Designing Remedies for Digital Markets: The Interplay Between Antitrust and Regulation

Abstract

Regulatory interventions aimed at promoting competition in digital markets face a challenge: How to design remedies that actually improve welfare? This article helps provide an answer to this question. First, it maps out the frontier of remedy design: Part II.A summarizes antitrust and regulatory remedies imposed on digital companies over the past decades, while Part II.B reviews nineteen reports on competition in digital markets to identify proposals to advance antitrust or regulatory interventions. Part III, the core of the article, builds on this review to propose a new, two-level framework for remedy design that integrates pro-competition antitrust and regulatory interventions as part of a single policy. First, at the substantive level, it develops a compounded error-cost framework that helps authorities to choose between different remedies applicableto a given conduct: when policymakers accept higher risks of over-enforcement in deciding to intervene, they should compensate by taking lower risks of over-enforcement in remedy design and vice-versa. Second, at the institutional level, the article proposes that authorities consider separating three connected but different key activities in remedy design: (i) identifying harmful behavior, (ii) designing interventions, and (iii) monitoring and adapting remedies. It also outlines four criteria (legal mandate, need for technical expertise, relative risks of regulatory capture, and overall administrative costs) that can help authorities allocate these tasks among different regulators. Part IV concludes by applying this framework to seven types of conduct that Part II identified as potentially problematic: (i) discrimination, unfair treatment, and self-preferencing; (ii) exclusivity contracts; (iii) tying or bundling; (iv) MFNs and other price parity clauses; (v) refusals to deal, limited interoperability, and lack of data portability; (vi) exploitative or exclusionary terms of service; and (vii) nudges, sludges, and other concerns around user interfaces.