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In Search of a Competition Policy for the Digital Sector

  • October 17, 2024
  • Diana Moss
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Introduction

Competition policymakers have a difficult relationship with the digital sector. The large digital ecosystems, in particular, pose a unique challenge. The combination of economic features that foster high concentration and market power, rapid growth via M&A, and high levels of innovation go a long way toward explaining competition policy’s legacy in the digital sector.

This legacy features virtually no challenges to digital mergers across two massive cycles of mergers and acquisitions (M&A) beginning in the mid-1990s. These cycles include the expansion of the now mature, first-generation digital ecosystems and the most recent build-out of cloud and artificial intelligence that continues to drive the digital transformation and its impact on innovation and economic growth.

Antitrust enforcement, which works to spur innovation by promoting competition, must find a way to address market power in the digital sector against a backdrop of rapid growth and innovation. It has been reticent to do so. Only recently have enforcers more vigorously engaged with the digital ecosystems. But a recent series of merger challenges in the U.S. have proved unsuccessful. Moreover, the recent surge of monopolization cases against large players will take years to resolve and the remedies that will ultimately emerge in successful cases remain uncertain.

This approach to U.S. antitrust enforcement is not likely to be effective in a rapidly transforming digital sector that is charging ahead at warp speed. By the same token, the compliance-based ex ante regulation of digital platforms in Europe is no panacea. Few competition policy experts, however, have asked whether a more coherent policy approach to promoting competition in the digital sector is desirable, or needed. This PPI report, “In Search of a Competition Policy for the Digital Sector,” concludes that it is.

PPI’s analysis unpacks the major factors that collectively bear on the need for a more clearly articulated digital competition policy. These include the unique economics and business models in the digital sector, rapid growth through acquisition, and high levels of innovation and dynamism. The analysis evaluates the policy implications, against this unique backdrop, of antitrust’s late arrival on the digital scene. It proposes three initiatives that lay the groundwork for framing a coherent digital competition policy:

• The next political administration should convene an expert “blue ribbon” commission to identify digital competition policy approaches that address both market power and innovation in the digital sector.

• The U.S. antitrust agencies should commission a comprehensive set of retrospectives on past digital merger cases, including cases that were challenged, and those that were investigated but did not lead to an enforcement action.

• The U.S. antitrust agencies should issue guidance on antitrust remedies, including updated guidance on merger remedies but also anticipated approaches to restoring competition in successful digital monopolization cases.

Read the full report.

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