This chapter introduces the competition policy debates on market power and concentration in digital platform markets and explains the rationale for the application of the natural monopoly framework as developed in this book.

This chapter explains why horizontal (or general purpose) search should be seen as a natural monopoly. First, it shows that a horizontal search like Google Search is characterized by a cost structure with high fixed costs and very low marginal costs on the supply side, as well as extensive economies of scale generated by data that increase the efficiency of search results in terms of quality-adjusted costs. This chapter then discusses the regulatory implications arising from the natural monopoly framework, including the ability to exercise market power both on the searchers and advertisers’ side, and inventives to leverage market power through discriminatory behavior in vertically related markets.

This chapter evaluates the applicability of the natural monopoly framework in digital platform markets. It starts by discussing the role of technological change in fostering concentrated market structures in digital industries and by evalauting the policy implications that should be derived from the economic literature on multisided platforms. On that basis, it then identifies the general conditions that may give rise to a natural monopoly platform.