Network effects, economies of scale, control over data and low marginal costs favour concentration in digital markets. The regulatory challenge goes beyond price: it involves data, attention, portability, interoperability, supplier dependence, privacy and algorithmic transparency.
Educational and informational content. It is not legal advice, guidance for a specific case or an institutional position. Examples and analyses use only legitimate sources and public data, aggregated or properly anonymised.
Network effects, economies of scale, control over data and reduced marginal costs can favour high concentration in digital markets. In certain segments, a few platforms come to intermediate a significant share of the relationships between users, firms and advertisers. The position reached allows them to set access rules, order information and influence the conditions of competition within the digital environment itself.
The regulatory challenge is not limited to the price charged to consumers. Many services monetise data, attention and advertising or create technological dependence, even when offered without direct payment. An adequate assessment has to consider market power, switching costs, technological lock-in, freedom of choice, data portability, interoperability, privacy and the transparency of automated systems.
The European Union has structured specific responses through the Digital Markets Act, which imposes ex-ante obligations on designated gatekeepers, and the Digital Services Act, aimed at duties related to intermediary services, moderation and transparency. In Brazil, the General Data Protection Law (LGPD) and the Marco Civil da Internet govern relevant aspects of data processing, users’ rights and liability online. The competition regulation of platforms is also part of the institutional and legislative debate, including through Bill 2,768/2022 and studies by the Administrative Council for Economic Defense (CADE).
Reports produced in the United Kingdom, the European Union and the United States in 2019 converge on problems examined in this series, among them network effects, data that work as an entry barrier and switching costs that reduce user mobility. These factors help explain why traditional competition instruments may need adjustment in the face of the speed and structure of digital markets.
Consequently, regulating digital markets requires preserving the benefits of innovation without ignoring the conditions that allow power to concentrate. The goal should be to ensure effective competition, users’ rights and a real possibility of choice, with measures proportionate to the risks and characteristics of each market.
Further reading
- Crémer, J.; de Montjoye, Y.-A.; Schweitzer, H. (2019). Competition Policy for the Digital Era. Brussels: European Commission. Report
- Furman, J. et al. (2019). Unlocking Digital Competition: Report of the Digital Competition Expert Panel. London: HM Treasury. Report
- Stigler Committee on Digital Platforms (2019). Final Report. Chicago: Stigler Center, University of Chicago Booth School of Business. Report
- Khan, L. M. (2017). “Amazon’s Antitrust Paradox”. Yale Law Journal, 126(3), 710–805. — The critique of price as the sole measure of consumer welfare.
- CADE, Department of Economic Studies (2020). Concorrência em mercados digitais: uma revisão dos relatórios especializados. Working Paper 5/2020. Brasília: CADE.
- Shapiro, C.; Varian, H. R. (1999). Information Rules, chapter 9 (“Waging a Standards War”) and chapter 10 (“Information Policy”).
Websites to explore
- Regulation (EU) 2022/1925 — Digital Markets Act and the official DMA page.
- Regulation (EU) 2022/2065 — Digital Services Act.
- Bill 2,768/2022 — regulation of digital platforms (Brazilian Chamber of Deputies).
- Brazilian General Data Protection Law — LGPD (Law 13,709/2018) and the National Data Protection Authority (ANPD).
- Marco Civil da Internet (Law 12,965/2014).
- CADE — Brazil’s Administrative Council for Economic Defense.
