February 23, 2021

Let’s imagine a different kind of platform economy

How is value created and extracted in a digital economy, and what's the best way to govern it?


The myth of the benevolent platform giant has ended. The US is now poised to address the market power of its domestic platform giants, and there’s growing regulatory consensus across the United Kingdom, Australia, the OECD and the EU

Yet while policy consensus over whether platforms have exceptional power is rising, policymakers continue to disagree over what kind of response is warranted, or even how the problem got so bad. 

Some say the platforms need breaking up. Others say we need better ways to understand ‘platform power’.


But perhaps there’s another question we should be asking: how can we reshape and redirect the innovation ecosystem from which major platforms and their core talent and features emerged?

This means pursuing anti-trust while situating it in a broader mix of industrial and innovation policies. This means being willing to imagine a different kind of platform economy and considering bold approaches to shape innovation systems towards empowering it.

How is value created and extracted in a digital economy?

Existing anti-trust and governance models do not sufficiently address how value is created and extracted in a digital economy. So, even if the current administrations pursue effective anti-trust, crippling the existing set of market failures, they will not succeed in addressing further fundamental questions: whether their market power means they can extract rents; whether platforms have unique kinds of rents to extract more value than they provide to the products and services offered by merchants using them; how the current platform economy extracts value by over-extracting data; whether a giant’s position to extract rents derives less from the price to consumers and more from the price to merchants, from shaping how users and merchants both understand how to navigate changing digital opportunities. Indeed, platforms are not adjusting to the market; rather, platform giants are setting the market standards to which digital firms must conform in order to build stable advantages.

Platforms are not adjusting to the market; rather, platform giants are setting the market standards to which digital firms must conform in order to build stable advantages.

The issue is not necessarily the production of data itself, but the kinds of market features incentivised around the current model of data capture and valuation, creating the platform capitalism as it experienced today. The current market model was not inevitable; rather, it emerged within the essential political economy of the market — the kinds of governance institutions, the kinds of choices around how to generate value from data, around how to embed privacy, transparency, and agency by design.

Markets are blind; they do not automatically tend towards the discovery or delivery of public value. Indeed, public value means beginning with the assumption that markets are outcomes, that value is collectively co-created among the public, private, and civic sectors. In turn, the question is not whether wealth is created, or a system made more efficient but the kinds of social challenges either addressed or entrenched by different paradigms of wealth and efficiency. 

But we should take this further. Whatever shapes platform strategy now shapes the fundamental features of digital markets. With platforms increasingly organising the fine-tuned design and engineering for accessing and using digital opportunities, the direction of markets — being the core features of how markets evolve, how incentives emerge, and how problems emerge and are addressed — fundamentally becomes a political choice

So as US and global policymakers look to address the question of how best to govern platforms, we have a number of suggestions, both for those pursuing antitrust and those looking beyond it. 

How to best govern platforms

First, when do the relationships among the platform, their users and their merchants establish a healthy ecosystem of services and innovation? What is the cost of being excluded from a given platform?

Second, are the business models and payment relationships among platforms, users, merchants and advertisers effectively contributing to the productive capacity of the market? Are they encumbered by digital economic and algorithmic rents? How transparent are the decisions by which value is allocated among users, suppliers, advertisers and the platform itself?

Third, what ecosystem and institutional capabilities are missing which can be created to drive investment, standards, enforcement and coordination capacities to transition towards privacy and public value empowering internet and economy? What are the kinds of digital public values which are demanded and feasible through new institution creation, yet under-provided by the current system?


Fourth, who gets the value from the creation and assessment of data, and what other kinds of governance institutions could mediate these relationships? Changing the value of data means changing the fundamental structure and direction of the digital economy, changing what kind of data is worth collecting and whether to collect it at all. 

When the means of shaping a democracy are built on the ability to fine tune placement on a page, when the competitive advantage of a firm is dependent on non-transparent allocative algorithms, the concern is not simply whether there are anti-competitive practices, but whether, even if policymakers solve them, are they addressing the fundamental problem. Policymakers who merely focus on efficiency and the rate of innovation will fundamentally miss the opportunity, and rising demand, to improve the direction. 

Mariana Mazzucato is professor in the economics of innovation and public value at University College London where she is the founding director of the UCL Institute for Innovation and Public Purpose (IIPP); Rainer Kattel is deputy director and professor of innovation and public governance at IIPP; and Josh Entsminger is a PhD student in innovation and public policy at IIPP.