Health
Opinion Article
February 17, 2022

Industrial Organization & Antitrust in the Digital Age

Industrial organization is, per definition, the study of the structure of firms and markets and, consequently, the dynamics of competition. For a long time this field of economics has been focused on a paradigm which studied the actions of economic agents in terms of price and output. Competition regulatory authorities have relied on this framework to analyze market concentration in markets and impose remedial measures ex-post in order to ensure competitive markets which benefit consumers while ensuring healthy firm competition.

In recent years the development of exponential network effects alongside technologies that enable increasing returns to scale based on data - such as digital platforms - have given rise to new forms of competition. Firms that are nowadays effectively tech giants, among which the so-called Silicon Valley’s ‘Big Tech’ and Chinese firms such as Alibaba Group or Huawei, exist and wield market power in settings and markets which have altogether gone by without much regulatory scrutiny, and present regulatory challenges of great significance for our common good. That is the thesis that Lina Khan, currently the Chairperson of the U.S. Federal Trade Commission and formerly a Law Professor at New York University, defends - albeit with a focus on Amazon- in her paper “Amazon’s Antitrust Paradox” (1).

Considering the tremendous market power of these firms and their market cap (as one can see from the picture below) (2),the top 5 firms of the US market – Apple, Microsoft, Amazon, Tesla and Alphabet– were, in early December 2021, responsible for 23.5% of the market cap of the S&P 500 index) as well as their perverseness in several markets, these firms hold an immediate and practically impossible to replicate competitive advantage that reinforces their position in their respective markets, increasing their economic rents while staving off competition and the possibilities for challengers to rise up and meet them heads on.

Besides recommending the reading of Khan’s paper to anyone who is interested in competition policy, antitrust or digital affairs, as a scholar of health and, more concretely, health data science, one cannot help but think of the consequences the existence of these tech giants presents to citizens in their access to health innovation and technologies.

Bearing in mind that the market for data is quite uneven - firms which hold infrastructure to collect personal data, such as Alphabet or Meta, are incomparably more powerful in harvesting data than any individual consumer or firm could ever expect to be, and consumers are rarely, if ever, rewarded for their data altruism - these concerns are deepened by the vulnerability of consumers yielded by asymmetric information and the risk aversion to potential adverse shocks to their health status. Therefore, the classical issues that can motivate the study of health economics as a special market, such as governmental intervention, uncertainty, asymmetric information, barriers to entry, externalities, and the presence of a third-party agent (3), are even more pronounced in a digital context.

The development of mobile health apps by tech giants and the firms that cooperate with them on digital solutions based on data collected from users, for example, warrants detailed analysis and regulation given the need for patient real-world data its algorithms require. Digital health holds the promise of expanding access to innovative healthcare; nonetheless, we should be aware of the underlying risks and market structure in order to stimulate innovation and ensure consumer safety and surplus in an ethical way, as to make sure that innovation is not misguided, and that firms’ actions are aligned with the needs of patients.

To conclude with some food for thought:

References:

(1) Lina M. Khan, Amazon’s Antitrust Paradox, The Yale Law Journal, Volume 126, Number 3, pp. 710-805 (2017)

(2) Exponential View, EV’s Charts of the Week # 54, December 1, 2021

(3) Charles E. (2003), Health Economics (3rd ed.), Boston: Addison Wesley, ISBN 978-0-321-06898-9

Diogo Nogueira Leite

Diogo Nogueira Leite

Economist, Ph.D. Student in Health Data Science | Affiliate Member at Nova SBE Health Economics & Management KC

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