Regulating Digital Markets: Beyond Traditional Rules

By John Walubengo

In the ever-evolving landscape of global commerce, the rise of digital platforms such as Google, Facebook, TikTok, Instagram, and others has introduced a new market competition paradigm that starkly contrasts with the dynamics of traditional markets.

This shift has redefined consumer behaviour and posed significant challenges for regulators to ensure fair play in an increasingly digital world. As we explore the nuances of regulating digital platforms versus traditional markets, it becomes evident that the path to equitable market regulation is complex.

Traditional Markets and Regulatory Frameworks

Traditional markets, characterised by physical goods, services, and direct consumer interactions, have long operated under well-established regulatory frameworks.

Most countries, including Kenya, have a Competition Authority. The Competition Authority is mandated to ensure competitive fairness, prevent monopolistic practices, and protect consumer rights using regulations that include consumer protection laws, anti-monopoly laws, and sector-specific guidelines.

The main regulatory thrust in traditional markets is straightforward: maintaining market integrity, ensuring product safety, and fostering an environment conducive to competition.

The Digital Disruption

In the digital era, the market landscape is undergoing a significant shift. Digital platforms, from e-commerce giants to social media networks, have transcended physical and geographical boundaries to create vast ecosystems where data is the king.

Unlike traditional markets, digital platforms operate on the principle of network effects. In this model, the value of a service increases with each additional new user, often leading to the rapid dominance of a single entity. Consumers gain more value by joining a network with more users, thus creating a virtuous cycle for the platform owners.

The inevitable dominance of the network effect and digital platforms’ ability to leverage vast amounts of user data presents a unique set of challenges for regulators.

Regulatory Challenges in the Digital Arena

One of the foremost challenges in regulating digital platforms is addressing data privacy and protection. With platforms capable of tracking, analysing, and monetising user data, regulators must protect consumer privacy without stifling innovation.

The Kenya Data Protection Act (2019) represents a landmark effort to give consumers control over their data. Still, it faces enforceability challenges in the face of global, big tech platform owners.

Another critical issue is the monopolistic power wielded by major tech companies. Traditional anti-monopoly regulations are tested as regulators grapple with practices that may hinder competition but do not fit the conventional understanding of anti-competitive behaviour.

For example, platform owners hosting other merchant digital e-commerce sites or mobile apps in the Play Store or AppStore may deliberately slow down the merchant’s sites or apps to influence customers onto the platform’s equivalent sites, which may be configured to run faster and better.

Additionally, the digital economy’s intrinsic nature, where services are often provided free of charge to subscribers in exchange for their data, further complicates the application of existing anti-competitive regulatory guidelines.

Finally, the global reach of digital platforms challenges national jurisdictions and regulatory enforcement. A platform can operate across borders, often eluding national regulations and creating a patchwork of compliance requirements that take time to navigate.

The recent Worldcoin saga, where the platform owners were banned from physically operating in Kenya but continued to be accessible through online digital mobile apps, is a case study of regulatory limits in the face of global platform providers.

The regulation of digital platforms presents a complex challenge that transcends traditional market dynamics.

As we forge ahead with our digital economy agenda, we should create a regulatory environment that promotes innovation and competition while protecting consumers in the digital age.

By adapting regulatory frameworks, fostering international cooperation, and engaging with stakeholders, we can navigate the nuances of digital versus traditional market regulation and ensure a fair, competitive, and innovative marketplace for all.

Is Kenya ready for this? We surely hope so.

John Walubengo is an ICT Lecturer and Consultant. @jwalu.