The Covid-19 pandemic will have many losers, but digital platforms will come out of the crisis even stronger. Physical activities like working in an office can be disease vectors, which is why they won’t rebound as quickly as trade, and their currently digitalised nature may not vanish in the medium term. Work on digital labour platforms provides workers with the opportunity to work from anywhere, at any time and take up whatever jobs suits them. However, these platforms display the same features that made Microsoft, Amazon, Apple, Google, and Facebook household names well before the Covid-19 outbreak.
They act as matchmakers between various actors and, though they may charge retailers, app developers and advertisers, they remain free for users. However, the market disruptors that displaced intermediaries to empower users are, paradoxically, the new gatekeepers. Differently from the past, this time around they don’t face the same competitive pressures from would-be disruptors, as suggested by their stock market valuations.
Will these platforms’ increasing power turn into a threat for users? If so, how can EU authorities strike a balance between consumers’ welfare and platforms’ profit-oriented business?
They might be giants
The markets where digital platforms operate favor the creation of dominant players in a winner-takes-all process; i.e., beyond a certain market share it is easier to attract more and more users to reach a monopolistic position. Though past evidence weakens this expectation of tipping, this time around these platforms look stronger and harder to displace. This is due to the combination of the following factors:
- The bigger the market share, the lower the average cost. This effect, known as ‘economies of scale’, is determined by high fixed costs (up-front investment in software and hardware) and close-to-zero variable and marginal cost (think about the cost of the additional user for Amazon or for an Apple store).
- The bigger the market share, the higher the value #1. Users want to be in platforms with many others and the convenience of using a platform increases with the number of users that adopt it (the so-called ‘network externalities’). Users are attracted by big social networks that offer the opportunity to interact with more ‘friends’, and the more they grow, the more they attract content providers, advertisers, sellers and vice versa.
- The bigger the market share, the higher the value #2. Digital platforms collect, store, and use large amounts of data that users generate and surrender as the non-monetary price to pay to get a free service. Data help platforms improve algorithms and offer more tailored services in a wide range of markets. This can facilitate interactions among actors both on the same side (g., suggesting ‘friends’) and on different sides (.e.g, advertisers who can fine-tune their campaign targeting).
Digital platforms, as all businesses, cannot be presumptively treated as dangerous for their users simply because of their dominant position; if anything, many online services would be worse off if their providers were smaller.
However, the above-mentioned factors – economies of scale, network externalities, and the power of data – help the growth of the incumbents with the biggest market share and build up a barrier that protects them against new entrants. Incumbents’ position is also strengthened by the human factor: the more we familiarize with a platform, the higher the switching costs, due to bounded rationality and, simply put, laziness.
Hence, the giants that are simplifying and enriching users’ life may turn into a threat. Even though users can access the platform free of charge, they will foot the bill of the higher cost that other actors (e.g., sellers) must pay to be in the dominant platform. Moreover, if new firms offering lower price and/or better quality cannot enter the market, users’ welfare will shrink and innovation will not be promoted.
Enter competition policy and regulation
The European Commission has been actively scrutinizing digital platforms for their anticompetitive behaviors, mainly those with an exclusionary intent. To name a few: Amazon pushing its products using other sellers’ data, Microsoft leveraging its dominant position in operating systems into media players and browsers markets, Google leveraging its dominant position in web search into price-comparison platforms and online advertising markets, again Google imposing restrictions on mobile manufacturers that use Android and Apple on app developers that use its App Store.
However, intervening after the alleged anticompetitive behavior has already taken place is neither effective nor efficient. Authorities’ potential to enforce competition is challenged by the advantage firms have by owning better information about their own services, which can be then shaped to undertake abuses in very creative ways. Moreover, authorities are constrained by lengthy procedures, during which people have already been damaged, and by the risk to incur formal errors that may nullify their mission.
A more effective and radical solution in competition policy is to intervene on market structure rather than on firms’ behavior, by preventing mergers or acquisitions (or clearing them subject to structural remedies, e.g., divestures) and by splitting firms. The Commission has not prohibited a tech merger yet, but it has instead imposed non-structural remedies in clearing, among others, the acquisition of LinkedIn by Microsoft, Fitbit by Google, and WhatsApp by Facebook. Though the Commission has the power to adopt structural remedies, it has never broken up firms; hence, this invasive tool should be used as a last resort remedy.
The ever-growing power of digital platforms, and the recent rise of investigations (not only in the EU), called for ad hoc regulation that, amongst other rules, revamps the option of breaking up dominant digital platforms that repeatedly engage in anti-competitive behavior.
The Commission’s aim is to increase the contestability in highly concentrated digital markets by promoting data portability (already adopted in the privacy field) and systems interoperability. This can make it easier for new entrants to compete with the incumbents, thus improving users’ welfare.
In setting ex-ante behavioral rules, regulation is more time efficient than competition policy that is enforced ex-post. However, regulation suffers from the physiological incompleteness of its provisions; as said before, especially in digital markets, a written text can quickly become obsolete and legislative cycles can be as slow as competition policy cycles. For this very reason regulation complements, instead of substituting, competition policy.
Regulation without fragmentation
Member States cannot be divided in setting the rules of the digital markets since, thanks to commoditized hardware and easy-to-move software and data, it is easy to find the soft-bellies of the European Single Market and to jeopardize the welfare of their users. Moreover, fragmentation along national borders does not help European digital firms’ growth. If anything, the EU should develop a transatlantic political dialogue to define a common set of principles. Eight years after the launch of TTIP, the concerns posed by the biggest mercantilist autocracy are not only in trade and investment, but also in the digital sphere with a special attention to the applications of artificial intelligence. Therefore, in this new phase of regulation of digital markets, the EU and its like-minded partners – such as the US - cannot be divided.
 The way data are used can better explain why Facebook has lasted more than MySpace and Google more than Yahoo! in their respective positions.
 A exclusionary abuse is when the dominant firm prevents or hinders competition on the market by excluding its competitors by other means than competing on the merits of the products or services it provides. The exclusion of competitors is a strategy to increase a firm’s dominance thus the probability to undertake exploitative behaviours (eg, price rise).
 For the Google Search (Shopping) case the Commission opened the proceedings on 30 November 2010 and made the decision on 27 June 2017 and as of 20 March 2021, the General Court has not decided on Google’s appeal yet.
 Regulation (EU) 2019/1150 of 20 June 2019 on promoting fairness and transparency for business users of online intermediation services, and Proposal for a Regulation on contestable and fair markets in the digital sector (Digital Markets Act), COM (2020) 842 final of 15 December 2020.
 See, for example, the recent case of Ireland accused by Germany of ‘light’ enforcement of the GDPR against Google, Facebook, Microsoft and Twitter that have their EU headquarters in Dublin (Financial Times, “Fight breaks out between Ireland and Germany over Big Tech regulation”, 18 March 2021).