Regulating Platforms with Market Power
Network industries have a tendency towards concentration. As network effects require a critical mass, only a limited number of players can reach the minimum size to be competitive. That was the case of the traditional network industries and is the case today with the new network industries. In some cases, digital markets might even evolve to become quasi-monopolies.
Competition authorities have started to impose fines on the largest platforms for anticompetitive practices, particularly in Europe. However, there is growing consensus that competition law has not managed to impose an effective control on platforms with market power. Mergers leading to market power have been allowed. Once platforms have tipped into dominance, competition authorities struggle to stop strategies to reinforce market power, as well as to stop exploitative practices damaging platform users.
This is exactly the same dynamic that led to the regulation of the traditional network industries a century ago, despite the availability of antitrust law. When there are structural obstacles to competition, such as powerful network effects, antitrust rules are not in a position to guarantee competition in the market or to ensure a fair deal to the customers.
A number of reports around the world from reputable academics and public authorities have concluded that it is necessary to regulate digital platforms with market power. The European Union is leading the way in defining a regulatory framework for digital platforms with market power.
First, a toolkit of regulatory obligations is being proposed to promote competition in digital markets. Inspired by the regulation of liberalized network industries, again with telecoms taking the lead, obligations being considered include data portability to avoid lock-in effects (inspired by number portability), prohibition of exclusivity to foster multihoming, interoperability to share network effects, as in telecoms, and data pools to share algorithmic network effects.
Second, structural measures, such as the horizontal divestiture of the largest digital platforms, or the vertical unbundling of vertically integrated platforms, have been proposed. Again, these are well known measures in the traditional network industries.
Finally, a toolkit of regulatory obligations is being proposed to exclude exploitative behavior by platforms with market power. The toolkit is heavily influenced by regulations regarding fair, reasonable and non-discriminatory access to telecom carriers with market power.