This presentation by Annabelle Gawer, Professor in Digital Economy & Director, Centre of Digital Economy, University of Surrey, was made during the discussion “Theories of Harm for Digital Mergers” held at the 140th meeting of the OECD Competition Committee on 16 June 2023. More papers and presentations on the topic can be found out at oe.cd/thdm. This presentation was uploaded with the author’s consent.

1. THEORIES OF HARM FOR DIGITAL MERGERS
DIGITAL PLATFORMS & ECOSYSTEMS’ COMPETITION & INNOVATION
OECD, 140TH MEETING OF THE COMPETITION COMMITTEE
ROUNDTABLE ON THEORIES OF HARM FOR DIGITAL MERGERS – 16.06.23
1
Professor Annabelle GAWER
Professor in Digital Economy, Director of the Centre of Digital Economy (CoDE) University of Surrey
Visiting Professor of Strategy & Innovation Saïd Business School, University of Oxford

2. AGENDA
 Intro: First principles of ecosystem competition
 How digital platform firms create value in ecosystems
 How digital platforms capture value and compete
 How innovation is affected by platforms and ecosystems
 Mergers in digital ecosystems
 In context: platform business models
 Why and when mergers happen
 What can possibly go (uniquely) wrong
 Q&A
2

3. HOW PLATFORMS (& ECOSYSTEMS) CREATEVALUE
© ANNABELLE GAWER 2023. PLEASE DO NOT SHARE OR POST WITHOUT PERMISSION OR ATTRIBUTION.
3

4. DIGITAL PLATFORMS & ECOSYSTEMS:
THE NEW DOMINANT ORGANIZATIONAL FORMS OFTHE DIGITAL AGE
4
Digital Transformation New ways to create value
Pervasive Connectivity / Cloud /
Big Data / AI / ML
New complementarities across technologies,
organizations, sectors, and markets
New organizational forms Digital platforms and ecosystems
Session #2174 ISSUES IN PLATFORM GOVERNANCE
Gawer, A (2022) Innovation: Organization & Management
Digital platforms and ecosystems: Remarks on the dominant organizational forms of the digital age

5. TRANSACTION PLATFORMS
5
INDIRECT NETWORK EFFECTS
eBay Sellers
Uber Drivers
Xbox Developers
Amex Merchants
YouTubeVideographers
Airbnb Rooms
Tesla Charge Stations
MechanicalTurk Laborers
LinkedIn Employers
Android Developers
eBay Buyers
Uber Riders
Xbox Gamers
Amex CardHolders
YouTubeViewers
AirBnb Renters
Tesla Car Drivers
MechanicalTurk Jobs
LinkedIn Employees
Android Users
Each Side Attracts
More of the Other

6. INNOVATION PLATFORMS
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Innovation platforms create value
by facilitating the development of
complementary innovation in
innovation ecosystems.

7. © ANNABELLE GAWER 2023 PLEASE DO NOT SHARE OR POST WITHOUT PERMISSION OR ATTRIBUTION.
7
Transactions
The platform serves as an intermediary for direct
exchange or transactions, subject to network effects
Innovations
The platform serves as a technological foundation upon
which other firms develop complementary innovations

8. INNOVATION:
IN COMPLEMENTS? OR IN SUBSTITUTES?
• Platform firms have strong
incentives to stimulating
complementary innovation (by
third-parties / in their ecosystems)
• And if they have the capability, they
can be very good at it!
• Platform firms (just like any other
firms) have strong incentives to
prevent (or diminish the impact of)
innovation in substitutes
 If and when platform firms become
entrenched/ dominant / immune to the
“discipline of the market”, their incentives
of preventing substitute innovation will be
coupled w a capacity to prevent substitute
innovation
 Mergers can be expected to play a role in
this strategic behaviour
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9. HOW PLATFORMS CAPTUREVALUE AND COMPETE
IN ECOSYSTEMS
9

10. PLATFORM FIRMS OPERATE BUSINESS MODELS
THAT SUBSIDIZE AT LEAST ONE SIDE

11. PLATFORM FIRMS LEVERAGE DATA
ACROSS USERS, ORGANIZATIONS, & MARKETS (WITHIN ECOSYSTEMS)
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11
RULES OFTHE
DATA FEEDBACK LOOP
As users consume data,
they also generate data
Data does not get «depleted» as it gets
«consumed» (non-rival good)
Data-as-output CAN be used as further input
to improve services
Service
Data
Consumes
Generates
Improves
User
Experience
User
Other
Uses
… and can also be used for other purposes
(such as profiling users or entering new
markets)

