Regulating big tech

BIS Working Papers  |  No 1063  | 
16 December 2022

Summary

Focus 

Digital platforms and, in particular, social media platforms enjoy significant market power, which can be used in both the economic and the political arenas. Without regulatory restrictions, these platforms serve global markets and so issues of market power quickly become geopolitical issues. Thus, it is very difficult to address the issues arising from market power by regulating solely at the national level.

Contribution 

The paper reviews the unique conditions that make digital platform markets prone to tipping. It postulates ways to restore competitive conditions in these markets and highlights the need for regulation at the international level to address the problems of digital markets.

Findings 

The problems in digital markets can be solved only by structural interventions such as forcing interoperability and promoting more data-sharing. However, national regulatory bodies often may have neither the ability nor the incentives to carry out these interventions. Only at the international level are there the right incentives to introduce effective regulation. The recent international tensions could create political opportunities to design and implement such regulation.


Abstract

Digital markets are global in nature and prone to "tipping". The combination of these two factors makes the distortions of the inevitable monopolies in these markets very large, but it also undermines any effort at dealing with these distortions at a national level. I argue that the problem can only be solved by structural interventions that restore conditions for competition. Yet, no national regulator will have the ability to do so. Regulation can only arise in an international context. Paradoxically, the increasing international tension can create political opportunities for such international regulation.

JEL classification: L5, L86

Keywords: Big tech, regulation, market power

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