Abstract

In the last couple of decades, competition policy has been receiving increasing attention and has obtained a central role in microeconomic policy in Europe. Ensuring that markets work as competitively as possible is viewed as key for economic growth and welfare. While much progress has been made in the research that studies and shapes competition policy, the nature of competition in markets is also evolving and new issues are emerging. An important novel feature is related to the increase in the size of the digital sectors of the economy and especially to the way that digital technologies and e-commerce practices revolutionize essentially all other sectors of the economy. These developments represent some new challenges for research. One key issue is that with digital markets and technologies we are more likely to have intense competition ‘for the market’, rather than competition ‘in the market’. It follows that we need models that are more dynamic and incorporate to a larger extent network effects, other increasing returns to scale and uncertainty. At the same time, it is important that one does not ignore the lessons of the earlier and current literature, especially in core areas like pricing and vertical relations. On the empirical research side, the availability of relevant data can be expected to increase exponentially, due to the fact that electronic transactions can be recorded almost automatically. The need and opportunity for new empirical studies, given the nature of available data, thus emerges. New technologies also tend to minimize the distances between buyers and sellers in markets and facilitate information flows; ‘single market’ issues therefore come to the forefront and their analysis can be controversial. This challenge becomes a clear priority since the Digital SingleMarket is a stated objective of the European Commission.

Introduction

Competition and innovation can be identified as the two, closely interrelated, pillars of long-run growth. Over the last decades, in particular, economic policy has focused systematically and as a priority on how to protect and strengthen the factors that facilitate both competition and innovation. Importantly, the relevant policy design has to take into account that the relation between the two economic forces is complex and typically not monotonic.