Market Power and Digital Business Ecosystems: Assessing the Impact of Economic and Business Complexity on Competition Analysis and Remedies

Abstract

“Digital business ecosystems” (DBEs) reflect the culmination of progressive changes in business models and organizational structure over the last 40 years. The ubiquity of many large DBEs in our economy, society, and political system is troubling, as is their significant market power, which is the subject of competition investigations in the U.S. and abroad. But the DBE business model, which far surpasses other models and structures in its scope, scale, and complexity, remains largely under-analyzed. DBEs feature unique economic, technological, and business characteristics that increase their opacity to consumers, competition enforcers, and lawmakers. These include information as the currency of exchange and a range of market failures such as positive network effects, information asymmetries around user data and privacy, and data externalities. As the “engine” of commerce and growth in DBEs, cloud computing technology adds further complexity to the analysis of market power. This is particularly true of data analytics, supported by artificial intelligence (AI) and machine learning, which powers the DBE “value proposition” of maximizing user engagement and monetizing user data.

This report examines the unique characteristics of DBEs and assesses their implications for competition enforcement and policy. This analysis raises numerous questions around the adequacy of conventional competition analysis in evaluating market power concerns. The widening gap between the complexity and growth of DBEs—and the likely inadequacy of policy responses to the market power problems they raise—elevates the importance of such questions. However, they cannot be answered by relying solely on a legal-economic framework. We therefore adopt a multidisciplinary approach, incorporating economics, law, and business theory and research in our analysis. Not surprisingly, it reveals important caveats and cautions regarding the application of conventional competition analysis to DBEs, with implications for how competition enforcers and legislators assess market power and design remedies, particularly in the merger and monopolization contexts.

The report begins with the evolution of the DBE business model and its rapid and expansive growth. We then turn to an analysis of the major structural and behavioral features of DBEs. Next are implications for competition analysis, such as how markets are defined, how market power is exercised, and remedies. The final section concludes with recommendations. As public and private antitrust cases against large DBEs mount, the U.S. Department of Justice (DOJ), Federal Trade Commission (FTC), state Attorneys General, and courts will continue to grapple with their unique features. This report provides important analysis, insights, and recommendations for enforcers and policymakers as they explore the full complement of tools available to rein in the market power of DBEs.