How to regulate big tech

Amazon logo on a building

The proliferation of data into different fields of the economy presents opportunities for economic growth sorely needed in the European Union (EU). Better use of data permits firms to improve the quality of their products, increase efficiency, lower prices, and develop new products and services that bring enormous benefits to consumers. But with these opportunities comes a problem: how to protect competition in digital markets?

There is a growing concern that the tools used to identify anticompetitive practices in traditional industries will not work well when applied to the data economy. Tim Wu, Professor at Columbia Law School, for example, argues that the reason for the emergence of highly concentrated markets—in which a small number of tech companies holds significant market power—lies in the weak enforcement of antitrust law that has failed to keep up with the developments brought by digitalization.

In a new working paper, we look into the challenges of applying antitrust law to digital markets. Our objective was to identify policy directions that could foster the development of a competitive data economy in the EU.

EU vs. US Approaches for competitive data economies

There have been several proposals on how to promote and maintain competition in digital markets. In the United States, presidential candidate Elizabeth Warren is talking about ways to break up or curtail the so-called tech giants. Others have suggested that there is a need to relax some of the existing antitrust doctrines to permit U.S. courts to address anticompetitive practices by digital platforms.

A similar debate has emerged across the Atlantic where Margrethe Vestager—reappointed EU commissioner for competition and now also executive vice president for creating a “Europe Fit for the Digital Age”—has to navigate through a flood of reports proposing the right competition policy for digital markets. With growing pressures from U.S. and Chinese tech giants, Ms. Vestager has a tough choice to make: Should the European Commission (EC) relax the enforcement of competition law to facilitate the development of national champions, or should it strengthen evenhanded enforcement to prevent practices that restrict competition?

Who’s got the power?

The EU and the U.S. are positioned very differently when scrutinizing the behavior of the so-called monopolists. A strong belief in the market’s ability to self‑correct and the fear of false positives—cases in which a court incorrectly finds a firm’s behavior to be unlawful—have led U.S. courts to develop legal doctrines that impose on plaintiffs a high burden of proof. These doctrines limit the circumstances in which a monopolist’s behavior can be found unlawful under U.S. antitrust law. In contrast, the EU has historically had less confidence in the market’s self-correcting mechanisms and, hence, less concern with false positives. This has led the Court of Justice of the EU, the chief judicial authority, to develop legal doctrines that permit enforcers to address a wide variety of practices, including those that would be considered perfectly legal in the U.S.

Table 1 summarizes the similarities and differences between the two legal systems. What is clear is that firms face much greater scrutiny in the EU than they do in the U.S.

Table 1. US antitrust law vs. EU competition law

US antitrust law vs. EU competition law

Source: Aridi, Anwar; Petrovčič, Urška. 2019. “Big Tech, Small Tech, and the Data Economy: What Role for EU Competition Law?” Washington, D.C.: World Bank Group.

A good illustration of the differences between the two systems is the ongoing EC investigation of Amazon. The underlying concern is that Amazon is using the data it collects through its platform to harm competition. It is possible to foresee circumstances in which Amazon’s conduct could trigger a liability under EU competition law. Assume, for example, that the investigation reveals that Amazon uses the collected data to undercut rivals’ prices. If Amazon’s prices are deemed predatory—below an appropriate measure of costs—Amazon’s conduct would be unlawful under EU competition law. Not so in the U.S., where evidence of below-cost prices would not be enough to establish a violation of U.S. antitrust law.

But even if Amazon’s prices are not predatory, the company is still more likely to face a (bigger) liability in the EU than in the U.S. The EC’s 2015 investigation against Amazon and the nearly 1.5 billion euro fine that the EC imposed on Google provide ample evidence that big firms face much stricter scrutiny in the EU than they do in the U.S.

Europe’s edge in regulatory readiness

The long-standing differences in how the market is viewed on the two sides of the Atlantic Ocean are particularly important in designing competition policy for the digital era. The suggestion about relaxing the antitrust doctrines is not germane to the EU, where the existing doctrines already permit enforcers to address a wide variety of monopolists’ practices (including those that would be considered perfectly legal under U.S. antitrust law). Of course, this does not mean that the EC faces no challenges when applying competition law to the data economy. The market dynamics have changed, and agencies will have to rethink the enforcement of competition law in new markets, especially when it comes to anticompetitive use of data, remedies, and the control of mergers. However, there is no need for the European Union to further relax its existing doctrines to be able to address practices that are detrimental for competition. In the U.S., in contrast, plaintiffs face a tougher battle in showing that a monopolist’s behavior is unlawful.