Sounds familiar? Unveiling the Impact of Transparency on Platform Innovation in the Music Industry
The market power of platforms businesses is of growing concern, highlighted by recent initiatives to regulate untransparent practices of companies ranging from Alphabet to Amazon. However, given that platforms tend to function as facilitators between multiple sides of a market, it is initially unclear whether regulation that has implications for the supply side will affect the behavior of platform complementors to the benefit or detriment of consumers. Herein, we use the music industry as a context to investigate the effects of platform regulation, by analyzing how a policy change implemented in January 2002 affected the number of complementors (artists) signed to and songs produced by a platform (record label) as well as the diversity and variety of the song portfolio. We find that, while the number of complementors, of products and their average diversity remains consistent when increased transparency is imposed, there is a notable shift towards incremental innovation at the expense of radically new products. This finding highlights the complex interplay between market transparency, strategic decision-making, and innovation dynamics in platform-dominated markets. Specifically, we emphasize how, due to this complex interplay, information asymmetry remedying initiatives such as increasing market transparency may have negative impacts on the commercialization of (radical) innovations. In conclusion, this study underscores the necessity for nuanced and careful policy implementation targeting multi-sided markets, advocating for a balanced approach that considers the intricate interplay between transparency, innovation, and market dynamics to avoid unintended consequences.