Regulating Digital Markets

Abstract

It has become popular for scholars and non-academic commentators to claim that technological advances have reshaped consumer markets and empowered individuals. Some have argued that the digitization of commerce has leveled the playing field between consumers and businesses, with the growth of the internet, social media, and applications granting individuals the power necessary to combat exploitative business practices. These technological changes have led some to question the necessity of continued governmental intervention in consumer markets.

The existing literature fails, however, to grasp the extent to which technological innovations have empowered private firms. The omnipresence of the internet provides businesses with unprecedented access to consumers. The easy availability of individuals’ personal information opens the doors to a world where firms can customize advertisements and sales contracts to take advantage of individuals’ interests, fears, and vulnerabilities. Most importantly, the transition to digital markets has introduced a new threat to consumer welfare that commentators, academics, and regulators have failed to notice. It has fostered consumer dependence on digital reputational data, while permitting firms to easily (and often legally) manipulate this information.

The digital revolution will not be a panacea for consumers and calls for deregulation of markets are misplaced. Existing consumer protection practices need to be updated to account for the evolving commercial landscape. In order to protect consumers’ interests in today’s markets, the state should act to prohibit the manipulation of reputational data, restrict companies’ uses of consumer data, and foster private consumer activist actions.