Toward a Coherent Approach to Market Power in the Digital Sector: Complexity, Growth through Acquisition, and Remedies

• DOI: http://doi.org/10.1177/0003603X221126139
• Published date: 01 December 2022
• Date: 01 December 2022
• Subject Matter: Articles

https://doi.org/10.1177/0003603X221126139

The Antitrust Bulletin

2022, Vol. 67(4) 536 –551

© The Author(s) 2022

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DOI: 10.1177/0003603X221126139

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Article

Toward a Coherent Approach to

Market Power in the Digital Sector:

Complexity, Growth through

Acquisition, and Remedies

Diana L. Moss*,**

Abstract

The Digital Business Ecosystem (DBE) model far surpasses other models and structures in its

scope, scale, and complexity. DBEs feature unique economic, technological, business, and growth

characteristics that increase their opacity to consumers, competition enforcers, and lawmakers.

These include a range of market failures, the role of cloud computing in realizing the DBE value

proposition, and growth through acquisition.The United States is making slow progress in addressing

competition concerns in the digital sector. Legislative initiatives remain focused on the largest players,

and there is little political appetite for a dedicated sector regulator to develop a system of non-

discrimination “access” regulation. This article discusses the implications of the widening gap between

the complexity and growth of DBEs, and policy responses to the market power problems they raise.

The analysis recommends a more coherent approach centered on identifying policy tools—including

antitrust, regulation, and privacy law—that are best suited to addressing the unique features of DBEs

and that work in a complementary way.

Keywords

digital technology, business models, competition, antitrust, regulation

I. Introduction

Digital business ecosystems (DBEs) reflect the culmination of progressive changes in business models

and organizational structure over the last forty years. The DBE business model far surpasses other

models and structures in its scope, scale, and complexity. It features unique economic, technological,

and business characteristics that increase the opacity of DBEs to consumers, competition enforcers,

and lawmakers. These include information as the currency of exchange and a range of market failures

such as network effects, information asymmetries around user data and privacy, and data externalities.

As the engine of 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

*President, American Antitrust Institute, Boulder, CO, USA

**Adjunct Faculty, Department of Economics, University of Colorado Boulder, Boulder, CO, USA

Corresponding Author:

Diana L. Moss, Adjunct Faculty, Department of Economics, University of Colorado Boulder, 3100 Marine St Suite A122.

65 UCB, Boulder, CO 80309-0065, USA.

Email: dmoss@antitrustinstitute.org

1126139ABXXXX10.1177/0003603X221126139The Antitrust BulletinMoss

research-article2022

Moss 537

learning, which powers the DBE value proposition of maximizing user engagement and monetizing

user data. Finally, in contrast to non-digital business models, DBEs appear to grow far more through

acquisition, versus through organic expansion.

The United States now confronts large DBEs that possess significant market power. They operate in a

variety of markets, including search, social media, services, fintech, app stores, and eCommerce. In the

process of growing to become the world’s most valuable companies, the five largest first-generation DBEs

made hundreds of acquisitions. In retrospect, some of these acquisitions were likely illegal in that they

substantially lessened competition through the elimination of nascent rivals, but they went unchallenged by

antitrust enforcers, despite the statutory intent of Section 7 of the Clayton Act to stop harmful mergers and

acquisitions in their incipiency.1 Moreover, significant deference continues to be given to the venture

capital–backed start-up model in the digital sector, which provides a steady flow of potential acquirees to

large incumbent players.2 Rather than spurring innovation and competition through the growth of indepen-

dent companies, the model maximizes acquisition prices for start-up founders and their funders.

Lax merger enforcement in the digital sector has put enormous pressure on already impaired mono-

poly law in the United States to address market power concerns.3 Using a variety of anticompetitive

methods, some large DBEs have squeezed out smaller rivals operating on their platforms and neutral-

ized nascent competitors that could grow to threaten their market position.4 Some of these companies,

including Google (Alphabet) and Facebook (Meta), are now the subject of numerous monopolization

cases.5 Such cases focus on different forms of “self-preferencing,” or methods through which a domi-

nant DBE can limit or cordon off competition from smaller rivals. They typically include frustrating the

ability of rivals to interoperate on a platform; placing proprietary services at the top of Internet search

results or in eCommerce buy boxes; or using algorithmic recommendation methods to steer users to

proprietary products and services.

Yet the United States is making relatively slow progress in addressing competition concerns in the

digital sector. Legislative initiatives remain focused on the largest players, with proposals that task the

antitrust agencies with quasi-regulatory responsibilities, administered under expanded authority under

the antitrust laws.6 Targeted legislation of this type would not address competition issues that arise in

the digital sector more generally, regardless of firm size, despite evidence that a fast-growing next

generation of powerful digital players is on the rise. Moreover, there appears to be little political appe-

tite for legislation proposing a dedicated, technically expert sector regulator to develop a system of

access regulation that would police “self-preferencing.”

1. 15 U.S.C. 12-27, Clayton Antitrust Act (1914). See, e.g., Remarks by Assistant Attorney General Bill Baer at the

American Bar Association Clayton Act 100th Anniversary Symposium (Dec. 4, 2014), https://www.justice.gov/opa/speech/

remarks-assistant-attorney-general-bill-baer-american-bar-association-clayton-act-100th.

2. Colleen Cunningham et al., Killer Acquisitions, 129 J. Pol. Economy 649–702 (2021), https://ssrn.com/abstract=3241707.

3. See, Diana L. Moss, The Record of Weak U.S. Merger Enforcement in Big Tech, AmEricAn Antitrust institutE (July

8, 2019), https://www.antitrustinstitute.org/wp-content/uploads/2019/07/Merger-Enforcement_Big-Tech_7.8.19.pdf, and

Diana L. Moss, Update on Digital Technology: The Failure of Merger Enforcement and Need for Reform, AmEricAn

Antitrust institutE (Mar. 3, 2021), https://www.antitrustinstitute.org/wp-content/uploads/2021/03/Merger-Enforcement_

Big-Tech_3.3.21_F.pdf. See also, Comments of the American Antitrust Institute to the U.S. House of Representatives,

Committee on the Judiciary Subcommittee on Antitrust, Commercial and Administrative Law Judiciary Committee,

Investigation into Competition in Digital Markets, AmEricAn Antitrust institutE (Apr. 17, 2020), https://www.antitrustin-

stitute.org/wp-content/uploads/2020/04/HJC_AAI-Comments_4.17.20.pdf.

4. Colleen Cunningham et al., Killer Acquisitions, 129 J. Pol. Economy 649 (2021).

5. See, e.g., FTC v. Facebook, No. 1:20-cv-03590 (D.D.C. filed Dec. 9, 2020); New York v. Facebook, No. 1:2020-CV-03589

(D.D.C filed Dec. 9, 2020); and U.S. v. Google LLC, No. 1:20-cv-03010 (D.D.C. filed Oct. 20, 2020).

6. Amazon, Apple, Google, Meta, and Microsoft. See, e.g., House Lawmakers Release Anti-Monopoly Agenda for “A Stronger

Online Economy: Opportunity, Innovation, Choice (June 11, 2021), https://cicilline.house.gov/press-release/house-law-

makers-release-anti-monopoly-agenda-stronger-online-economy-opportunity; and Klobuchar, Grassley, Colleagues to

Introduce Bipartisan Legislation to Rein in Big Tech (Oct. 14, 2021), https://www.klobuchar.senate.gov/public/index.

cfm/2021/10/klobuchar-grassley-colleagues-to-introduce-bipartisan-legislation-to-rein-in-big-tech.