Europe needs to strike a balance

More and more goods, services and data are traded on online platforms. This results in new challenges that regulation so far has not kept pace with. The European Union needs to change this quickly, according to a new analysis done by experts from the Cologne Institute for Economic Research (IW). What is needed now is a balance between legal certainty and fostering innovation.

Big Data, Airbnb, the Internet of Things, Google, Uber, Facebook – the past couple of years have demonstrated that the existing framework for business in the EU is not fit for purpose. At the same time, Europe is threatened to be left behind with respect to digitization, especially compared to the US. The EU Commission therefore plans to create a Digital Single Market that might include an updated, uniform regulatory framework for online platforms. This could provide legal certainty that quickly needs to be established for transatlantic business as well: In October, the European Court of Justice declared the “Safe Harbor” agreement for transatlantic data exchange invalid. Ever since then, European companies that used to rely on the agreement are faced with enormous insecurity.

Currently, interested institutions can take part in the Commission’s consultation on online platforms. The Cologne Institute for Economic Research analyzed digital markets against this background and arrives at the following policy recommendations:

• It is particularly important to guarantee a level playing field. Traditional companies as well as online platforms should adhere to the same regulation. In many markets, a review of the current framework is therefore crucial to stimulate competition.
• Per-se-regulation is often not useful because it might lead to unnecessary competitive disadvantages and even hamper investment in innovative new business models. One example is the right to data portability between different online platforms. It should be established using a rule-of-reason approach. This means that market structure and business models play a part in the decision whether data portability is necessary or not.
• The transparency of online platforms is important in order to ensure trust in them. Policy-makers should support this by endorsing a seal of quality for platforms. The seal itself could very well be organized and financed privately.
• Besides these direct measures, it is vital that the awareness of personal responsibility for personal data is strengthened. This could be supported by making personal data responsibility subject of discussion in schools.