12. HOW (AND WITH WHOM) PLATFORMS COMPETE
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 With whom?
 With traditional firms
 Across other ecosystems
 With their own ecosystem
members
 How?
 Efficiently / Less efficiently
 Fairly (no harm done) / Unfairly
(harm done)

13. TOWARDS AN “ECOSYSTEM” THEORY OF HARM
WHAT CAN GO (UNIQUELY) WRONG IN (DIGITAL PLATFORM-BASED) ECOSYSTEMS
13

14. © ANNABELLE GAWER 2023. PLEASE DO NOT SHARE OR POST WITHOUT PERMISSION OR ATTRIBUTION.
14
The Digital Economy is giving birth to new forms of
business organization – Digital Ecosystems & Platforms –
creating new forms of competition, new ways to transact
and new ways to innovate.
They operate using New Business Models,
sustain New kinds of Power, and
generate New Kinds of Failure

15. THE PARADOX OF DIGITAL PLATFORMS
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 Distributed patterns of value creation
but
 Centralized modality of value capture
Session #2174 ISSUES IN PLATFORM GOVERNANCE
Gawer, A (2022) Innovation: Organization &
Management
Digital platforms and ecosystems: Remarks on
the dominant organizational forms of the digital
age
Gawer, A & Srnicek, N. (2022) Report for the
European Parliament
Online platforms : Economic and societal effects

16. Persistence of Dominance: Worldwide Desktop Market Share of Leading Search Engines 2010 - 2020

17. PLATFORMS ARE THE GOVERNORS OF PRIVATELY-GOVERNED
ECOSYSTEMS
17
From Foundations … To Bottlenecks
From Decentralized modalities
of value creation
To Centralized modalities of value capture
Gawer, A (2022) Innovation: Organization & Management
Digital platforms and ecosystems: Remarks on the
dominant organizational forms of the digital age
Gawer, A & Srnicek, N. (2021) Report for the
European Parliament
Online platforms : Economic and societal effects

18. HOW ARE MERGERS TO BE UNDERSTOOD IN THE CONTEXT OF
(DIGITALLY-CONNECTED) ECOSYSTEMS? I
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 Mergers are strategic decisions about expansion of firm scope: they must be
understood in the context of platform business models
• We know that platform firms use business models that:
• subsidizes complements (and often stimulate innovation in complements)
• But platform firms but can also
• easily “de-platformize substitutes” (to take the threat of substitution away)? (this is a
decision about platform sides)
• And can acquire substitutes (or acquire today’s complements likely to become tomorrow
substitutes?) (this is a decision about platform firm scope) (this is directly related to
mergers)
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19. HOW ARE MERGERS TO BE UNDERSTOOD IN THE CONTEXT OF
(DIGITALLY-CONNECTED) ECOSYSTEMS? II
19
 Platform business models are dynamic and fluid
• Fluidity : We also know that platform business models can be “fluid” (pivots, change
the “money” side)
 Roles as Complement or Substitutes are also fluid
• But whether an ecosystem member is (seen as, acting as) a complement or a
substitute is also fluid! ( + changes over time)
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20. HOW ARE MERGERS TO BE UNDERSTOOD IN THE CONTEXT OF
(DIGITALLY-CONNECTED) ECOSYSTEMS? III
 Mergers are an example of expansion of firm scope
 But expansion of platform firm scope rarely happens alone
 Configuration of sides matters
 Interface design also matters
20
II

21. Facebook
Facebook
Advertisers
Side
Facebook
Developers
Side
Instagram
Instagram
Advertisers
Side
Instagram
Users Side
Facebook
Users Side
Digital
Interface
Digital
Interface
Transaction
Platform
Innovation
Platform
Digital
Interface
Digital
Interface
Digital
Interface
Hybrid
Platform
= Scope expansion post-acquisition
= Expansion of the sides post-acquisition
= Digital interface. Facebook eventually integrated Instagram
interfaces with its own, thereby expanding the sides
= Digital interface. Following the Cambridge Analytica affair,
Facebook restricted developers’ access to users’ data
Boundary decisions:
Example:
Facebook
shifting of its
firms’
boundaries:
A simplified
illustration
Gawer, A (2021) Digital Platform Boundaries, Long Range Planning

