A popular narrative has emerged in Brazil in recent years about the “genuine consensus” supporting the need for more stringent regulation of digital markets. This narrative has been fueled by a growing number of cases of alleged anticompetitive conduct by so-called “global mega-corporations,” including the Mercado Livre/Apple case and the more recent Meta/Apple case. The perceived urgency to act is, however, largely built on speculative assumptions, rather than solid evidence.
While proponents argue that ex-ante regulations are needed to curb monopolistic behaviors and ensure fair competition in digital markets, a closer examination reveals this narrative to rest on largely unproven empirical claims of market failure and consumer harm. Before adopting untested regulatory frameworks, Brazil must critically assess whether the proposed measures would mark a genuine improvement, or merely a solution in search of a problem.
Brazil’s Debate Over Digital-Markets Regulation
It is broadly seen as likely that the Lula da Silva administration will at some point this year propose new ex-ante rules for digital platforms. While not yet released, the ultimate bill would serve as the culmination of a public consultation the Brazilian Ministry of Finance held in 2024, which concluded with the report “Digital Platforms: Competition Aspects and Regulatory Recommendations for Brazil.” See the recent excellent commentary by Mario Zuñiga of the International Center for Law & Economics (ICLE) for more on the pros and cons of that report.
As part of Hugo Motta’s inauguration ceremony earlier this year as the new president of the Brazilian Chamber of Deputies (Brazil’s equivalent of the U.S. House of Representatives), Minister of Finance Fernando Haddad offered up consolidated text of the 25 legislative initiatives the executive administration considers the most urgent priorities for the next two years. Among these was the “economic regulation of Big Tech,” proposed as a means to “improve the business environment” in Brazil—a country not exactly known for being friendly to entrepreneurs. While it is encouraging that the administration wants to boost Brazil’s business environment, it’s also odd that it would seek to do so by piling more regulations onto the innovative sector of digital markets.
Indeed, regulations are already the primary barrier to competition in Brazil. In a December 2021 article that I wrote with CADE President Alexandre Cordeiro Macedo, we analyzed the OECD’s 2020 international comparisons of product-market regulation, which found that Brazil ranked the second-worst overall regulatory system of the 46 countries examined. We noted that this highlighted the need for broad deregulatory efforts in Brazil, and the OECD itself advised that the country should review how to reduce “unnecessary regulatory obstacles to competition.”
Given that background, it is imperative that Brazil only adopt new regulations where there is clear and irrefutable evidence that they would have a net positive effect for consumers. Such regulations should be subject to cost-benefit analysis, where a proposed regulation’s beneficial effects must offset the regulatory-burden cost borne by those companies and individuals who would be asked to comply.
Indeed, even where a bona fide market failure is discovered, it does not necessarily follow that new regulations are the best means to address the issue. In many cases, regulation can accentuate, rather than mitigate, the market failure it is meant to solve. We must, after all, also be on guard for the possibility of government failure. As the late Milton Friedman once observed: “One of the great mistakes is to judge policies and programs by their intentions rather than their results.” Similarly, Harold Demsetz warned of the “nirvana fallacy,” in which one compares real and observable policy systems against an imaginary ideal.
A thorough and consistent application of cost-benefit analysis should, as Thom Lambert has argued, seek to “minimize the sum of decision costs (the costs of making a decision) and error costs (the costs of making the wrong decision).” Toward this end, most jurisdictions around the world have enacted regulatory impact assessment (RIA) provisions in order to equip policymakers with the tools needed to examine a regulation’s likely impacts and consequences. These objective methods of assessing new forms of regulation are precisely the tools that Brazil needs to deploy before enacting ex-ante regulation of digital markets.
Indeed, Brazil already created a national version of RIA in 2019. According to Article 5 of the Brazilian Economic Freedom Act (13.874/2019), any regulatory proposal or alteration made by the regulatory agencies or other public bodies must be subject to “analysis of regulatory impact” (análise de impacto regulatório) before it can be enacted. While this provision does not bind the Brazilian Congress when considering new bills, the Brazilian legal system already acknowledges the importance of cost-benefit analysis, and Congress should see it as a lodestar when debating new ways to regulate economic activity.
An Unproven Narrative on the Need to Regulate Digital Markets
According to the putative “consensus” view, it is asserted to be beyond debate that so-called “Big Tech” firms are harming digital-market consumers. This perspective was encapsulated, for example, in a recent editorial from the Brazilian newspaper Valor Econômico:
There is no doubt that there is a widespread abuse of market power by these global mega-corporations, as evidenced by the increasing number of unfavorable court rulings against them in different countries.
