Antitrust Policy toward Intermediaries: Digital Platforms and “Big Tech”

Innovation and Economic Growth and Competition Policy and Antitrust

Article Snapshot

Author(s)

Daniel Spulber

Source

Antitrust Chronicle 2022: Competition Policy International, Vol. 2, June, Spring 2022

Summary

Antitrust authorities express concerns about the power of "Big Tech." Authorities should apply advances in the study of platforms to better understand the beneficial role of digital platforms serving as intermediaries.

Policy Relevance

Vague and overly broad language in new antitrust rules could hinder economic growth.

Main Points

  • The European Union (EU) has approved the Digital Markets Act (DMA), and the U.S. Congress is considering the American Innovation and Choice Online Act (AICO); the new approach to antitrust in these proposals would affect competition, innovation, and economic growth.
     
    • U.S. legislators state that AICO would protect small firms from dominant digital platforms.
       
    • EU legislators state that the DMA will allow for fair competition online and usher in a new era of technology regulation.
       
  • Firms should not be targeted simply because they are large and use digital technologies.
     
    • Traditionally, U.S. antitrust principles focused on anticompetitive conduct.
       
    • Traditionally, EU antitrust enforcers focused on firms that abuse a dominant position, though they paid particular attention to large firms.
       
  • Textbook theories of perfect competition and imperfect competition fail to adequately describe real-world markets; study of intermediary firms better reveals how markets form and operate.
     
  • The digital economy (including digital platform transactions) contributed over 10 percent of U.S. gross domestic product in 2020.
     
  • Intermediaries have long played a vital role in the economy but have often been misunderstood.
     
    • Retail intermediaries buy from manufacturers to sell to households and organizations.
       
    • Wholesale intermediaries arrange transactions for merchandise.
       
    • Financial and insurance intermediaries raise funds, offer services, or manage risk.
       
  • Legislative supporters of AICO express concerns about the power of digital platforms as gatekeepers, expressing concerns that Google, Facebook, Amazon, and Apple could:
     
    • Charge fees, impose “oppressive” conditions, and extract data.
       
    • Buy out, imitate, or exclude potential rivals.
       
    • Use their position as intermediaries to become even more dominant.
       
  • To avoid error, antitrust policymakers should study advances in understanding markets and platforms; the Supreme Court has recognized that intermediaries are sellers of transactions.
     
  • Ambiguous references in AICO to fairness, preferences, and harm to competition could hamper innovation and competition; enforcers should focus on harm to the competitive process.
     
  • The EU’s DMA mentions economics of scale, network effects, and lock-in, but the presence of these features on digital platforms does not always mean that antitrust intervention will be needed.
     
    • Most industries enjoy economies of scale, but the power of large incumbents is limited by competition for the market.
       
    • Network effects can be enjoyed by all firms in an industry.
       
    • There is scant evidence that users in online markets are locked in to inferior technologies.
       
  • Intermediaries bring together buyers and sellers to create markets; digital platforms have increased the contributions of intermediary firms to economic growth through transaction innovations that enable new types of transactions.
     

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