very well to demand fluctuations: they rent out their properties during peak demand periods and reduce supply during low demand periods. Their behaviour helps travellers in two ways (as detailed in the research “The Welfare Effects of Peer Entry: The Case of Airbnb and the Accommodation Industry”): more tourists can find accommodation when desired, and those choosing hotels also benefit from market competition that lowers room prices.<\/span><\/p>\n

The entry of new service providers into the market seems enticing, but how do we know if consumers are protected from risky exchanges? Economists call this the “market for lemons” problem. When consumers cannot tell whether the service they receive will be of high or low quality, they may not be willing to pay much, which could drive high-quality sellers out of the market. This problem is usually addressed through regulation to exclude low quality from entering (professional licensing is an example) or to continuously monitor quality (restaurant health and safety inspections are another example). But there is another option that digital platforms have leveraged: consumer reviews. Despite numerous criticisms that reviews are biased and easily manipulated, the vast majority of consumers still rely on the judgment of other consumers when choosing where to eat or find a handyman. Platforms also use other quality signals when presenting various options to consumers, such as return rates for Amazon sellers or harsh braking for Uber drivers.<\/span><\/p>\n

Avoiding Negative Consequences<\/b><\/h3>\n

At this point, you may be convinced that digital platforms create substantial value by aggregating information to lower entry barriers and enable a diverse, flexible product offering that responds to consumer demand. The thorny issue is who benefits and who loses from this value creation. Even if the value pie increases, the slices may not be equitably divided, which could require regulatory intervention. I’ll focus on three aspects that can influence the distribution of value created by platforms: negative externalities, privacy, and market power.<\/span><\/p>\n

Negative externalities occur when someone’s gain comes at the expense of someone else. Pollution is the most fitting example. Companies often pollute during production processes, which can harm the local ecosystem and the health of nearby residents. If no limits are imposed (such as the EU’s emission trading systems), companies would over-pollute, harming those around them. In the vacation accommodation market, there are at least two negative externalities to worry about. The first is the impact a large number of tourists have on the daily lives of local residents. Recent research by economists Milena Almagro and Tom\u00e1s Dom\u00ednguez-Iino showed that the spread of Airbnb in Amsterdam shifted the type of services offered in a neighbourhood from those intended for permanent residents (such as nurseries) to those aimed at tourists (such as travel agencies). The second concerning consequence is housing rent prices, which increased after Airbnb’s entry (as demonstrated in the study “The Distributional Impact of the Sharing Economy on the Housing Market”). What could be the best regulation to address these issues? Not an outright ban like New York City’s, which would destroy the benefits listed earlier. Instead, limits on where and when hosts can rent their properties on the platform could likely strike the right balance between the benefits and negative effects created by Airbnb.<\/span><\/p>\n

A Privacy Issue<\/b><\/h3>\n

As information aggregators, platforms need to collect consumer data, raising serious privacy concerns. Privacy is particularly challenging to regulate because consumers say they care about it, but their behaviour often suggests otherwise. Consequently, recent regulatory attempts have had mixed success. For example, the European General Data Protection Regulation (GDPR) approved in 2018 is based on two key principles: data minimization (data collection is limited to what is necessary for explicitly defined purposes) and consent (users must be able to give explicit and informed consent to data collection). In practice, online consent banners can often be misleading and designed to nudge consumers into sharing more data than they are willing to\u2014a practice called “dark patterns.” Numerous studies show that dark patterns are widespread and can manipulate user choices, which is why the EU’s Digital Services Act now explicitly bans them.<\/span><\/p>\n

Destined to Be Dominant?<\/b><\/h3>\n

Many digital platforms have reached dominant positions, raising concerns about competition. A dominant position is not illegal per se. The very characteristics of digital platforms – strong network effects, economies of scale and scope, increasing returns from data – make it more likely that they will become larger and dominant. Problems arise when dominant platforms adopt strategies that intentionally limit competition and the entry of new players. One such strategy is self-preferencing, where a platform gives undue priority to its own products and services at the expense of third-party providers and consumers. An example of self-preferencing is Google giving an unfair advantage to Google Shopping in search results, which cost the Mountain View company a 2.42 billion euro fine from the EU. Self-preferencing, however, is difficult to prove. It is not enough to show that platform products rank higher in search results than similar third-party alternatives. It must also be demonstrated that the ranking goes against the preferences of consumers and third-party vendors.<\/span><\/p>\n

