ZEW Economic Forum 2016 – Market Power and Market Power Abuses in the Digital World

On the one hand, digitalisation promises levels of growth we can only dream of. On the other hand, it leads to concentrations of market power which need to be kept in check. So do we need "New Rules for a Digital Economy"? This was the central question discussed by renowned representatives of the internet economy, management and research, who attended the ZEW Economic Forum 2016 at the Mannheim Centre for European Economic Research. How does market power in the digital economy and abuses of this power need to be dealt with, and what new challenges do cartel offices subsequently face? The presentations and debates illustrated that the instruments used by competition watchdogs need to be further developed on a national, European and global scale if they are to be able to respond to the speed of the digital economy.

As a product of digitalisation, the internet-based economy engenders rapid development. Applications have become an integral part of daily life in record time. Yet these disappear as quickly as they appear. In his opening speech, addressed to the 250 guests at the ZEW Economic Forum 2016 and entitled "Social Market Economy: Challenges and Digitalisation", ZEW President Achim Wambach emphasised that this high degree of dynamism is the defining feature of the digital era. "The principles of the social market economy, the holy grail of private ownership and market price, are being called into question by new technologies," explained Wambach, "as a result, we need to come up with new rules and guarantee alternative conditions."

Providing a telling example, the ZEW President asked his audience, "What was the most used app in Germany during the 2006 football World Cup?" The answer, of course, was that no app was used. The fact that applications for mobile devices first came onto the market in 2008, illustrates that, "rapid growth has and continues to take place." One result of this is the accumulation of Big Data, or huge volumes of data, which constitute the second most considerable factor making new demands on the social market economy. Increases in the amount of Big Data being generated are unexpectedly large. As Wambach explained, 90 per cent of data doubles in quantity every two years. "How exactly to handle this data is a vast topic area to be addressed by applied economists and microeconomists." A third particularity of the digital economy to be taken into account is the presence of multi-sided platforms, with both direct and indirect network effects.

It is in terms of these features which we see a fault line emerge between the social and the digital market economy. And as Wambach explained, this division also concerns competition and consumer policy. Even just looking at current cases of the Federal Cartel Office, the need to consider where exactly data accumulates, where it comes from and by whom it is used, becomes clear. Indeed, this was the focus in the subsequent podium discussion, "Power in the Digital Economy – Uncharted Territory for Competition Policy."

Digital Economy brings about complexity and diversity of possibilities

Julia Holz, Competition Director of the US internet giant Google, Andreas Mundt, President of the Federal Cartel Office, Christoph Weigler, General Manager of the online transport provider Uber in Munich, and ZEW President Achim Wambach debated the potentials and risks arising from the growing market power of several large internet corporations and how this should be addressed by the responsible authorities. The subsequent discussion was moderated by Professor Thomas Fetzer, professor for public law, regulatory law and taxation law at the University of Mannheim, and member of the Mannheim Centre for Competition and Innovation (MaCCI).

All participants in the discussion were in agreement about the complexity and diversity of the challenges and possibilities brought about by the digital economy. Mentalities in business, and in society in general, need to change as digitalisation encroaches on all economic sectors and overturns long-standing business models. The discussants also agreed that competition law proceedings require adjustment. As a result of the diversity of cases, the applicability of previously effective competition law and legal provisions is now said to vary hugely. It is therefore considered essential that competition law keep pace with technological developments.

Discussion became somewhat controversial as participants debated whether interventions by the Federal Cartel Office would actually improve the situation in terms of competition. Andreas Mundt dismissed accusations that applicable law lacks foresight and fails to accurately assess current conditions by noting, "we need to respond to 'moving targets', but we do know how we need to deal with them. Within five years we will have made legally binding decisions with relevance for the cases we face today."

"The speed of digitalisation also concerns our statistics"

The second speaker of the day, ZEW Research Associate Professor Dietmar Harhoff, continued on the central theme of the podium discussion, also picking up on the central point made by ZEW President Wambach in his opening speech. "The speed of digitalisation also concerns our statistics," emphasised the Director of the Max Planck Institute for Innovation and Competition, "when it comes to assessing the effects on productivity, we're seriously lagging behind." The internet produces a huge quantity of valuable, so-called "user-generated content" (UCG). "Users themselves are becoming active and are creating content, which is then accessed by purchasers," explained Harhoff, who also chairs the Federal government's Expert Commission for Research and Innovation, in his speech on "Internet, Innovation and Competition." According to Harhoff, the positive effects of UGC is still underestimated. On a final note, he pointed out that Germany is also lagging behind in international comparison in terms of the provision of venture capital.

Directly following the ZEW Economic Forum 2016, the handover ceremony of the ZEW presidency took place. Professor Achim Wambach was officially inaugurated as ZEW President, taking on his new role from former ZEW President Professor Clemens Fuest. Along with the institute's traditional Summer party, the alumni meeting also saw many guests gather at ZEW.