SNS Economic Policy Council Report 2021: Digitalization and Competition

Digitalization has resulted in increased market concentration, new bottlenecks, and lock-in effects where revenues and market power are concentrated to a small number of platforms. In the report, the researchers analyze and discuss the legislative proposals currently being prepared in Brussels and Washington, D.C. to address these issues as well as ongoing legal processes against tech giants on both sides of the Atlantic and the preconditions for Swedish companies to succeed in the global competitive environment.

“The path to global markets often goes through digital platforms such as Alibaba, Amazon, Facebook, and Google. There is a risk that the influence and control these companies attain in various markets will be used to restrict and distort competition,” says Sten Nyberg, Professor of Economics at Stockholm University and Chair of the SNS Economic Policy Council.

The European Commission’s proposal for new competition regulation, the Digital Markets Act, is currently being discussed in the EU. If it is passed, dominant platforms (so-called gatekeepers) will face severe restrictions regarding self-preferencing on their platforms. Furthermore, this regulation will also impose far-reaching obligations to share data with commercial actors using their platforms.

“Sweden should support the platform regulation currently being drafted in the EU. It is important that Swedish companies are granted increased access to the data they contribute to these platforms,” says Richard Friberg, Professor of Economics at the Stockholm School of Economics.

The researchers also highlight that so-called merger control, which seeks to prevent companies from limiting competition through the acquisition of competitors and potential challengers, has not played a sufficiently active role in the digital economy. A large number of acquisitions have been conducted without any interference from government agencies. The most well-known case in this regard is Facebook’s acquisition of Instagram, which did not undergo merger control in the EU.

“Sweden does not benefit from relaxing merger control in Europe in order to create large European companies (known as “European champions”), something supported by member states such as Germany and France,” says Björn Lundqvist, Associate Professor of Law at Stockholm University. On the contrary, the analytical capacity of Swedish and European courts and government agencies needs to be bolstered in order to, for instance, evaluate the acquisition of startup companies falling below the threshold for merger control to automatically apply.

In addition to adapting regulatory frameworks and an efficient public governance, the researchers also emphasize the importance of improving market conditions for Swedish companies. They argue that Sweden needs a higher education sector at the global forefront, as well as an ability to attract international excellence. Moreover, the level of digital skills in the general population should be raised.

“We are concerned that small and medium-sized enterprises in particular are falling behind in the digital economy when it comes to, for instance, AI applications and e-commerce solutions,” says Robin Teigland, Professor of Management of Digitalization at Chalmers University of Technology.

Authors

Sten Nyberg, Professor of Economics at Stockholm University and Chair of the SNS Economic Policy Council

Richard Friberg, Professor of Economics at the Stockholm School of Economics

Björn Lundqvist, Associate Professor of Law at Stockholm University

Robin Teigland, Professor of Management of Digitalization at Chalmers University of Technology