The first major antitrust legislation, the EU’s Digital Markets Act, came into effect in 2023. It sets requirements for large platforms based on two fundamental principles: fairness, ensuring a level playing field for all online businesses, such as banning self-preferencing, and transparency, giving the market a chance to compete, such as requiring interoperability, the ability of a product or IT system to function and interact with other products and systems. These are reasonable principles, but their effects will largely depend on how they are translated into practice in the coming years.<\/span><\/p>\n

Digital platforms have transformed how we access goods and services, creating value through information aggregation and lowering market entry barriers for new players. However, challenges related to negative externalities, privacy, and market power require attention. The latest EU regulation is designed to address these concerns, aiming to balance innovation with fair competition and consumer protection. The key to ensuring the benefits while mitigating the negative aspects lies in effective enforcement and continuous adaptation of the rules.<\/span><\/p>\n

Network Effect:<\/b> Occurs when the value of a product or service increases as the number of users grows.<\/span><\/p>\n

Economies of Scale:<\/b> Occur when total production costs decrease as the production volume increases.<\/span><\/p>\n

Economies of Scope:<\/b> Involve reducing the average total cost through the joint production of two or more goods within the same company compared to separate production in different companies.<\/span><\/p>\n

Increasing Returns:<\/b> Occur when an increase in production inputs (e.g., data) leads to a more than proportional increase in output.<\/span><\/p>\n

Bio<\/b><\/em><\/p>\n

Chiara Farronato is the Glenn and Mary Jane Creamer Associate Professor of Business Administration at Harvard Business School and co-Principal Investigator of the Platform Lab at the Digital Data Design Institute (D^3) at Harvard.<\/span><\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

