Equitable Interoperability For Ecosystem Value Creation

07.11.23 2:10pm - 15m

The coalescence of competitive forces around few major digital platforms has given rise to a new type of competitive environment, which is characterized by the co-existence and interdependence of multiple economic actors with a shared interest in value creation. These dynamics can be explained by some of the characteristic features of the platform economy, namely interconnectedness, modularity, and network effects. These characteristics have given rise to the so-called “inverted firm” phenomenon: digital platforms choosing to innovate and achieve scale by bringing together large numbers of interdependent user groups, and using open external contracts in preference to closed vertical integration or subcontracts within the same production chain. Instead of integrating functionalities inside the firm, these actors achieve growth by externalizing production to so-called “complementors”, which fosters the creation of rich ecosystem and yet allows them to maintain some control over it through contractual rules and technical standards. Their role as regulators of this ecosystem, or more specifically of orchestrators of value creation, is crucial to avoid negative externalities. At the same time, however, it provides them with opportunities for abuse in a way that may hinder competition, innovation, and the effectiveness of public policies. Accordingly, some authors have called regulators to take a closer look at how value is generated and distributed across different actors in the digital value chain. Indeed, orchestrators may impose rules that allow them to appropriate a substantial share of the “pie” of value that is created within their ecosystems: for instance, taking a substantial cut on the transactions they enable, and favoring their own products and services whenever they decide to enter the secondary market that has been created by one of those complementors. Payment systems are a key complementor market, not only because they are essential to enable a large variety of economic activities, but also because they are used by orchestrators as a mechanism to extract fees related to a host of orchestrator activities. The antitrust disputes involving Apple in California, Brazil and Europe, and Google and Apple in India, Japan and Korea in relation to the mandatory use of their own payment system for in-app purchases have demonstrated that the restrictions imposed to penalize competing payment systems are not justified by security concerns. This means that mandated interoperability with third party payments provides an effective remedy against undue value extraction, and promotes competition by allowing the development of alternative approaches to ecosystem value creation: for instance, approaches that are more advantageous for content creators and delivery workers, rather than gravitating around platform affordances. In this lightening talk, I would like to illustrate the benefits of applying this remedy to dominant digital ecosystems like the app stores using a toolkit approach. To do that, I will refer to different degrees of interoperability that go beyond merely technical interconnection, and ensures that third parties not only are able to offer services on top of the orchestrator’s platform, but also can do so on qualitatively equal terms (also known as “equitable interoperability”).