Antitrust and Unfair Competition Law

Competition: FALL 2022, Vol 32, No. 2

AN ECONOMIC ANALYSIS OF THE SELF-PREFERENCING DEBATE

Written by Juliette Caminade, Juan Carvajal, and Christopher R. Knittel1

Over the last few years, some regulators and lawmakers have expressed concerns that certain intermediaries have engaged in strategies to favor their own downstream products or services over those of third parties, practices commonly referred to as "self-preferencing." Despite the prevalence of intermediaries offering their own competing products in downstream markets in many sectors of the economy, for instance with private labels in retail, self-preferencing concerns are overwhelmingly discussed in the context of digital platforms.

Economists have referred to a platform that runs a digital marketplace and sells physical or digital products on it as operating "in dual mode."2 When platforms operate in dual mode, they have the potential to treat themselves differently from the way they treat third-party sellers on their marketplaces. In recent years, regulators and lawmakers across the globe have expressed concerns that such "self-preferencing" behaviors could be anticompetitive, under the theory that digital platforms would be exploiting their position as intermediaries in the digital sectors to favor their own products and services at the expense of third-party sellers. For example, one commonly expressed concern is that digital platforms operating in dual mode have an informational advantage over sellers and can use data obtained from the transactions with third-party sellers to favor their own products or introduce new ones, drive third-party sellers out, and thereby suppress competition.3 A different concern is that, since digital platforms control the algorithm that displays the products to consumers on its marketplace, they in principle could abuse that control to favor their own products over those of third-party sellers by displaying them more prominently than would be warranted based on natural consumer preferences or product quality.

In this paper, we start by providing a brief overview of prominent types of behaviors often classified as self-preferencing in the digital economy and the current debate around these practices, including related proposed ex ante regulation and ex post investigations on both short-run and long-run total and consumer welfare. We then explore varied economic perspectives regarding why concerns regarding self-preferencing have been heightened in the digital economy when such practices are not new and are widespread, and regarding perceived unfairness and potential considerations for "evening the playing field" among competitors. We conclude by reviewing recent economic research studying the effect of self-preferencing practices (both positive and negative) and proposed regulatory responses on

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