Scientific Foresight (STOA) By / April 14, 2021

Can online platforms have a net positive effect on the economy and society?

Online platforms, such as Google, Amazon and Facebook, play an increasingly central role in the economy and society. They have grown to an unprecedented scale, propelled by data-driven business models.

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Written by Mihalis Kritikos,

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Existing economic theories, based on foundational notions of ‘markets’ and ‘firms’, may not be sufficient to correctly interpret the behaviour of online platforms. This was one of the main conclusions of the study ‘Online platforms: Economic and societal effects’, which was carried out by Professor Annabelle Gawer of Surrey Business School, University of Surrey, at the request of the STOA Panel, following a proposal from Member of the European Parliament, Eva Kaili (S&D, Greece), Chair of the Panel for the Future of Science and Technology (STOA).

Online platforms, such as Google, Amazon and Facebook, play an increasingly central role in the economy and society. They have grown to an unprecedented scale, propelled by data-driven business models. Their rapid growth has caused concerns about market dominance and the widening information and power asymmetry between platforms and citizens, businesses and regulators. Online platforms have a massive impact on individual users and businesses, and are recasting the relationships between customers, advertisers, workers and employers. This has triggered a public debate on the economic dominance of platforms and their practices of pervasive data collection.

Their effects are distinct and identifiable, although they are certainly only one important piece in the puzzle of the rapidly reorganising global economy. For example, the platform operators, while still claiming to be only an intermediary, have gained unprecedented control over the organisation of work, as they are likely to generate fragmented work schedules and increasing levels of part-time work without the employment-related benefits that previously characterised much employer-based full-time work.

What are the very different and significant impacts that digital platforms may have on different social groups and employment sectors? How are the new models of the platform economy affecting employment (with the creation of new types of jobs), business models (with the appearance of new sectors of business activity) and the social fabric (need for insurance schemes and a welfare state that correspond to the new forms of the economy)? Are the recent legislative proposals contained in the European Commission’s proposed digital markets act (DMA) and digital services act (DSA) tackling the identified regulatory challenges sufficiently?

Against this background, the study offers a definition of digital platforms, provides a classification of the most salient types of digital platforms and pays particular attention to the ‘big tech’ companies (Alphabet-Google, Amazon, Facebook, Apple and Microsoft). The characteristics of digital platforms are examined in detail, with a particular focus on how these platforms create value, the common economic, business and governance characteristics that they share, and their geographical distribution.

Professor Gawer presents a detailed synthesis of the literature, to assess how the new economic models have affected users, businesses, competition, innovation, employment and the social fabric. More concretely, the study sheds light on the multiple ways platforms create and capture value in the digital economy, including their positive effects on global innovation, such as their large investments in research and development, the stimulation of innovation in complementary products and services, and the special role of the design of the digital interface in solving the recurring tension between stimulating third-party developers’ complementary applications and maintaining platform control.

In addition, the study assesses how digital platforms are currently regulated under EU law and maps the main regulatory challenges that their operation (and expansion) is raising in the domains of competition and innovation, working conditions and labour markets, consumer and societal risks, and environmental sustainability. It documents a set of important issues not fully addressed by existing European regulation and enforcement, and provides a thorough overview, based on a state-of-the-art literature review, of these platform companies’ most significant effects on the economy, on workers, and more broadly on society.

In terms of the regulatory challenges, the report highlights four in particular: the limits of traditional antitrust analysis and tools; the violation of privacy and competition by the accumulation of data; the platforms’ systemic avoidance of sectoral regulations; and the difficulties in tackling illegal and harmful content online. The study’s findings suggest that the regulatory challenges that arise from platform employment include the mis-categorisation of platform employees; the disproportionate power of platforms over workers; and the low wages facing many platform workers.

The study offers a series of policy options for competition and innovation, working conditions and labour markets, consumer and societal risks, and environmental sustainability. These policy options are based on a set of substantive principles: freedom of competition; fairness of intermediation; the sovereignty of decision-making; access to fair social protection for all workers; access to dignified work and minimum living standards; and support of workers’ voice in the organisation of their work.

Where the report differs from the DMA and the DSA proposals is in calling for (i) a stronger merger control regime for gatekeeper platforms; (ii) a tailored, enforceable, Code of Conduct that each gatekeeper platform should have for itself; (iii) greater scope for national authorities to intervene where there are country-specific issues; and (iv) a new users’ right to reasonable inferences, in order to curtail the generation of ‘high-risk inferences’, i.e. those that are privacy-invasive, reputation-damaging, and have low verifiability.

The study is of high scientific and technological interest, not only due to its detailed analysis of the effects and challenges posed by the operation of online platforms, but also because the issues observed and presented cut across a range of areas, including competition and innovation, work and the labour market, and the integrity of the social fabric. The proposed policy options, including those on a new regulatory framework and on new institutional arrangements for regulation enforcement, will inform the ongoing discussion on the soundness and adequacy of the Commission’s DMA and DSA proposals.

Read the full report and accompanying STOA Options Brief to find out more.

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