Digital platforms multiply market size and employment in services, but only when disciplined by competition

Before 2018, small hotel owners in Brazil trying to reach new customers faced a conundrum: they could use major online booking platforms to reach a larger number of tourists, but, in doing so, they could not then offer price reductions through smaller platforms. The largest booking platforms forbade businesses from offering deals through other channels if they wanted to use their platform. In 2018, the Brazilian competition authority put a stop to these conditions, allowing hotel operators to offer lower prices through different sites and tourists to shop around for better deals. By all accounts, business is bigger and better-benefiting both tourists and businesses.

Digital platforms have become a major force in markets around the world. They are connecting big and small businesses with a growing universe of users. In developed economies, they are an important driver of job creation: the employment share of gig economy platforms alone is estimated at between 1-3 percent. This share is even higher in some developing economies, and it is growing fast. Digital platforms played a prominent market role in helping people weather the pandemic. But some features of these platforms and their growing market share-exacerbated by the shift towards online business during the pandemic-have raised concerns about anticompetitive practices that affect users and the ability of smaller and newer firms to compete with bigger incumbents.

Competition must be assured, not assumed

In developed countries, reports of anticompetitive behavior by digital platforms are commonplace. But platforms are a global phenomenon and practices that exclude competitors, exploit users, or raise prices are just as relevant in developing countries. Policymakers should be vigilant in monitoring markets, and proactive in addressing incipient anti-competitive practices. Digital markets will remain fair for small players only if they are kept competitive, and they will remain vibrant because newer firms also tend to be the most innovative.

Our new report, "Antitrust and Digital Platforms : An Analysis of Global Patterns and Approaches by Competition Authorities," provides insights on these practices and how they are being regulated by competition authorities across the world. The report draws from the Global Markets Competition and Technology Digital Antitrust Database, a major effort to collect global data on finalized cases of abuse of dominance, anticompetitive agreements, and mergers involving digital platforms. Contributions from the public and policymakers will help to enrich the database, making markets work better for the little guy.

Antitrust enforcement is key to tackling anticompetitive business practices in digital markets . The work of the Brazilian competition authority on booking platforms is just one case. Authorities have dealt with similar cases in Germany, Australia, UK. And it is not only the large global digital platforms that engage in anticompetitive behavior. Local players also create exclusive agreements which prevent their users from offering products and services through other platforms or offline channels. Some of these are platforms that have been praised in international circles. In Kenya, for example, M-PESA was ordered to end exclusive agreements with agents that prevented them from working with other mobile money networks. In South Africa, the competition authority determined that, Computicket, a local event ticketing platform, abused its dominance by putting in place exclusive agreements with event organizers.

100 documented abuses-and counting

Worldwide, over 100 antitrust cases had been settled by 2020, with cases in every region. Almost 40 percent of these cases were in developing economies, though none of them were in low-income countries. This may reflect the absence of functional competition enforcement regimes, differences in how developed digital markets are, or lower policy prioritization of digital economy issues in poorer countries. It may also be because bringing cases against well-resourced global digital firms is a daunting prospect for young and capacity-constrained authorities.

The quicker pace of digitalization in the post-COVID economy along with the tendency of digital markets to be dominated by a few large players means that governments must intervene sooner and more aggressively to ensure competition. There is much scope for learning across countries. There are four things that we have already learned by studying the patterns in the digital antitrust database:

1. Digital platforms have implications across a broad range of markets. We've identified cases in 16 different sectors: from transport to finance to online search (Figure 1). Among other factors, differences across countries reflect the relative importance of sectors in their economies. For example, mobile financial services appear in developing countries but not developed.
   
2. Regulatory agencies in developing countries must monitor emerging tendencies in digital markets, not wait until the problems becomes serious. Developed country authorities assessed new features associated with digital platforms in their cases more frequently, while developing countries relied more on traditional factors such as prices and competition between platforms (Figure 2). Relatively few cases in developing countries assessed risks associated with possession of data -just 20 percent versus 40 percent in developed countries- even though data is a key input for digital businesses.
   
3. Fines imposed for violating competition law-typically based on national revenues-are not enough to deter anticompetitive behavior by firms that operate globally. Fines were imposed in only 35 percent of anticompetitive practice cases where wrongdoing was found. Even when they are imposed, they tend to be low compared with firms' worldwide revenue. Most fines were below 1 percent, often chump change for these multinationals.
   
4. Promising remedies are being used to increase competition in antitrust cases, but more evidence is needed to figure out how well they work. For example, with Uber's merger with Careem in Egypt, the authority ordered that Uber must grant its competitors access to its data on mapping and trips. But such remedies remain notoriously difficult to design and implement even for mature and well-resourced competition authorities, and evidence on their impact is scarce. Further research should dig into how different measures can give teeth to antitrust regulation in digital markets.

A database for better digital platforms

Our conclusion is that much more cross-country collaboration on antitrust in the digital economy is needed. Competition authorities in lower-income countries should work with more mature authorities to learn from their experiences with platform business models. Developing countries should also participate more actively in global debates on new aspects of competition analysis, like data protection and privacy.

We hope that the World Bank's new report and database will support authorities in this endeavor. Along with evidence on competition advocacy from the ICN-WBG Advocacy Contest, this work hopes to provide governments across the world better intelligence on how to digital markets more competitive. The Global Markets, Competition and Technology Digital Antitrust Database can also provide the basis for greater international cooperation on digital platforms. And stronger competition regimes and international cooperation in enforcement are needed both to make the recovery from the pandemic quicker and to lay the foundations for digital economies that are simultaneously innovative and inclusive.

Topics

Digital Development

Countries

Brazil

Regions

The World Region