Competition between ecosystems is a natural part of competition in the digital network industry. Whether this competition is healthy depends on the number of different ecosystem operators and the sizes of their ecosystems. This chapter explains that there are different stages of ecosystem competition that can be identified. In stage 1 ecosystem competition, firms compete to capture a platform market. These firms do not yet have a vast ecosystem of products and must compete intensely to capture an userbase. The winner that captures the platform market can enter into stage 2 ecosystem competition, where it expands across markets to solidify its position. Once an ecosystem is sufficiently large it enters into stage 3 ecosystem competition; maturity. Here, the ecosystem operator can start to extract profits. When ecosystems grow too large, they become stage 4 incumbent ecosystems. They no longer experience competitive pressures and become able to abuse their ecosystem power to extract excessive rents.

There are three regulatory regimes already governing digital markets: the Digital Markets Act, the Digital Markets, Competition and Consumer Act, and Section 19a of the Gesetz Gegen Wettbewerbsbeschränkungen. These three regulatory regimes rely on distinct approaches to regulate digital markets, and each pursue its own objectives. This chapter explains why the DMA should be viewed as a rules-based platform-focussed approach, the DMCCA is a principles-based sectoral approach, and Section 19a GWB is an ecosystem and competition-law based approach. The chapter sets out the perks and drawbacks of each of these regulatory approaches and explains why they each independently may not be sufficient to restore competition in the digital network industry.

Digital markets are part of a network industry. Competition is not confined to competing within a market. Instead, there is competition for and across markets. Network industries are generally prone to concentration due to network externalities, economies of scale and scope, and the existence of natural monopoly in some markets associated with the network. These bottlenecks impact competition throughout the network. The digital network industry is similarly characterized by cross-market dependencies. Operators of digital ecosystems are able to carve out a part of the network where they can act as the de facto regulator of that part of the network, as they control access points and set the terms and conditions for competition on their platforms.

Incumbent ecosystem operators can abuse their ecosystem power to foreclose competition and harm consumers. Ecosystem harms exhibit themselves in long-term harms to competition that are hard to capture. Abuses of dominance or gatekeeper power are relatively visible, but ecosystem harms require long-term strategies that span across markets to harm competition by means of non-structural power. The chapter explains how ecosystem harms can be understood and gives four examples of clear harms associated with ecosystem power; entrenchment harms, industry wide foreclosure due to industry roll-ups, the softening of competition, and harms to innovation.

Digital goods have their own economic characteristics. They are modular information goods. As a result of these characteristics, it is attractive to use abundance strategies to build networks and communities that interact via digital platforms. These platforms are often embedded in digital product ecosystems, which consist of a number of digital platforms and products. This chapter provides a clear view of what makes digital products unique and why this invites the platformization of the digital society. It also explains why platforms and ecosystems are able to generate efficiencies in wholly new ways compared to brick-and-mortar firms.

Network industries often exhibit natural monopoly in certain markets. Here, natural monopoly is generally attributed to high sunk and fixed costs paired with low marginal costs. This chapter explains that digital platform markets are prone to concentration not only due to this combination of fixed and marginal costs but also due to self-reinforcing feedback loops that reinforce the dominance of the largest platform operators. Platform monopoly is persistent, entrenched, and the result of structural competition issues. However, even if digital markets exhibit heavily imperfect competition or natural monopoly, competitive pressures persist as there is competition at the ecosystem level. This sets apart digital platform monopoly from non-digital natural monopoly and means that regulating these markets should happen on the basis of different principles.

Competition between ecosystems is different than competition in and for markets. Ecosystem competition happens on multiple levels, between multiple types of ecosystems. Inter-ecosystem competition is competition between different brands, firms with vast digital conglomerates compete with one another across a range of markets. The value of these product ecosystems is determined in large part by the activity on their platforms, where competition happens between complementors within the ecosystem of a single ecosystem operator. The ecosystem operator may also vertically integrate and compete with their complementors directly. These different dynamics mean that ecosystem operators can exhibit their powers in and across markets and ecosystems. Ecosystem power is a form of non-structural power that allows the ecosystem operator to leverage its position into new markets and entrench its existing monopolies. Ecosystem operators can strengthen their position in inter-ecosystem competition by supporting intra-ecosystem competition with and between complementors, or escape competitive pressures by differentiating their ecosystem from others.

This book proposes a wholly new view on digital competition. It proposes that – rather than just competing within or for a market – digital firms compete to capture their own part of the digital network industry, constituting their digital ecosystem. Once they control the network’s access points for competition, they become the de facto regulators of their ecosystems, allowing them to leverage their ecosystem power to capture new markets and expand their reach further across the digital network. Regulation that focuses on markets cannot capture these dimensions of power and competition. The system of progressive ecosystem regulation proposed in this book explains how ecosystem competition can be stimulated to create meaningful competitive pressures, open up the network to disruptive entry, and introduce real choice for users.