Digital versus Analogue – New Business Models Are Stirring Up Old Markets

Sharing rather than owning is one of the central principles of the digital market economy. Today, so-called “sharing models” are used for all sorts of things, from bicycles and cars to baby clothes and apartments. The sharing economy has a huge amount of potential and the number of users is continuing to rise. This is just one example of how new digital business models are transforming traditional markets at a rapid rate. Digitalisation is breathing new life into existing sectors of the economy and requiring them to make far-reaching structural changes. In many markets, we are seeing a battle of digital versus analogue. The taxi industry is having to fight for survival in the face of car-sharing platforms like Uber, while in the telecommunications sector text messaging has long since given way to the online messaging service Whatsapp.

Many of the more traditional business models seem to have been unable to keep up – and the same applies for the accompanying regulations. Governments therefore need to look closely at current market regulations and – wherever necessary – adapt them to this new digital age. This is the argument put forward by Professor Achim Wambach, president of the Centre for European Economic Research (ZEW), Mannheim, and chair of the German Monopolies Commission, and Hans Christian Müller, editor at Handelsblatt, in their new book “Digitaler Wohlstand für alle – Ein Update der Sozialen Marktwirtschaft ist möglich”, published by Campus Verlag. According to the authors, the most important thing is finding the most effective way to promote competition and therefore to increase prosperity – regardless of whether the new regulations are more favourable to traditional market players or the new digital pioneers. New, unambiguous regulatory safeguards are what is needed, claim the authors.

The book also recommends a variety of different reforms for each individual sector of the economy. In the case of the taxi industry, for instance, Wambach and Müller call for more flexible pricing and unlimited licensing, while also suggesting that customers be allowed to share taxi rides. In the tourism industry, the authors recommend the introduction of a minimum limit on the renting of private apartments to tourists.

Start-ups often represent a considerable challenge for regulation authorities. One example of this are FinTechs in the financial sector. These companies have shaken up this once sluggish sector of the economy by developing new apps and platforms for practically every area in which banks are active in order to make the lives of their customers easier. To ensure greater financial stability, however, Wambach and Müller argue that the financial market needs new rules, such as the sandbox principle used by the British financial supervisory authority. According to this unusual but promising approach, FinTechs are required to adhere a significantly reduced list of regulations compared to banks, but are still closely monitored. 

The authors then finally address one of the sectors most deeply affected by digitalisation: commerce. The sector is currently undergoing considerable structural changes, with many sub-sectors becoming increasingly “Amazonised”. More and more trade is being conducted online, leading to deserted high streets in many cities across the world. Even though the government is not supposed to favour one kind of business – be it stationary or online trade – over another, they are still faced with solving a number issues relating to competition policy, according to Wambach and Müller. It is important that the authorities monitor the interdependencies between trading platforms and small online traders and punish any potential abuse of market power. The authors call for the government as a regulating force to ensure fairness in commerce and to exploit the potential of digitalisation where it is most needed, for instance in securing the supply of medication or protecting cultural assets such as books.

Stationary trade is still far from losing the battle against its online competitors, though – according to the authors – it needs to rethink its current strategies and make buying products in-store more of an experience for consumers again. This is essentially because whoever plays an active role in shaping change holds better cards than those who simply sit by and watch it happen.