Research Economics

The Changing Role of Antitrust in the Digital Age

, by Ruyue Li
IGIER Visiting Student Ruyue Li reports on the recent IGIER Policy Seminar with Massimo Motta (UPF), Steve Tadelis (Berkeley) And Antonio Butta' (Agcom)

Digital companies, such as Microsoft, Apple, Alphabet, Meta, and Amazon are organizations too big to be ignored. They make our life better, but they also have the power to jeopardize our society. How could economists understand the digital markets and analyze the impacts these giants brought about? To mitigate the risks and to protect civilization, what could antitrust authorities do to regulate the digital markets?

On 20 May 2022, Massimo Motta (UPF), Steve Tadelis (Berkeley), and Antonio Buttà (AGCOM) offered their insight on this issue during the seminar, "Competition Economics in the Digital Age: Privacy Protection & Antitrust".

Professor Massimo Motta delineated 5 digital markets' characteristics and suggested that antitrust alone was not enough to tackle all the problems created by these big tech firms. "The economies of scale, network effects, two-sided externalities, switching costs, and consumers' behavioral biases coexist in the digital markets. That's one of the reasons that antitrust interventions are less likely to be effective in the digital markets, comparing to in the traditional industries." Professor Motta also highlighted why we should be alert about big tech. From the economist's perspective, increasing the market power of large digital firms means the risk of lower quality (less organic part in Google search), less innovation, and higher prices (e.g., advertising fees). Besides, as monopsony, they endanger labor markets. In addition to economic risks, the big tech firms can generate political impacts through lobbying activities. Regarding the enforcement of antitrust law in digital market, he pointed out that it took 5 to 10 years to rule one relevant case. It's highly possible that competition has gone away before the final ruling comes.

Given these potential threats, European proposed the Digital Markets Act (DMA) as part of solutions. The major problem with EU's approach is its "one-size-fits-all" principle. That's exactly what Professor Tadelis conveyed in his short critical review of antitrust, regulation, and big techs. "There should be no one size fits all." Alphabet shares a common margin trend with Microsoft, but not with Amazon, though people tend to group them together. Surprisingly, Amazon does have similar margin figure with Walmart. According to his opinion, it's better to do more research, understand deeper, and be more prudent considering Type I error; rush antitrust would be harmful to innovations. Regarding the role played by antitrust regulation, he shared similar view with Professor Motta, "as politics and democracy are serious concerns caused by the big techs, should these be part of antitrust regulation? Not in my opinion."

Antonio Buttà, as the Chief Economist in the Italian Competition and Market Authority (AGCOM), shed light on the issue of competition and consumer protection in the digital economy from a policymaker's viewpoint. He suggested that Italian antitrust authority has gradually moved faster to deal with big tech, echoing Professor Motta's concern. After introducing several typical cases they handled, such as the Amazon logistic cases, he turned to compare the principles underpinning antitrust laws and the Digital Market Act. "Traditional antitrust cares about undistorted competition and consumer welfare, while DMA focuses on fairness and contestability; antitrust evaluates market power and dominance, but DMA judges market position," he concluded questioning the role of economics in the era of DMA.

During the discussion session, asked "how to view the phenomenon that big techs conduct economic research using their internal data but without publishing the final results?" Professor Tadelis responded optimistically: "I believe publication will be part of the currency used to attract scholars."