Digital platforms can make life easier or more difficult for citizens. The key to ensuring the benefits while mitigating the negative aspects lies in regulations […]<\/p>\n","protected":false},"author":7954,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[1],"tags":[],"coauthors":[158],"class_list":["post-4627","post","type-post","status-publish","format-standard","hentry","category-non-categorizzato"],"acf":[],"yoast_head":"\nThe Promises and Pitfalls of Digital Platforms - Rivista Eco<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.rivistaeco.com\/en\/2024\/10\/08\/the-promises-and-pitfalls-of-digital-platforms\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"The Promises and Pitfalls of Digital Platforms - Rivista Eco\" \/>\n<meta property=\"og:description\" content=\"Digital platforms can make life easier or more difficult for citizens. The key to ensuring the benefits while mitigating the negative aspects lies in regulations […]\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.rivistaeco.com\/en\/2024\/10\/08\/the-promises-and-pitfalls-of-digital-platforms\/\" \/>\n<meta property=\"og:site_name\" content=\"Rivista Eco\" \/>\n<meta property=\"article:published_time\" content=\"2024-10-08T07:53:59+00:00\" \/>\n<meta name=\"author\" content=\"Chiara Farronato\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Chiara Farronato\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"10 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\\\/\\\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\\\/\\\/www.rivistaeco.com\\\/en\\\/2024\\\/10\\\/08\\\/the-promises-and-pitfalls-of-digital-platforms\\\/#article\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/www.rivistaeco.com\\\/en\\\/2024\\\/10\\\/08\\\/the-promises-and-pitfalls-of-digital-platforms\\\/\"},\"author\":{\"name\":\"Chiara Farronato\",\"@id\":\"https:\\\/\\\/www.rivistaeco.com\\\/#\\\/schema\\\/person\\\/04e0d1591fad730ff8b879757c152f8e\"},\"headline\":\"The Promises and Pitfalls of Digital Platforms\",\"datePublished\":\"2024-10-08T07:53:59+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\\\/\\\/www.rivistaeco.com\\\/en\\\/2024\\\/10\\\/08\\\/the-promises-and-pitfalls-of-digital-platforms\\\/\"},\"wordCount\":1728,\"articleSection\":[\"Non categorizzato\"],\"inLanguage\":\"en-US\"},{\"@type\":\"WebPage\",\"@id\":\"https:\\\/\\\/www.rivistaeco.com\\\/en\\\/2024\\\/10\\\/08\\\/the-promises-and-pitfalls-of-digital-platforms\\\/\",\"url\":\"https:\\\/\\\/www.rivistaeco.com\\\/en\\\/2024\\\/10\\\/08\\\/the-promises-and-pitfalls-of-digital-platforms\\\/\",\"name\":\"The Promises and Pitfalls of Digital Platforms - Rivista Eco\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/www.rivistaeco.com\\\/#website\"},\"datePublished\":\"2024-10-08T07:53:59+00:00\",\"author\":{\"@id\":\"https:\\\/\\\/www.rivistaeco.com\\\/#\\\/schema\\\/person\\\/04e0d1591fad730ff8b879757c152f8e\"},\"breadcrumb\":{\"@id\":\"https:\\\/\\\/www.rivistaeco.com\\\/en\\\/2024\\\/10\\\/08\\\/the-promises-and-pitfalls-of-digital-platforms\\\/#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\\\/\\\/www.rivistaeco.com\\\/en\\\/2024\\\/10\\\/08\\\/the-promises-and-pitfalls-of-digital-platforms\\\/\"]}]},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\\\/\\\/www.rivistaeco.com\\\/en\\\/2024\\\/10\\\/08\\\/the-promises-and-pitfalls-of-digital-platforms\\\/#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"Home\",\"item\":\"http:\\\/\\\/www.rivistaeco.com\\\/en\\\/\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"The Promises and Pitfalls of Digital Platforms\"}]},{\"@type\":\"WebSite\",\"@id\":\"https:\\\/\\\/www.rivistaeco.com\\\/#website\",\"url\":\"https:\\\/\\\/www.rivistaeco.com\\\/\",\"name\":\"Rivista Eco\",\"description\":\"\",\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\\\/\\\/www.rivistaeco.com\\\/?s={search_term_string}\"},\"query-input\":{\"@type\":\"PropertyValueSpecification\",\"valueRequired\":true,\"valueName\":\"search_term_string\"}}],\"inLanguage\":\"en-US\"},{\"@type\":\"Person\",\"@id\":\"https:\\\/\\\/www.rivistaeco.com\\\/#\\\/schema\\\/person\\\/04e0d1591fad730ff8b879757c152f8e\",\"name\":\"Chiara Farronato\",\"image\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\\\/\\\/secure.gravatar.com\\\/avatar\\\/47b2c5560601db425db53b22c70ed8a3e8e34073040a302276c4a9f1e58d0975?s=96&d=mm&r=gb79dda0724a80af6135356cb682ef1c0\",\"url\":\"https:\\\/\\\/secure.gravatar.com\\\/avatar\\\/47b2c5560601db425db53b22c70ed8a3e8e34073040a302276c4a9f1e58d0975?s=96&d=mm&r=g\",\"contentUrl\":\"https:\\\/\\\/secure.gravatar.com\\\/avatar\\\/47b2c5560601db425db53b22c70ed8a3e8e34073040a302276c4a9f1e58d0975?s=96&d=mm&r=g\",\"caption\":\"Chiara Farronato\"},\"url\":\"https:\\\/\\\/www.rivistaeco.com\\\/en\\\/author\\\/cfarronato\\\/\"}]}<\/script>\n<!