Following an extensive consultation period, Brazil’s Ministério da Fazenda (Ministry of Finance) last October unveiled its final digital-platform report. Given the public stances previously taken by Brazil’s would-be digital regulators—the antitrust agency Conselho Administrativo de Defesa Econômica (CADE) and the telecommunications regulator Agência Nacional de Telecomunicações (Anatel)—it was likely inevitable that the report would endorse some kind of regulation of large digital platforms. That’s not to mention the peer pressure the ministry felt from other competition authorities like the European Commission or the views expressed by Brazil’s executive branch on other forms of digital market regulation
It is nonetheless useful to give a close look at the report’s findings and the context of the public consultation, as there are both positive and negative aspects to consider.
The Report’s Optimistic Findings
To start, the ministry should be commended for fostering open debate and giving thoughtful consideration to the diverse opinions voiced during the consultation. Indeed, the report acknowledges concerns about the risk of adopting an overly rigid regulatory framework:
Many submissions considered the European model to be overly rigid, with the imposition of a series of positive and negative obligations on large platform controllers. [Report § 3.1]
Importantly, the report also recognizes the vital role that digital platforms play in driving growth and productivity:
Leveraging the opportunities presented by digital platforms can be a crucial part of the solution to a chronic productivity problem. [Introduction]
Of course, this shouldn’t be breaking news. The evidence is clear that digital platforms benefit both consumers and society at-large, although the extent of these benefits is likely not properly measured. Nonetheless, amid widespread antipathy toward so-called “big tech,” this acknowledgement from a public authority should be taken as refreshing.
Another major positive is that the report ultimately eschews recommending ex-ante regulations in line with the EU’s Digital Markets Act (DMA). This is a welcome development, particularly given that the internal debate in Brazil has centered largely on Bill 2768/2022, which would impose a DMA-inspired regulatory regime. As my colleagues and I at the International Center for Law & Economics (ICLE) explained in our comments to the ministry’s consultation:
Brazil does not need sectoral regulations for digital platforms, given that the markets for such services are reasonably competitive.
Parroting the Digital Regulation Narrative
Unfortunately, the good news ends there. While the report stops short of endorsing comprehensive regulations for digital markets, it still accepts many of the premises that proponents of such rules routinely put forward. It identifies digital markets as having such “special characteristics” as network effects, prevalence of multi-sided platforms, and extensive data usage, and asserts that these characteristics make them prone to “winner-take-all” dynamics and, ultimately, monopolistic behavior. According to the report:
The combined outcome of the analysis of supply- and demand-side economies of scale indicates the possibility of an accelerated and unlimited rate of platform adoption, creating opportunities for “winner-takes-all” dynamics driven by network effects.
In this context, economic agents may compete for monopoly or dominant positions in sequential dynamics, often supported by a predominant technology or network strategy. This position can be challenged or even supplanted by a superior technology or strategy, whether proprietary or from current or potential competitors. However, supplanting these monopolies is no trivial task. To overcome network effects, entrants must either revolutionize performance and functionalities to the extent of surpassing collective switching costs or rely on broad interoperability to introduce marginal improvements in complementary products and services, leveraging the incumbent’s network economies. In this context, the risks of “entrenchment,” monopoly rent extraction by platforms, and acquisition and abuse of dominant positions are significant. [Report § 1.1.1]
It is certainly true that these characteristics are present in digital markets. But while they may provide some advantages to incumbents, they are certainly not insurmountable barriers to entry. As the University of Southern California’s Jonathan Barnett shows, the empirical evidence suggests that competition in digital markets is not only possible but, in many cases, quite intensive. After analyzing the competitive conditions of the food-delivery and cloud-services markets, Barnett finds that:
…there does not appear to be persuasive support for the common view that platform markets inherently converge on entrenched-monopoly outcomes. Rather, it appears more likely to be the case that a digital monopoly—understood properly as a market in which a single firm or a handful of firms exert durable pricing power—can only arise in limited circumstances that meet a demanding set of qualifying conditions.
