Market Power and Innovation in Online Markets: The Role of Network Effects and Big Data

Economic activity is increasingly shifting from offline to online markets, which provide enormous opportunities for welfare gains. At the same time, network effects, the availability of big data and other typical features of online markets have resulted in industry dynamics which raise concerns. Many firms active in online markets appear to have considerable market power. Little is known about the consequences of this development, especially there is not much evidence on its effect for innovation and users’ privacy: Does more market power lead to more or to less innovation? Do firms with high market power collect more data about users? Do these additional data facilitate innovation? How do these findings depend on the strength of products’ network effects?

To provide empirical evidence on these questions, we plan to study, the mobile app industry, which can be considered a representative and increasingly important example of online markets. For the analysis, we will use product-level data of the mobile app industry.

Selected Publications