A new initiative on the economics of digital services: Providing a foundation for evidence-based decision-making

On November 3, 2019, Knight made a $350,000 investment in a new project at the University of Pennsylvania Law School Center for Technology, Innovation and Competition as part of a $3.5 million initiative to inform the national debate on rules, norms and governance of the internet and digital platforms. Rakesh Vohra and Christopher Yoo of Penn share details below.

Attitudes towards digital services have soured. Once paladins of U.S. industry, they are now the focus of a mounting backlash, demonstrated most dramatically by the antitrust reviews of the tech sector recently launched by the Justice Department and the Federal Trade Commission. The chorus for tougher scrutiny cuts across party lines.

Unfortunately, the academy has not created the body of research needed to support good policymaking in this area. Disinterested observers have a poor understanding of the dynamics of markets for online services and the business strategies that digital platforms are pursuing. Digital services companies are often lumped together using terms such as FANG (Facebook, Amazon, Netflix, Google), GAFA (Google, Amazon, Facebook, Apple) and “big data is the new oil,” ignoring the important differences between the companies comprising the sector. A clear grasp of how these markets work is essential to determining when and where intervention will be helpful as well as how to direct and calibrate any interventions that may be necessary.

With $350,000 in new support from Knight Foundation, a new project launched at the Center for Technology, Innovation and Competition will help fill this void by supporting scholarship exploring two key areas. The first is the tendency of digital services companies to engage in new forms of vertical integration. The consensus that has emerged over the past half century recognizing that vertical integration often benefits consumers is being challenged by the “hipster” antitrust movement. The resulting confusion is on display in the conflicting approaches that  enforcement authorities have adopted on either side of the Atlantic. This underscores the need for guiding principles in this area.

The other is digital platforms’ greater reliance on algorithms and data. Most policymakers have little appreciation for the basic elements of machine learning, predictive analytics, neural networks, deep learning and generative adversarial networks. In addition, the lack of empirical evidence about the role that big data plays in supporting digital services leaves policymakers with little more than speculative assertions about what might happen.

We will promote the study of such issues by providing grant funding to faculty both inside and outside of Penn to conduct theoretical and empirical studies on the issues raised by digital platforms. The grantees come together later in the year to present their research at a conference. We will engage in outreach to government officials seeking to harness the benefits for the activities. Our interdisciplinary efforts will leverage Penn’s strengths in Law, Economics, Engineering, Wharton and Annenberg.

We hope that our efforts will help contribute to an evidence-based foundation that can support an analytically sound assessment of how to apply competition law to digital services.  

Rakesh Vohra is the George A. Weiss and Lydia Bravo Weiss University Professor at the University of Pennsylvania. Christopher Yoo is John H. Chestnut Professor of Law, Communication, and Computer & Information Science at the University of Pennsylvania.  

Image (top):  Photo by Christopher Burns on Unsplash