COLLEGE
PARK, Md., Sept. 30, 2024 /PRNewswire/ --
Self-preferencing (when a platform favors its own products or
services over those of third parties) by large tech companies is
scrutinized as anticompetitive in legislation proposed in Congress
to restrict the practice. However, passage of the bills could
unintentionally raise consumer prices by reducing competition
between sellers, according to research co-authored by Associate
Professor of Marketing Bobby Zhou at
the University of Maryland's Robert H.
Smith School of Business.
The American Innovation and Choice Online Act (AICOA)
restricts the nation's largest tech companies from not only
engaging in self-preferencing but also other acts, like limiting
the number of products competing companies can put on large digital
platforms. The Open App Markets Act keeps app marketplaces
from engaging in self-preferencing and prohibits marketplaces with
over 50 million users from forcing developers to use an in-app
payment system owned or controlled by the app store.
"Regulatory agencies in the U.S. are worried that the fate of
millions of consumers is being determined by a few big firms,"
says Zhou. Under AICOA when a shopper searches for a product,
a large online retail platform would have to first display
"whatever product aligns with that consumer's personal preferences
with the one with the best fit coming up first," says Zhou. So, if
you always buy Stanley water bottles, when you search for water
bottles, Stanley drinking cups would be displayed first instead of
one of the platform's own brands.
Research by Zhou in separate papers — "Antitrust Regulation"
with Daniel Sokol at the
University of Southern California and
"Self-preferencing and Search Neutrality in Online Retail
Platforms" with Tianxin Zou at the
University of Florida — finds this kind
of regulation may lead to higher prices.
If self-preferencing by the largest digital markets goes away,
the seller whose product appears first during a search may decide
to raise prices because it has enough well-matched customers to
extract that profit or surplus. The seller whose product appears
second might also charge more for the same reason. "This is a
situation where both sellers have very strong incentives to keep
their prices high, so they don't really compete head-to-head," Zhou
says. "To some extent, this ex-ante (preventative) regulation
backfires."
The European Union has already enacted regulations that ban big
tech companies from making sure their products are displayed before
those of other firms. The rules have been highly criticized and
the European Commission recently opened an investigation
into whether Apple, Alphabet and Meta are complying with the EU's
Digital Markets Act.
In their paper, Zhou and Sokol assert that digital markets have
become increasingly important for the economy, as they enable new
forms of innovation, competition and value creation in the process
of exchanging goods, services and information. And Zhou says,
"The Justice Department and the Federal Trade Commission are
justified in looking into big tech platforms. I just caution
against hasty decisions that are nearly impossible to reverse."
About the University of Maryland's Robert H.
Smith School of Business
The Robert H. Smith School of
Business is an internationally recognized leader in management
education and research. One of 12 colleges and schools at
the University of Maryland, College Park, the Smith
School offers undergraduate, full-time and flex MBA, executive MBA,
online MBA, business master's, PhD and executive education
programs, as well as outreach services to the corporate community.
The school offers its degree, custom and certification programs in
learning locations in North America and Asia.
Contact: Greg Muraski, gmuraski@umd.edu
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SOURCE University of Maryland's
Robert H. Smith School of Business