The editorial went on to claim that exclusive-dealing agreements, self-preferencing, and “killer acquisitions” are representative of the kinds of allegedly anticompetitive conduct that ex-ante regulations would aim to deter in digital markets.
But such sweeping claims are premature and, moreover, likely wrong. For example, as Jonathan Barnett has written in the context of food-delivery services and cloud computing, “both theory and evidence cast doubt on the standard assumption that platform ecosystems are necessarily prone to converge on entrenched monopolies and therefore justify preemptive intervention by competition regulators.” While it is beyond the scope of this post to analyze every aspect of allegedly anticompetitive conduct in digital markets, the idea that they are generally characterized by harms to consumers is rooted more in an imaginary consensus than a real one.
Lazar Radic has argued that, in fact, there is not even broad consensus on the alleged market failures that ex-ante digital market regulations are supposedly intended to solve. Lacking that, such regulations tend to put the cart before the horse, raising the probability of harms to the economy, consumers, and innovation. As Radic demonstrates, there is no consensus:
- that digital markets are anticompetitive;
- that a special approach is needed in digital markets; or
- on what the correct approach, if any, to digital competition rules should be.
Given this, it would be wise for Brazil move away from the European approach to ex-ante digital regulations and closer to the American position. The EU’s Digital Markets Act (DMA) is fundamentally rooted in Europe’s political economy, which has long been inclined toward regulation. Daniel Sokol points out that, given that “innovation does not concur in Europe as vibrantly as in the United States,” the EU has sought to close this gap with regulations like the DMA, the Digital Market Act (DSA), the General Data Protection Regulation (GDPR), and the AI Act. The EU’s regulatory stance reflects a broader cultural and political preference for state intervention and a precautionary approach to innovation. In contrast, the United States has long adopted a more restrained, less-interventionist approach, favoring market-driven competition and innovation.
In a highly publicized report published last September, former European Central Bank President Mario Draghi criticized Europe’s regulatory excesses, contrasting them with the more flexible and growth-oriented regulatory environment of the United States. In a more recent op-ed in the Financial Times, Draghi diagnosed two major factors contributing to the productivity and growth gap between the United States and Europe: the EU’s failure to address its supply constraints and its persistently weak demand. He pointed once again to the EU’s regulatory barriers as a significant economic burden and offered that they may be even more harmful to Europe’s economy than the Trump administration’s threatened tariffs. Citing a recent study on the impact of the GDPR, for example, he noted that it reduced company profits by an average of 8% across the EU. For smaller European tech firms, the drop was as large as 12%.
Given Brazil’s need for economic dynamism and its historically challenging business environment, aligning with the U.S. approach of continuing to rely primarily on traditional antitrust enforcement to safeguard competitive markets would likely yield better outcomes than adopting Europe’s rigorous regulatory framework. Studies conducted to date have found that the DMA has not effectively increased market contestability—one of the legislation’s supposed goals, along with the more nebulous goal of “fairness.”
Moreover, there is no need for Brazil to take the lead in experimenting with untested regulatory structures, which the DMA itself remains. It would be prudent to wait and see what the DMA’s economic outcomes prove to be before implementing anything similar. In one early assessment, Louis-Daniel Pape and Michelangelo Rossi analyzed the impact of the DMA’s prohibition on self-preferencing, focusing specifically on the relationship between Google Search and Google Maps. They found that:
by eliminating Google Maps’ advantage of being only one click away from Google Search users, EU consumers search significantly more for online mapping services. Specifically, there was a 25% and 18% increase in Google’s search volume for the query terms maps and google maps, resulting in an excess of 34,407,000 and 8,901,000 searches over six months, respectively. This search increase suggests potential exposure to alternative mapping services. However, searches for alternatives like Apple Maps and Bing Maps also rose, but not as significantly. Moreover, traffic data showed a nonsignificant decrease in visits to Google Maps, indicating minimal migration to competing services. These results suggest that removing Google’s one-click advantage increases search costs for users without significantly enhancing the discovery or adoption of alternative mapping services in the short term.
Such findings highlight the importance of assessing real-world outcomes before enacting similar regulations in Brazil—especially those that have a demonstrated negative impact on consumers, such as the prohibition of “self-preferencing.”
