Publication | BRG
The Digital Economy, Platform Markets, and Big Data
Three Pillars for Litigation and Regulation for the Digital Transformation
Litigation and investigations involving modern businesses increasingly rest on three pillars that require deep expertise in digital technologies, multisided platforms, and big data. Sound economic analysis often requires careful consideration of all three.
The Three Pillars
Pillar 1: Digital Businesses and Technologies
The digital economy reaches almost every aspect of daily life. Whether as a consumer, business, or regulator, people interact with internet-based businesses every day. Over the coming decades, the digital transformation is poised to sweep through and disrupt the physical economy, with new technologies and businesses emerging and resulting in more questions that will be resolved in court, before regulators, and by legislatures. Generative artificial intelligence (AI) is the latest example of a technology that will spur a long wave of creative destruction along with public policy challenges.
Digital businesses are the frequent subject of lawsuits, government investigations, and regulatory initiatives. These disputes often turn on unique economic and technical aspects of digital businesses—such as big-data–driven algorithms, network effects, and online auctions—that require specialized expertise in areas. So far, many prominent cases have involved antitrust and mergers, while others involve consumer protection, intellectual property, securities, employment, and bankruptcy.
Today, key digital economy sectors include online media and advertising, e-commerce and various online consumer and B2B marketplaces, software platforms and apps, ridesharing and other gig-economy businesses, health tech, and online gaming, as well as infrastructure providers such as fixed and mobile broadband and cloud services. New sectors, such as generative AI-based platforms and apps, are rapidly taking shape.
Pillar 2: Platform Economics
Platforms have become particularly important in the digital economy as internet technology facilitates massive connectivity and software technologies facilitate valuable interactions and reduce transaction costs. Platforms are often at the center of large digital ecosystems such as mobile apps and online marketplaces. They also feature prominently in traditional sectors such as credit cards; these sectors often face challenges from new digital platforms.
Businesses that operate “multisided platforms” provide value by connecting different types of participants who value being able to interact with each other and whose platforms are powered by network effects. Economists have developed deep knowledge about these platforms and their fundamental differences from traditional businesses. Sound application of these new economic theories is critical for disputes involving digital businesses, such as how to measure the impact of practices on economic welfare or assessing whether a platform is a bottleneck for competition.
Pillar 3: Big Data Analysis
Businesses in the digital economy are regularly collecting large amounts of data from their day-to-day business operations. This data may include details on customers, sellers, and purchase transactions that power algorithms such as recommendation engines. The analysis of issues in digital economy cases often requires managing these massive datasets and providing highly elastic computing power for data analytics and econometric modeling.
Big data projects involving digital businesses have unique characteristics. Not only are the number of transactions large, but the number of artifacts that a transaction contains dwarfs those of a nondigital business. A digital transaction, for example, may include hundreds of online activities carried out by a user before they made a transaction, resulting in billions of activities and transactions that need to be analyzed.