How to regulate 'big tech'

The major digital platforms (the big techThey dominate the economy. Digital technology has become indispensable, whether for information retrieval, social networking, e-commerce, operating systems, or smartphones. Each of these fields is dominated by a few companies. The leaders are Google with its search engine; Meta in social networking with WhatsApp, Facebook, and Instagram; Amazon in e-commerce; Microsoft with Windows and applications; and Apple in mobile phones. High fixed costs, network effects, and dynamic economies of scale (e.g., in the learning curve) make these companies increasingly competitive. big tech are dominant. The accumulation of data leads to feedback effects, in which more production and more sales induce more data and more network effects that make the company more efficient, improve products and services, and stay ahead of competitors. They are, therefore, markets that migrate towards a winner that takes the whole market or most of it (winner-takes-alleitherwinner-takes-most).

The increasing concentration in the digital industry is worrying because of the market power it grants to a few companies, and because of the problems of discrimination, privacy, and disinformation that it can entail. There is a perception that current antitrust laws are not very effective in controlling the market power of platforms, and that competition authorities are always playing catch-up. However, there have been several cases in the European Union (EU) and the US in which large fines and restrictions on the behavior of platforms have been imposed for abuse of dominant position.

Public intervention in network industries and the digital economy presents a challenge. On the one hand, network effects and the dynamics of big data These measures can lead to market failures: users can become stuck with inferior standards (like the VCR compared to the superior Betamax in its day). Furthermore, government intervention is prone to errors, lags behind market developments, and, when it attempts to look to the future, must anticipate highly uncertain events. This is why there are currently movements to replace antitrust intervention.ex postthrough regulationex ante

Europe was more active in defending competition before Biden became president in the US, and has been at the forefront of regulating the big tech with the Digital Services Act (DSA) and the Digital Markets Act (DMA). The DSA imposes greater responsibility on large platforms to prevent illegal behavior or disinformation. The DMA aims to curb the market power of platforms that hold "gatekeeper" status (controlling consumer access) through regulatory provisions.ex anteand an expansion of the European Commission's investigative powers. The goal is market competitiveness and fair access for participants. The DSA imposes data-sharing obligations to reduce the gatekeepers' exclusive control, eliminating the option to favor their products over others and the discrepancies in information available between the platform and business users. Clearly, implementing complex regulations like the DSA or the DMA in today's rapidly changing technological environment is a significant challenge, exacerbated in the case of artificial intelligence (AI) with the AI law. The problem is that the regulations are designed for a technology that, by the time the regulations come into force, has already changed. This creates uncertainty for businesses and will entail significant costs for small innovators. This is why Draghi called for a pause in the implementation of the EU's AI law last September.

Antitrust authorities can prevent a dominant player from acquiring a potential competitor, and one of the arguments for doing so is that the dominant player, through this transaction, ends up preventing the implementation of disruptive innovations that would cannibalize its own business. However, imposing obligations on platforms can also stifle innovation. It is very difficult for a regulator to anticipate where technological advances will occur. A lack of competition can harm innovation. Promoting interoperability and data portability, with the appropriate allocation of rights to control it, is effective in increasing competition among platforms. Antitrust authorities must also be concerned about barriers that hinder the entry of new entrants. As this year's Nobel Prizes in Economics have shown, disruptive innovation faces resistance from established interests. One example is the taxi industry, which operates as a regulated cartel in some jurisdictions, where competitors are prevented from entering or forced out.

All these topics were discussed at the Competition Defense Conference organized by the ACCO and the CNMC in Barcelona this Thursday and Friday. The challenge is very complex, but we must achieve a balance in regulation that fosters innovation for the good of society.