A recent piece by former CADE Commissioner and General Superintendent Carlos Ragazzo (now a professor at Fundação Getulio Vargas) analyzing the digital platforms report reiterated the need for a cautious and evidence-based approach to digital market regulations in Brazil. According to Ragazzo, any imposition of regulatory obligations should be preceded by a thorough market-failure analysis and a cost-benefit assessment to ensure proportionality and effectiveness. Ragazzo stresses the importance of maintaining accountability and safeguarding against overenforcement, advocating for clear criteria and procedural guarantees to prevent arbitrary or disproportionate regulatory actions. He also warns that, without these precautions, the regulatory framework could undermine legal certainty, discourage innovation, and impose unnecessary compliance costs, ultimately harming competition and consumer welfare. Those negative effects tend to be even more damaging to emerging countries that have ongoing and in-development digital economies.
Additionally, Ragazzo cast doubt on the need for a separate competition-law regime for digital platforms, arguing that existing antitrust tools (i.e., the ex-post enforcement framework enacted by Brazilian Competition Act 12,529/2011) are sufficient to address competitive concerns in digital markets. He also cautioned against adopting new theories of harm without rigorous analytical scrutiny and clear evidence from the academic literature, emphasizing the importance of preserving legal certainty, a coherent body of precedents, and incentives for innovation. Pointing to the DMA and the UK’s Digital Markets, Competition and Consumers Act 2024 (DMCC), he notes that these much vaunted ex-ante regimes have not, to date, produced the forecast benefits for consumers or small and medium-sized companies.
Potential for a US-Brazil Trade War
Finally, one emerging area of concern that cannot be ignored is the potential for heightened geopolitical tensions that may be generated between the United States and Brazil if the latter is seen as targeting primarily U.S.-based tech companies. Speaking at the Feb. 11 Artificial Intelligence Action Summit in Paris, Vice President J.D. Vance declared that the U.S. government will not tolerate American companies being subject to special regulatory burdens imposed by the laws like the EU’s DMA, GDPR, and Digital Services Act (DSA). In a Feb. 21 memorandum, President Donald Trump warned that the administration would “consider responsive actions like tariffs to combat the digital service taxes (DSTs), fines, practices, and policies that foreign governments levy on American companies.” The memo explicitly cites various UK and EU regulations, including the DMA, as targeted measures that could trigger tariff retaliation if U.S. firms are fined under the terms of those rules.
U.S. House Judiciary Committee Chairman Jim Jordan (R-Ohio) also raised concerns about the DMA in a Feb. 23 letter to European Commission Commissioner for Competitiveness Teresa Ribera, arguing that the law unfairly targets American companies while protecting European competitors, imposing burdensome regulations on non-European firms, and potentially leading to trade tensions and economic retaliation. Jordan also claimed in his letter that the DMA stifles innovation, raises costs for consumers, and disproportionately benefits Chinese and European companies not subject to the same rules. Jordan’s committee requested a briefing from the Commission to understand the EU’s enforcement approach and its implications for U.S. companies. The letter was interpreted by the Commission’s Directorate-General for Competition as placing the DMA under enforcement uncertainty.
Brazil cannot avoid taking the Trump administration’s stance on the DMA into account when considering whether to adopt its own ex-ante digital markets regulation. If Brazil adopts regulations that mirror the DMA, it risks provoking economic and political retaliation from the United States, a crucial trading partner and investor in Brazil’s tech industry. To put it bluntly, aligning too closely with the European model could jeopardize Brazil’s diplomatic and economic relations with the United States, with impacts for trade, investment, and technological collaboration. This only bolsters the case for a more cautious and balanced approach, given the current domestic economic needs and the risky international political landscape.
Conclusion
Despite widespread claims of “consensus,” there is no clear evidence that the DMA or any other recently adopted ex-ante digital regulations have had net positive effects for consumers. To the contrary, preliminary findings have included increased search costs, minimal migration to alternative services, and negligible enhancements in market contestability. These results suggest that the anticipated consumer benefits, such as greater choice and lower prices, are not materializing in the ways that the regulation’s proponents envisioned.
Other research generally finds that at least some digital sectors are highly competitive, bringing positive and beneficial consequences to consumers. Consequently, the claimed pressing need for ex-ante regulations to correct market failures in digital markets remains largely speculative, lacking the empirical validation required to justify such strong interventionist measures.
The “genuine consensus” on the need for ex-ante digital market regulation is a fanciful story. It is built on hypothetical scenarios of alleged anticompetitive conduct, rather than on solid evidence of market failures that harm consumers. Brazil should not rush to adopt these untested regulatory frameworks, especially when the potential for unintended consequences, such as stifling innovation and economic retaliation from key international partners, looms large. A more prudent approach would be to continue monitoring the global regulatory landscape, learning from the experiences of other jurisdictions, and refining existing antitrust-enforcement mechanisms. In doing so, Brazil can safeguard its digital economy’s vibrancy and competitiveness, while avoiding the pitfalls of premature regulatory intervention.