22. UNDERSTANDING MERGERS INTHE CONTEXT OF PLATFORM BUSINESS MODELS
SEEING THE WHOLE ELEPHANT
Digital platform boundaries are the combination of:
(1) Platform firm scope (what assets are owned, what labor is
employed, and what activities are performed in-house)
Scope, Sides, and Interfaces tend to Shift together
© ANNABELLE GAWER 2021. “DIGITAL PLATFORM BOUNDARIES: THE INTERPLAY OF FIRM SCOPE, PLATFORM SIDES, AND DIGITAL INTERFACES” LONG RANGE PLANNING 54(5)
(2) Platform sides' configuration and composition (which distinct
groups of customers have access to the platform)
(3) Digital interfaces (these specify the degree of openness and the
balance of directionality of the 2-way exchange of data between the
platform and each of its sides)

23. DIGITAL INTERFACES :WHAT HAS IT GOT TO DO WITH MERGERS?
• Digital interfaces = a type of boundary for digital platform firms, one that specifies the
2-way exchange of data between the platform firm and each of its sides.
Side 2
Platform
Side 1

24. DIGITAL INTERFACES & EFFECT ON INNOVATION
Digital interface decisions: platform
decide whether to make their digital
interfaces more or less open
• which data will be shared or
withheld, and to and from whom;
• whom to be interoperable with)
Side
2
Plat
form
Side
1
• These choices on interface design have crucial implications for the degree of
complementary innovation, as well as for the degree of control that the platform
maintains over its sides
• A balancing act is between generating third-party complementary innovation and maintaining
control over the evolution of the platform: balancing the directionality of data exchange.

25. HOW ARE MERGERS TO BE UNDERSTOOD IN THE CONTEXT OF
(DIGITALLY-CONNECTED) ECOSYSTEMS? IV
25
 Interface design is malleable
• Malleability of interface design: Besides, choices about platform firm interfaces
can be changed over time
• Interface design (2-way data exchange): Open? Closed? Interoperability? To
which extent?
 Interfaces, Scope, and Sides can be used strategically as bundles of
decisions

26. 26

27. CONCLUSION
 Cannot understand mergers (benefits and
harms) without the context of platform
business models
 Mergers’ potential benefits and harms can be
better assessed over longitudinal study of how
the acquiring firm also manages its sides and its
interfaces
 Where in the life-cycle? Launch or maturity?
 Scope, Sides and Interfaces as complementary
strategic decisions (a bundle of decisions)
 Look for patterns : closing interfaces and
acquiring complements? Opening interfaces and
acquiring substitutes?
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28. CONCLUSION
 See the whole elephant
 The elephant is moving
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29. REFERENCES
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• Gawer, A. (2021).“Digital platforms’ boundaries”. Long Range Planning 54(5)
• Jacobides, M., Cennamo, C., Gawer,A. (2018).“Towards a theory of ecosystems”,
Strategic Management Journal 39(8)
• Cusumano, M., Gawer, A., D. B.Yoffie (2019). The Business of Platforms: Strategy in
the Age of Digital Competition, Innovation, and Power. HarperBusiness.

30. FURTHER READING
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(1) Clarification of concepts (platforms, ecosystems, interorganizational networks)
• Gawer, A (2014), “Bridging differing perspectives on technological platforms:Toward an integrative framework”, Research Policy
• Jacobides, M., Cennamo, C., Gawer,A. (2018).“Towards a theory of ecosystems”, Strategic Management Journal
• Cusumano, M., Gawer, A., D B.Yoffie (2019). The Business of Platforms: Strategy in the Age of Digital Competition, Innovation, and
Power. HarperBusiness.
• Gawer, A. (2021).“Digital platforms’ boundaries”. Long Range Planning
• Jacobides, M., Cennamo, C., Gawer,A. (2023).“Externalities and complementarities in platforms and ecosystems: From structural solutions
to endogenous failures”. Forthcoming, Research Policy.
(2) Governance of platform-based ecosystems / Dominance / Regulation:
• Gawer, A. (2022).“Digital platforms and ecosystems: Remarks on the dominant organizational forms of the digital age”. Innovation:
Organization & Management
• Gawer, A., Srnicek, N. (2020),“Online Platforms: Economic and Societal Effects”, Report for the European Parliament
• Cusumano, C., Gawer,A.,Yoffie, D. (2021).“Can self-regulation save digital platforms?” Industrial and Corporate Change 30: 1259-1285
(3) Transformation / Evolution of sectors via emergence of connected ecosystems
• Özalp, H., Ozcan, P., Zachariadis, M., Dinçkol, D., Gawer,A. (2022).“Digital colonization” of Highly Regulated Industries:An Analysis of
BigTech Platforms’ Entry into Health Care and Education”, California Management Review

31. SUPPLEMENTARY SLIDES
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