Evaluating the Case for Regulation of Digital Platforms in the US and the EU

Research project

Giuseppe Colangelo

Antitrust enforcement and competition policy in the digital economy is high on the agenda of authorities and policymakers. The flood of reports and policy papers recently released reflects the ongoing debate over the capability of current antitrust rules and tools to handle the emergence of large technology platforms (BigTech), to scrutinize their practices and business models.

The distinctive features of digital markets apparently require a rethinking of the antitrust regime. The presence of strong economies of scale, extreme indirect network effects, remarkable economies of scope due the role of data as a critical input, and conglomerate effects, along with consumers’ behavioural biases and single-homing tendency, represent significant barriers to entry that make digital markets highly concentrated, prone to tipping and not easily contestable. Therefore, large incumbent players appear not to be under threat and hard to dislodge. Moreover, digital platforms act as gatekeepers (either controlling access by third-party firms to its users or controlling the consumption of products and services by their users) and regulators (due
to their rule-setting role within their ecosystem), and frequently play a dual role, being simultaneously operators for the marketplace and sellers of their own products and services in competition with rival sellers.

Accordingly, the combination of BigTech’s regulatory power and role as gatekeeper should bring with it a special responsibility to ensure a level playing field and undistorted competition both on the digital platform and on neighbouring markets. In light of this, mounting criticism against current competition policy allege that lax antitrust enforcement, flawed judicial rules that reflect unsound economic theories or unsupported empirical claims, and limited effectiveness of the antitrust toolkit have contributed to a significant increase in concentration in digital markets. By this view, the only cure to the antitrust crisis is to implement a wave of
regulatory interventions.

Some proposals envisage a public utilities-style regulation for the digital economy, advocating the creation of a digital authority able to impose measures against companies that have a strategic market status. Some proponents go even further by suggesting break-ups and bans on vertical integration altogether in order to address economic and social concerns arising from BigTech. Other reform proposals point to the need to integrate the antitrust toolkit with ex ante prohibitions to prevent anti-competitive practices by dominant platforms, since, according to this view, there is a risk that ex post enforcement would be too slow to successfully keep markets competitive and contestable in fast-moving markets characterized with a winner-takes-most dynamic.

By analysing the key features of the main reform proposals advanced in the US and the EU, the aim of the research project is to evaluate whether suggested regulatory interventions reflect the distinctive features of digital markets and their leading players or whether the main thrust of these proposals is just to circumvent the burdens imposed by standard antitrust analysis.