-- \/ Yoast SEO plugin. -->","yoast_head_json":{"title":"The Promises and Pitfalls of Digital Platforms - Rivista Eco","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/www.rivistaeco.com\/en\/2024\/10\/08\/the-promises-and-pitfalls-of-digital-platforms\/","og_locale":"en_US","og_type":"article","og_title":"The Promises and Pitfalls of Digital Platforms - Rivista Eco","og_description":"Digital platforms can make life easier or more difficult for citizens. The key to ensuring the benefits while mitigating the negative aspects lies in regulations […]","og_url":"https:\/\/www.rivistaeco.com\/en\/2024\/10\/08\/the-promises-and-pitfalls-of-digital-platforms\/","og_site_name":"Rivista Eco","article_published_time":"2024-10-08T07:53:59+00:00","author":"Chiara Farronato","twitter_card":"summary_large_image","twitter_misc":{"Written by":"Chiara Farronato","Est. reading time":"10 minutes"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"Article","@id":"https:\/\/www.rivistaeco.com\/en\/2024\/10\/08\/the-promises-and-pitfalls-of-digital-platforms\/#article","isPartOf":{"@id":"https:\/\/www.rivistaeco.com\/en\/2024\/10\/08\/the-promises-and-pitfalls-of-digital-platforms\/"},"author":{"name":"Chiara Farronato","@id":"https:\/\/www.rivistaeco.com\/#\/schema\/person\/04e0d1591fad730ff8b879757c152f8e"},"headline":"The Promises and Pitfalls of Digital Platforms","datePublished":"2024-10-08T07:53:59+00:00","mainEntityOfPage":{"@id":"https:\/\/www.rivistaeco.com\/en\/2024\/10\/08\/the-promises-and-pitfalls-of-digital-platforms\/"},"wordCount":1728,"articleSection":["Non categorizzato"],"inLanguage":"en-US"},{"@type":"WebPage","@id":"https:\/\/www.rivistaeco.com\/en\/2024\/10\/08\/the-promises-and-pitfalls-of-digital-platforms\/","url":"https:\/\/www.rivistaeco.com\/en\/2024\/10\/08\/the-promises-and-pitfalls-of-digital-platforms\/","name":"The Promises and Pitfalls of Digital Platforms - Rivista Eco","isPartOf":{"@id":"https:\/\/www.rivistaeco.com\/#website"},"datePublished":"2024-10-08T07:53:59+00:00","author":{"@id":"https:\/\/www.rivistaeco.com\/#\/schema\/person\/04e0d1591fad730ff8b879757c152f8e"},"breadcrumb":{"@id":"https:\/\/www.rivistaeco.com\/en\/2024\/10\/08\/the-promises-and-pitfalls-of-digital-platforms\/#breadcrumb"},"inLanguage":"en-US","potentialAction":[{"@type":"ReadAction","target":["https:\/\/www.rivistaeco.com\/en\/2024\/10\/08\/the-promises-and-pitfalls-of-digital-platforms\/"]}]},{"@type":"BreadcrumbList","@id":"https:\/\/www.rivistaeco.com\/en\/2024\/10\/08\/the-promises-and-pitfalls-of-digital-platforms\/#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"Home","item":"http:\/\/www.rivistaeco.com\/en\/"},{"@type":"ListItem","position":2,"name":"The Promises and Pitfalls of Digital Platforms"}]},{"@type":"WebSite","@id":"https:\/\/www.rivistaeco.com\/#website","url":"https:\/\/www.rivistaeco.com\/","name":"Rivista Eco","description":"","potentialAction":[{"@type":"SearchAction","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/www.rivistaeco.com\/?s={search_term_string}"},"query-input":{"@type":"PropertyValueSpecification","valueRequired":true,"valueName":"search_term_string"}}],"inLanguage":"en-US"},{"@type":"Person","@id":"https:\/\/www.rivistaeco.com\/#\/schema\/person\/04e0d1591fad730ff8b879757c152f8e","name":"Chiara Farronato","image":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/secure.gravatar.com\/avatar\/47b2c5560601db425db53b22c70ed8a3e8e34073040a302276c4a9f1e58d0975?s=96&d=mm&r=gb79dda0724a80af6135356cb682ef1c0","url":"https:\/\/secure.gravatar.com\/avatar\/47b2c5560601db425db53b22c70ed8a3e8e34073040a302276c4a9f1e58d0975?s=96&d=mm&r=g","contentUrl":"https:\/\/secure.gravatar.com\/avatar\/47b2c5560601db425db53b22c70ed8a3e8e34073040a302276c4a9f1e58d0975?s=96&d=mm&r=g","caption":"Chiara Farronato"},"url":"https:\/\/www.rivistaeco.com\/en\/author\/cfarronato\/"}]}},"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/www.rivistaeco.com\/en\/wp-json\/wp\/v2\/posts\/4627","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.rivistaeco.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.rivistaeco.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.rivistaeco.com\/en\/wp-json\/wp\/v2\/users\/7954"}],"replies":[{"embeddable":true,"href":"https:\/\/www.rivistaeco.com\/en\/wp-json\/wp\/v2\/comments?post=4627"}],"version-history":[{"count":1,"href":"https:\/\/www.rivistaeco.com\/en\/wp-json\/wp\/v2\/posts\/4627\/revisions"}],"predecessor-version":[{"id":4628,"href":"https:\/\/www.rivistaeco.com\/en\/wp-json\/wp\/v2\/posts\/4627\/revisions\/4628"}],"wp:attachment":[{"href":"https:\/\/www.rivistaeco.com\/en\/wp-json\/wp\/v2\/media?parent=4627"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.rivistaeco.com\/en\/wp-json\/wp\/v2\/categories?post=4627"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.rivistaeco.com\/en\/wp-json\/wp\/v2\/tags?post=4627"},{"taxonomy":"author","embeddable":true,"href":"https:\/\/www.rivistaeco.com\/en\/wp-json\/wp\/v2\/coauthors?post=4627"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}