Competition between ad-funded digital platforms: Could merging platforms harm consumers, even if they offer free services?

Competition between digital platforms funded by advertisements (“ad-funded platforms”) is a hotly debated topic in both academic and policy-making circles. In particular, how does a lack of competition affect consumers of free services? Competition Authorities commonly analyze changes in consumer prices to assess whether a merger might harm consumers. But those analytic tools break down when analyzing free services. That does not mean mergers between ad-funded platforms could not harm consumers. They could. Authorities may still object if a merger would harm consumers in non-financial ways, even though there is no possibility the platform would increase (or introduce) consumer prices post-merger.

In this Expert Opinion, Economist Shiva Shekhar sets out how competition between ad-funded platforms affects consumers’ interests, and how it could be assessed. First, strong competition for consumers leads to less intense levels of advertising, which benefits consumers. Second, mergers that reduce competition substantially can increase the time, attention, or data consumers must provide for advertising, harming their interests. Third, we cannot quantify that harm by analyzing the change in consumer prices but we can assess it by analyzing the change in the amount advertisers are willing to pay the platform for more intense advertising post-merger.