Designing Competition in Digital Markets
The future of digital markets is designed offline. In a room at Professor Jan Krämer’s chair at the University of Passau, two doctoral students can be found sketching formulas on a whiteboard and discussing their findings. In one corner of the whiteboard are the words: “Research never sleeps.”
There is a startup mentality here at the Chair of Internet and Telecommunications Business, or “iBusiness” for short. The team occupies a niche in the field of information systems. “I enjoy talking about information systems economics,” says Krämer. In Brussels, where he is, as Academic Co-Director, as Academic Co-Director, part of the CERRE (Centre on Regulation in Europe) think tank, they call him the “Digital Economist.”
Krämer and his team are researching laws in digital markets. Krämer’s chair is currently working on a DFG (German Research Foundation) project entitled, “Platform Neutrality and Data-Driven Business Models: Data in Return for a Prominent Placement of Providers on Online Platforms.” It deals with how paying with data changes the balance of power. Janina Hofmann, a PhD candidate, does her doctorate as part of the project.
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Data Sharing for Prominent Placement
Large online platforms such as Amazon, Facebook, and Google mediate between companies and customers by placing products in a way that allows users to find them quickly. Recently, these platforms have been offering companies this service in exchange for data.
One such example is Google’s Accelerated Mobile Pages (AMP). Websites that use this turbo news service receive a prominent place in mobile web search results, due to much shorter loading times. In return, the search engine gets access to the website’s connection data and usage statistics. “Fulfillment by Amazon” operates on a similar model: Online shops can use this service to outsource their entire shipping operations to Amazon. In return, the world’s largest online retailer receives valuable insights outside its marketplace into shops, product popularity, and customer behavior.
Complex Impact on Competition and Welfare
“The perfidy of this is that the entrepreneurial risk is completely outsourced to the individual retailers,” says Krämer. The large online platforms can observe what works and, using this information, offer customers successful products themselves. Sharing data therefore has much more complex effects on competition and welfare than paying with money.
Having recognized the need for basic research in this area, Krämer successfully raised funds from the DFG to finance Janina Hofmann’s doctoral position. Hofmann studied economics in Mannheim and Nuremberg. Her master’s thesis dealt with modeling rational inattention from the firm’s point of view.
In economics, rational ignorance is the decision to remain uninformed in certain respects, if the effort involved in acquiring information outweighs the benefit of having that information. Hofmann looked specifically at the trade-offs a company makes when it seeks to invest in new products. Information against uncertainties can help the company make a decision but at a certain point it has to weigh up if the (opportunity) costs are too high.
[The mini conference] was very exciting. I immediately got an overview of what’s going on in the chair.Janina Hofmann, PhD candidate, DFG Project Platform Neutrality
New Legalities in Digital Markets
Such cost-benefit considerations also exist in digital markets, but algorithms and large amounts of data change the analysis process. In her PhD project, Hofmann develops theories for the complex relationship between digital platforms, smaller online companies, and users. Hofmann’s first step was to gather information on the topic. She then moved on to the modeling stage. Professor Krämer calls this process “the gift of economists”: the ability to abstract complex sociotechnical systems to their essential elements so that it becomes clear where the decisive determining factors are.
Opportunities for Doctoral Candidates
Hofmann has already begun to benefit from her time working on the project, where she has access to colleagues’ expertise, as well as that of the data policies junior research group, which works closely with Professor Krämer’s team. All employees are concerned with the future of digital markets—some with a stronger focus on information systems, others in the field of economics. An interdisciplinary approach as well as an international orientation are important to the team: courses are held in English.
The start of Hofmann’s position in 2019 coincided with the chair’s twice-yearly offsite event: a mini conference oriented towards advancing PhD the projects as well as teambuilding. For three days, the eight researchers presented their topics. Each had a two-hour slot consisting of a research presentation followed by a discussion. For Hofmann, it was an intensive crash course: “It was very exciting,” she says. “I immediately got an overview of what’s going on in the chair.”
It’s no longer OK to think in traditional silos, disciplinary silos. What’s really important is to give young researchers an interdisciplinary view on these topics.Prof. Jan Krämer, Head of the Chair of Internet Business at Passau University
Finger on the Pulse of EU Competition Policy
Krämer gets his inspiration for his chair’s research topics directly from Brussels: The CERRE think tank closely follows the political issues there. “You can tell where there are gaps in research,” says Krämer. “I take many inspirations with me to Passau.” In turn, he feeds his findings from Passau into the debates in Brussels. “Particularly when it comes to the question of regulation, many people reflexively want to do something,” says Krämer. “But we want to improve things; not make them worse.”
To achieve this, the team in Passau relies on the same tools used by developers in Silicon Valley: whiteboards and open doors.
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