A Primer on Competition in the Digital Economy

Authors[1]

Disruptive innovations (mainly through digitalisation) are resulting in a change in the structure of markets and their functioning, emergence of new business models as well as new products and processes (Organisation for Economic Co-operation and Development, 2017). These innovations have been delivering significant benefits to consumers but have also given rise to a spate of public policy concerns ranging from safety and privacy to competition. Especially with respect to competition, these innovations have surfaced challenges such as an increase in the level of concentration in certain markets, a contraction in the entry of new players, an escalation of mark-ups charged by firms well above their costs, and the risks associated with access to large amounts of personal data (Organisation for Economic Co-operation and Development, 2019).

The virtues of markets and competition have been long extolled by economists. Unfettered competition is believed to protect consumers from the political influence of lobbies and compel producers to deliver better products and services while keeping a check on prices. However, competition is rarely perfect; markets fail, and market power is not kept in check. This is perhaps more pronounced in the case of digital ecosystems where the use of data creates conditions for more concentrated entities. The use of data leads to economies of scale, network effects and economies of scope. This makes it easier for data-intensive businesses to assume a large size and also enter into new markets. Given the increasing prominence of the digital economy in every aspect of human life, competition authorities across jurisdictions have begun assessing the adequacy of competition law and policy in addressing the challenges raised by data-intensive businesses (United Nations Conference on Trade and Development, 2019). There is a growing consensus that competition policy which was crafted for firms that typically offer goods at non-zero positive prices, and often are dominant in just one market, will need to be adapted for digital ecosystems.     

This primer attempts to unpack the unique characteristics of digital markets, the implications that they have for business models of entities, and the attendant challenges of applying existing competition policy frameworks to these markets. In this context, we also examine some of the recent regulatory and legislative initiatives taken by competition authorities globally.

The full primer is available here.

[1] With edits from Beni Chugh

Cite this Item:

APA

Stanley, S., Prasad, S., & Singh, A. (2021). A Primer on Competition in the Digital Economy. Retrieved from Dvara Research.

MLA

Stanley, Sarah, Srikara Prasad and Anubhutie Singh. “A Primer on Competition in the Digital Economy.” 2021. Dvara Research.

Chicago

Stanley, Sarah, Srikara Prasad, and Anubhutie Singh. 2021. “A Primer on Competition in the Digital Economy.” Dvara Research.

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competition policyDigital economyDigital Financedigital marketsFuture of Finance