Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/305574 
Year of Publication: 
2024
Series/Report no.: 
CESifo Working Paper No. 11332
Publisher: 
CESifo GmbH, Munich
Abstract: 
We develop a theory of digital ecosystems built on the premise that a multi-market firm can steer users it has in one market toward its products in other markets. Due to this “cross-market leverage,” a leader in an “access-point” market (where users begin their online journeys) derives a high value from offering services in connected markets (where users continue their journeys), and can thus make profitable takeovers. Indeed, because the firm has the outside option of acquiring, and steering users toward, its target’s competitor, it can take over the target at a discount. In contrast, other firms have no or smaller incentives for takeovers, explaining why ecosystems grow out of market leaders at access points. Conversely, cross-market leverage also implies that once an ecosystem has grown, it has an increased value of controlling access points, so it may go to great lengths to dominate these markets. Our theory suggests that ecosystems have mixed implications for consumer welfare. Under plausible assumptions, a to-be ecosystem takes over market leaders, and this consolidation of good services across markets benefits consumers in the short run. But an ecosystem’s takeovers and dominance of access points lower incentives for entry and innovation, and lower the efficiency of access-point markets with superior alternatives. Hence, the long-run welfare implications of ecosystems are often negative.
Subjects: 
digital ecosystems
takeover
contestability
entry
envelopment
default effects
steering
Document Type: 
Working Paper
Appears in Collections:

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.