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Competition Policy IW News 1. June 2015

Going digital?

The internet profoundly changes business models and markets. Competition policy, however, has hardly changed. The German Monopolies Commission, an expert committee advising the German government and legislature on competition policy-making, now recommends adjusting the existing regulation. The question is: Is that even doable?

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The internet makes starting a company easy: At hardly any cost, new business models can be implemented. Often, all you need is an idea, some computers and people who know how to write code. Just think of Google – the giant internet company started as a two people-outfit in a garage. If their product or service catches on, companies can win great market shares in relatively short time. Therefore, the German Monopolies Commission concludes that special regulation is unnecessary. Monopolies today do not need to be monopolies tomorrow. It is much more important to adapt the exgisting regulation to questions such as: How are data handled? Which mergers should be permitted? Is competition policy too slow for the digital economy?

The latter is especially relevant for the so-called Sharing Economy: Non-traditional businesses specializing in sharing products, services or knowledge are competing with established companies. Prominent example is Airbnb, a platform that matches demand for and supply of private accommodation: Because the suppliers are usually private individuals, they do not adhere to the existing regulation for hygiene or safety, for example. Airbnb’s competition are hotels that are bound by that regulation. Consequently, Airbnb has a competitive advantage.

This is only one example. The existing regulation needs to be reviewed and adjusted to the digital reality. Speed is essential and that might pose a problem: A digital competition policy needs first and foremost analog resources: Personnel with sufficient time.

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