Regarding network effects, Cristopher Yoo of the University of Pennsylvania observes:
Even the most casual examination of the history of digital industries reveals that the dynamics must be more complex. Google was founded in 1998, long after Altavista and Yahoo! had established themselves as market leaders. Facebook successfully overcame the early advantages enjoyed by Myspace. The market for travel sites consists of numerous players all vigorously competing with one another without collapsing into monopoly. Uber’s first-mover advantage was unable to prevent the emergence of Lyft as a serious competitor.
These examples underscore the inappropriateness of simply equating the presence of network effects with market concentration or entry barriers. Instead, they illustrate the importance of understanding the full range of the dynamics of markets subject to network effects. Even when potential theoretical harms have been identified, anticompetitive effects cannot simply be asserted. Instead, proper application of competition law principles requires that they be validated and quantified empirically. [Emphasis added].
A Putatively ‘More Flexible’ Approach
The ministry’s report goes on to propose legal reforms that it contends would mark a “more flexible” approach to digital regulation, akin to recent reforms in Japan or Germany, as well as the UK’s Digital Markets, Competition and Consumers Act (DMCC). The report outlines the contours of these regulatory regimes, but then proceeds directly to its proposals without assessing their potential impact. The absence of such analysis is concerning.
Brazil’s putatively “more flexible” approach is not necessarily good news. On the bright side, and in contrast to ex-ante regulation like the DMA, it would presumably seek evidence of specific harms to competition and consumers before any intervention. It could therefore entail more tailored and narrow remedies. But competition agencies—or, depending on the details of the final law or regulations, potentially less experienced authorities—could also have extensive discretion to impose broad behavioral and structural remedies. Such broad remedies could inadvertently foreclose various kinds of pro-competitive or pro-consumer behavior.
For example, following its own market inquiry into “online intermediation platforms,” the South African Competition Commission in 2023 recommended that e-commerce firms segregate their retail divisions from any marketplace operations—a structural remedy more reasonable for markets prone to natural monopolies (such as water or electricity distribution) than for the highly competitive e-commerce market.
Similarly, a market investigation unit at Mexico’s Comisión Federal de Competencia Económica (COFECE) has recommended that Amazon and Mercado Libre unbundle their streaming services and make their platforms “interoperable” with third-party logistics providers. These remedies will tend to harm rather than benefit consumers, as they would ban vertical integration that generally results in lower prices and better distribution. Moreover, such remedies may soon prove obsolete in the face of rapidly changing market dynamics.
The UK Competition and Markets Authority’s (CMA) recent investigation of the internet-search market also reinforces our concern about this kind of “quasi-regulatory” approach. The CMA’s preliminary proposal (based solely on Google’s strategic market status—i.e., no specific harms have been proved) contemplates broad remedies that are, in fact, quite similar to those prescribed by the DMA. These include prohibiting self-preferencing, preventing cross-silo data transfers, and restricting the way Google uses the information it accesses from public websites to develop artificial-intelligence (AI) services.
This degree of regulatory discretion is not simply a minor bug, particularly in countries without an outstanding record of upholding the rule of law. Brazil currently ranks 83rd of 142 countries worldwide on that score, and 19th out of 32 countries in Latin America and the Caribbean.
Giving Traditional Competition Law Another Look
Defenders of “traditional” competition law (i.e., the prohibition of exclusionary abuse of dominance) must concede that it operates more slowly than the recent spate of digital competition rules and can be harder for agencies to enforce. Competition enforcers, after all, must first prove dominance (which entails a definition of relevant markets) and then establish the presence of anticompetitive conduct that harms consumers and competition.
But the goal of expediting competition law can be achieved more efficiently and effectively by providing agencies and courts with needed resources, as well as by streamlining procedures to address cases before market dynamics shift and render potential remedies ineffective. Indeed, there’s generally broad agreement that such changes are necessary in many jurisdictions.
Moreover, there is merit in the complexity of abuse-of-dominance cases. Because agencies need to allocate resources efficiently and intervene only in cases where challenged conduct genuinely poses a risk to competition, the slow and steady complexity of proving competition-law complaints essentially serves as a filter. The cost-benefit analysis involved in determining whether a particular business practice is anticompetitive allows agencies to better distinguish harmful conduct from potentially beneficial practices.
In the end, traditional competition law is both more flexible and more precise than these proposed “more flexible” approaches. It merits another look before we choose to embark on a different path.
