Online Platforms, Economic Integration and Europe’s Rent-Seeking Society: Why Online Platforms Deliver on What EU Governments Fail to Achieve



Matthias Bauer | European Centre for International Political Economy (ECIPE)

Executive Summary

Online platforms create “more perfect” markets. Online platforms are a market-driven cure to the imperfections of the EU’s incomplete Single Market. Platforms provide well-functioning technical infrastructures that allow users to easily deal with country-specific legislation in the EU, e.g. VAT and invoicing requirements, consumer protection laws, sector-specific licenses and the particularities of national contract law. Modern online platforms have “skin in the game”. They have an intrinsic motivation to create value for, and trust between, users and to enforce high and widely accepted standards for business conduct. In the EU, therefore, platforms encourage value-adding interactions that would not emerge without platforms when markets are locked by regulations and barriers that effectively protect insiders and deter new entrants. By doing so, platforms help consumers and businesses to “bypass” the effects of rent-seeking activities in the EU, which are at the root of significant differences in Member State regulations – and which for a long time have been known for being harmful to cross-border trade and economic integration and convergence in the EU. The EU and some Member State governments are neither unique nor extreme in their political calls to restrict or even ban certain platform businesses from operating. Yet, Europe’s persistent hesitation – sometimes outright hostility – to platforms has to be seen in a broader perspective of political power and control. In the EU, old-fashioned national regulators have an organisational incentive to stick to and defend old approaches to regulation. In many cases, they have an intrinsic incentive to respond to vested interests in business and civil society. At the same time, through a bottom-up trial-and-error process, online platforms culturally appropriate customs and practices of governments and regulatory authorities in regulating markets and commercial behaviour, which are often “unacknowledged” by policymakers or considered “inappropriate”. However, policymakers’ hostilities towards modern online platforms disincentivise innovative companies to invest, grow and expand within and beyond the EU, with adverse implications for the Single European Market.


All the big and famous digital platforms have probably got the message by now: European policymakers don’t like them very much. Antitrust case after antitrust case has been filed against the likes of Amazon, Apple, Facebook, Google and others. While there are good reasons for competition authorities to keep big firms on their toes and prevent competition from stagnating, it’s difficult to escape the feeling that, for platform firms, EU competition law – which is less attentive to consumer welfare – has been stretched to the breaking point in order to keep platforms on a tighter leash. And that’s just one part of the EU’s policy armoury. The European Commission and several EU governments have advocated a special platform regulation with the effect of slowing down the competitive effect of both larger and smaller platform firms. Indeed, a new ‘special tax’ on services of digital platforms has been proposed by the Commission. Around Europe, Uber and Airbnb have been restricted – or outright banned – by national or local governments. And in the European Parliament, there have been repeated calls for breaking up platforms and companies like Google and Facebook. On top of these initiatives comes the hostile tone of argument inherent in several positions by the European Parliament, which has been the demonisation of Internet platforms for being too big, too powerful or too dangerous. They are getting it wrong. The ascent of the platform economy has been a boon for the European economy. Online platforms encourage competition and the consumer by reducing information and trade costs in municipal, regional, national and cross-border commerce. They stimulate entrepreneurship and new economic activities, ultimately leading to economic renewal and economic convergence. Accordingly, for friends of economic integration in Europe, platforms have been powerful tools to break up local oligopolies and create access to goods and services across the EU. In the process, online platforms have helped to expose protectionist governments in Europe that – despite nominal support for the Single Market – have introduced a series of regulations that force businesses to follow national regulatory borders rather than consumer preference. Importantly, while regulatory heterogeneity in the EU effectively reduces – or prevents – intra-EU commerce and economic integration, online platforms facilitate cross-border trade and therefore contribute to economic development and convergence. In a way, online platforms deliver on what EU institutions and governments repeatedly promised to voters – but largely have failed to achieve: creating a deeper Single Market and strengthening economic integration in Europe. Indeed, much of what the platform economy accomplishes is firmly anchored in classic EU economic orthodoxy. The guidelines for economic policymaking, which are laid down in the Lisbon Treaty, state that the EU policymakers “shall work for […] a highly competitive social market economy” and “promote scientific and technological advance.” (Article 3 TFEU) The purpose of the Single Market is to stimulate competition and trade, to “improve economic efficiency, to raise quality, and to help cut prices” (European Commission 2018a). The intention of the EU’s new data protection policies, to give a more recent example, is to make “businesses benefit from a level playing field” in the EU (European Commission 2018b). As far as the Digital Single Market is concerned, EU policymakers explicitly aim to facilitate “better access for consumers and business to online goods and services across Europe” by removing the “key differences between online and offline worlds, to break down barriers to cross-border online activity.” (European Commission 2018c) The same spirit is heralded in trade and competition policy: EU Trade Agreements should make “European businesses, particularly SMEs, more competitive” and to encourage “Trade for All” (European Commission 2015), while competition policy is “designed to ensure fair and equal conditions for businesses, while leaving space for innovation, unified standards, and the development of small businesses” (European Commission 2018d). ECI_18_PolicyBrief_Competition_9_2018_LY04  

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