Close inherited gaps
Closing 22.62% of each inherited quality and productivity gap brings the innovation threshold to observed access. The rival’s share is only 4.29% at this boundary. A slightly larger improvement activates innovation.
Digital markets · Competition · Innovation
From Market Opening
to InnovationEffective Contestability in Digital Markets
Opening a market can make entry possible without making innovation profitable. This paper asks when usable access becomes a commercial foothold—and when that foothold can sustain dynamic competition.
Read the paper (PDF)0.2342Commercial-entry threshold
0.47Observed effective access
0.949Rival disruptive benefit/cost
at full access; below 1
at full access; below 1
Headline numbers refer to the benchmark calibration. Quantitative results are model outcomes, not causal estimates of the DMA’s effects.
01 / THE FRAMEWORK
Two thresholds. Three market regimes.
Effective market access, κ, determines how much potential demand a rival can convert into sales. Entry requires enough value to cover a fixed cost. Innovation requires a commercial base large enough to justify additional investment.
REGIME INo rival entryThe commercial opportunity does not cover the fixed entry cost.
REGIME IIEntry without innovationThe rival can operate, but innovation does not pay at the margin.
REGIME IIIEntry with innovationThe rival’s commercial base supports profitable innovation investment.
The thresholds depend on inherited quality and productivity, entry costs, and innovation capacity. The benchmark reaches Regime II but never reaches Regime III within the feasible access range.
Paper: Sections 2–3 and 6.1.
02 / BENCHMARK FINDING
Entry precedes innovation—even with full access.
Observed effective access of 0.47 exceeds the entry threshold of 0.2342. The benchmark supports a rival with a 2% expenditure share, but no rival innovation. Raising access to its maximum increases the share to 4.101% without changing that conclusion.
| Outcome | Inherited access | Observed access | Full access |
|---|---|---|---|
| Effective access, κ | 0.0144 | 0.47 | 1.00 |
| Rival regime | I | II | II |
| Rival expenditure share | 0% | 2.000% | 4.101% |
| Disruptive benefit/cost ratio | Not active | 0.485 | 0.949 |
| Rival innovation investment | 0 | 0 | 0 |
Commercial viability is not dynamic viability.
At full access, the marginal return to initiating disruptive innovation still falls below its cost. A ratio above 1 is needed to initiate investment.
The 4.101% share is a conditional two-period result holding the inherited competitive state fixed. It is not a long-run market-share forecast.
03 / COMPLEMENTARY CONDITIONS
Access and rival capabilities work together.
Two separate exercises show how rival innovation can become viable. Neither requires equal market shares.
Lower the innovation threshold
With higher rival innovation efficiency (2.5 rather than 1), a recalibrated economy crosses the innovation threshold before observed access of 0.47. It retains the same 2% observed share, yet supports rival innovation.
The first exercise changes inherited quality and productivity without recalibration. The second recalibrates inherited quality and fixed entry cost to preserve the observed share and entry pattern; it is not a pure change in innovation efficiency alone.
04 / PLATFORM RESPONSE
Lower platform profits can coexist with more R&D.
Greater access shifts expenditure toward the rival. It also lowers quality-adjusted digital prices, expands digital use, and changes the returns to successful platform innovation. In the benchmark, platform R&D rises even as its profits fall.
| Outcome | Observed access | Full access |
|---|---|---|
| Total platform R&D expenditure | +2.52% | +4.91% |
| Platform profit | −1.623% | −3.431% |
The theoretical effect on platform innovation is ambiguous. The positive R&D response is a quantitative finding, and expenditure is not a welfare-weighted measure of innovation output.
05 / ECONOMY-WIDE EFFECTS
The benefits extend beyond the rival’s sales.
Digital services are also inputs into non-digital production. Lower quality-adjusted digital prices can raise downstream productivity, wages, and output.
Consumption-equivalent welfare gain
Benchmark+0.222%
Less-disadvantaged rival · ρ = 0.2262+0.498%
Higher innovation capacity · ζ = 2.5+0.219%
Observed effective access (κ = 0.47). Common bar scale: 0–1.5%.
Each gain is relative to that path’s own no-improvement equilibrium. The less-disadvantaged path measures the benefit of access given stronger inherited capabilities, not the benefit of changing those capabilities.
METHODS & INTERPRETATION
What the model can tell us
A strategic market in an economy
A two-period stochastic general equilibrium model connects a dominant platform and potential rival to households and non-digital producers. Entry is endogenous; both firms can choose incremental and disruptive innovation.
An application to EU iOS distribution
The calibration uses effective market access and observed market outcomes to locate entry and innovation thresholds. The benchmark varies access while holding inherited conditions and other parameters fixed.
How to interpret the welfare magnitudes
The benchmark digital-input share of 0.30 is deliberately high, and downstream linkages materially affect the results. These are reference-calibration outcomes, not a comprehensive benefit–cost estimate of the DMA or the app ecosystem. Welfare effects also depend on domestic ownership of platform profits.
What remains outside the model
The model does not estimate how individual obligations or enforcement actions change effective access. It also does not model repeated user acquisition, network formation, data accumulation, or the resources needed to improve inherited capabilities. It does not identify the historical causes of the inherited rival position.
Source and version
All numerical values on this page come from the September 2026 v3 draft supplied by the author. This page summarizes Sections 3 and 6–8, especially Tables 5–9. The welfare controls display reported endpoints; they do not solve or interpolate the model.
Formal opening → Usable access → Commercial entry → Rival innovation
Evaluating market opening requires evidence at each stage. Compliance, entrant counts, market shares, and innovation incentives answer different questions.