Analyzing Competition in the Online Economy

Published date01 June 2023
Date01 June 2023
The Antitrust Bulletin
2023, Vol. 68(2) 167 –190
© The Author(s) 2023
Article reuse guidelines:
DOI: 10.1177/0003603X231163001
Analyzing Competition in the
Online Economy
Victor Glass* and Timothy Tardiff**
Since economic analysis of the workings of the online economy is in its early stages, detecting
anticompetitive behavior remains challenging. There have been some insights from models that explain
how two-sided markets work, but the practical uses of these models are limited thus far. More
research is necessary on the definition and operations of platforms of different sizes and with different
objectives, for example, the identification of data clustering and flows related to product clustering and
information production and the relationships between data, information, and innovation. Furthermore,
corporate culture, which can produce cultural clashes within an organization, may influence both (anti)
competitive behavior and innovation. The cultural issue becomes even more complex when evaluating
whether a merger would result in both innovation and the abuse of market power. This paper develops
an overview of the technology and operations of the online economy as a start toward informing
competition and antitrust policy. We present a technical overview that becomes a starting point for
understanding potential areas of excessive market power. We also examine market dynamics from
the large platforms’ points of view to understand where they believe the online economy is heading.
antitrust, online economy, competitive pricing, mergers, privacy
I. Introduction
The big corporation has an ambiguous image in the American imagination and public policy. Giants
like AT&T, Standard Oil, U.S. Steel, General Motors, and Dupont were symbols of American power
before the digital revolution. The auto companies, in particular, were not only a symbol of, but also
major contributors to America’s ability to mass produce trucks and tanks during World War II. They
gave America a decisive logistical advantage over Nazi Germany, which relied much more heavily on
skilled workers to produce war machines.1 Yet, Americans also have been (and continue to be) fearful
*Professor of Professional Practice and Director, Center for Research in Regulated Industries, Rutgers Business School,
Newark, NJ, USA
**Principal, Advanced Analytical Consulting and Department of Economics, Northeastern University, Boston, MA, USA
Corresponding Author:
Victor Glass, Professor of Professional Practice and Director, Center for Research in Regulated Industries, Rutgers Business
School, 1 Washington Place, Newark, NJ 07102, USA.
1163001ABXXXX10.1177/0003603X231163001The Antitrust BulletinGlass and Tardi
1. How the Americans Outproduced Everyone Else in WW2 War Factories, Timeline, YouTube,
watch?v=wp3wQhDpQG8 (last visited Aug. 25, 2022).
168 The Antitrust Bulletin 68(2)
that large corporations could be a menace to society by controlling essential services and government
policy. Progressives called for government to rein in huge corporations as early as the late nineteenth
century. The Sherman Act was the first legislative act. It prohibited corporations from forming business
trusts where members worked together to boost profits.2 In response to the Sherman Act, there was an
increase in mergers to evade the legal prohibition on coordinated activity. The government responded
by passing the Clayton Act in 1914 to prohibit unfair business practices that would hurt the public,
including prohibiting mergers that may substantially lessen competition or tend to create a monopoly.3
A parallel strategy to tame corporate behavior was to regulate companies considered to be natural
monopolies. AT&T, for example, agreed to federal regulation in exchange for a monopoly on telephone
service. Many academic articles have critiqued the government’s effectiveness in “domesticating” big
business. To this day, there is no clearcut conclusion.
Some politicians on both sides of the aisle now believe that the consumer welfare standard, which
has until recently enjoyed a broad consensus for over half a century,4 has led to underenforcement of
antitrust laws—insufficient prohibition of anticompetitive behavior and mergers. There is great con-
cern now that the emergence of huge platforms such as Amazon, Apple, Google, Facebook, and
Microsoft appear to dominate the online economy.5 Like old wine in new bottles, the public’s reac-
tion is both heady and fearful. American companies dominate the world’s online economy but are
they safe? No one knows for sure, but many people have strong opinions.
Three basic questions frame investigations of whether these companies have market power that is
harming competition: (1) why have they maintained for decades such a large presence in the online
economy? (2) are they shaping markets in ways that exploit customers and competitors? and (3) are
they shaping politics to fit their own needs?
For example, Lina Khan, a modern incarnation of the progressive spirit, asked the question, why
has Amazon grown so big even though it was losing money on many line items.6 The size and growth
of Amazon is beyond dispute. Its annual revenue in 2017 was $178 billion and continued to grow
revenue at an annual average rate of 21 percent through 2021.7 Its net income was only 0.2 percent of
revenue during the 2012–2015 period,8 and yet, its stock average price rose from $220 per share
2. See the Sherman Antitrust Act. 15 U.S. Code § 1—Trusts, etc., in restraint of trade illegal; penalty. In particular, Section 1
prohibits conspiracies, the primary example being price fixing and Section 2 prohibits anticompetitive monopolization or
attempts to monopolize.
3. The Clayton Act, 15 U.S.C. Section 7.
4. See, for example, Herbert Hovenkamp, Antitrust in 2018: The Meaning of Consumer Welfare Now, 58 WharTon. Public
Policy iniTiaTive. issue briefs (2018), In evaluating actual or potential
(e.g., a proposed merger) alleged anticompetitive actions, the consumer welfare standard analyzes whether the action
reduces output and/or increases prices (broadly defined), with the emphasis on the latter.
5. That the existence of such large firms has resulted in historically high levels of industry concentration is a controver-
sial issue. For example, Portuese reports that industry concentration barely changed between 2002 and 2017. Aurelien
Portuese, Five False Claims Underscore the Case against the Senate’s Leading Antitrust Bills, informaTion Technology
& innovaTion foundaTion, 2022,
antitrust-bills/. Furthermore, even if concentration has increased, prices could be lower as a result of more efficient firms
with scale and scope economies serving greater proportions of consumers. Robert W. Crandall & Thomas W. Hazlett,
Antitrust in a Digital Era: A Skeptical Perspective, cenTer for The sTudy of The adminisTraTive sTaTe, george mason
universiTy, Working PaPer 22-19, 2022,
6. Lina M. Khan, Amazon’s Antitrust Paradox, 126 yale laW J. –710779 (2017),
7. Amazon Financial Statements 2009-2022, macroTrends, 2022,
8. Id.

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