An introduction to Launchworks & Co’s white paper on principles for the governance and regulation of digital platforms.
It is increasingly common for policy makers and politicians to start their speeches on digital markets with praise. They highlight the incredible contribution that innovative digital platforms have made to the global economy. Yet such praise is almost invariably followed by suggestions that these very platforms are now too big and powerful. And that they need to be regulated. Other regulated sectors are often mentioned as possible templates. But the fast changing and innovative nature of global digital markets require a new approach. When it comes to platforms and regulation, we believe it is a matter of principles.
Why principles are more flexible than rules in digital markets
One promising avenue is the development of high-level platform governance principles that can be enshrined into codes of conduct. These principles can guide the behaviour of digital platforms and help address concerns. By definition, principles are “fundamental truths or propositions that serve as the foundation for a system of belief or behaviour”. Unlike specific rules, that may be rooted in the wrong technologies or business models and therefore quickly outdated, principles can flexibly guide the actions of platform businesses and provide reassurance to ecosystem participants. In mobility platforms the guiding principle could be to make sure that customers are aware of the price to pay for the ride. This is different from the old rule that once mandated the presence of a physical pricing meter to carry paying passengers. In innovative markets, the right principles combined with clear objectives may be more powerful than detailed rules and regulations.
How platform governance can be a starting point for principles-based regulation
Digital platforms now orchestrate vast ecosystems underpinning the innovative development and distribution of products, services and contents globally. It is generally in the platforms’ interest to follow good governance principles to ensure the healthy growth of their ecosystems. Yet at times platforms’ incentives may not be aligned with its participants’. This may be the case when a platform competes with some of its ecosystem participants. Think for example of a platform offering its own app in its app store. In such cases principles and codes of conduct may help clarify what behaviours are appropriate and increase trust in the ecosystem.
When do we need regulation in the first place?
Policy makers also need clear intervention principles to decide when, what and how to regulate. To do so, policy makers need to be able to define and analyse relevant markets and establish the existence of barriers to entry and structural issues preventing the emergence of effective competition. They also need to be satisfied that such issues can’t be addressed with existing tools before recommending the introduction of new regulations. Failure to do so would result in regulatory mistakes where firms that should be regulated are not and where firms that should not be regulated are. Both situations would be suboptimal for all market participants.
What are the features of a digital regulatory regime?
Many of the principles of good regulation are well established. In some ways, they are quite similar to the principles that platforms themselves need to follow to regulate their markets. For example when platforms seek to protect participants and foster trust. These principles of good regulation are key to ensuring the emergence of a data driven, proportionate and forward-looking framework that will address anti-competitive concerns and foster innovation. Finally, regulatory alignment across jurisdictions will be crucial to delivering expected benefits from the development of these digital markets. This is because inconsistent, fragmented interventions would be costly to all and undermine the development of future innovative digital products.
There is an opportunity for platforms, regulators and ecosystem participants to work together on the development of new principles of governance and regulation. We believe such an approach would both help address competition concerns and achieve public policy objectives.
Read and download the white paper on principles for the governance and regulation of digital platforms.