Navigating the Digital Economy
Prof. Gregory Crawford, Chief Economist at Zalando, discusses the pressing challenges and opportunities shaping the digital economy. His insights highlight the critical role of policy, research and global collaboration in building a fairer, more sustainable future. Text: Tessa Rauber
What are recent developments in antitrust policy for digital platforms and how does your research approach these issues?
The jury is still out. I’m mildly optimistic, but I’ve been disappointed so often in the last decade or more that I’ll only believe good outcomes for consumers and smaller businesses when I see them. There is both an EU and a US angle: In the EU, the Digital Markets Act is now in place and it forbids a number of anti-competitive practices by so-called gatekeeper platforms. For example, gatekeeper platforms are not permitted to “selfpreference”. But the devil is in the details and those haven’t been fleshed out yet. I see three hurdles: First, identifying who is a gatekeeper? Second, what exactly counts as selfpreferencing (or other prohibited practices)? And third, assuming the EU wins, will the regulations be meaningful and enforced in a meaningful way? Given the challenges from companies at every step of the way?
What about the US angle?
The US has taken a different approach, namely antitrust lawsuits against the biggest tech firms. These include Google in search and digital advertising markets, Amazon in e-commerce and Microsoft in cloud computing. Even if the enforcers win these lawsuits, what will the remedies be and will they be implemented if the companies fight them?
For the past two years, the EU has been flooded with cheap, low-quality goods from China (e.g. through platforms like Temu), often bypassing European customs clearance and safety regulations. What measures can the EU take to counter this economically and environmentally unsustainable trend?
This is a real problem for both EU consumers and the planet as a whole. The number of items that were shipped to the EU from non-EU countries in 2023 exceeded 2 billion, with the majority coming from China. There are important gaps in the scope and enforcement of existing EU regulations that currently prevent addressing this trend. The biggest example is the exploitation of the EUR 150 duty-free threshold for non-EU imports by intentionally splitting and/or under-valuing shipments. But there are other examples as well, with Chinese products violating product safety standards (particularly in the use of dangerous chemicals), disregarding copyright protections and more.
The EU first needs to lower or eliminate the EUR 150 threshold for customs duties. Second, it needs to better monitor and enforce its existing product safety and consumer protection regulations. The new Digital Services Act is a step in the right direction, as it’s designated both large Chinese platforms Shein and Temu as “Very Large Online Platforms” (VLOPs). This opens the door for market surveillance authorities and regulators to collect data on regulatory infringements and impose penalties. There is much that could be done within the EU’s existing rules and regulations – it just requires attention and resources!
Your work addresses vertical integration and foreclosure. How do you see these dynamics playing out in digital platforms and e-commerce today?
They are very relevant for the biggest digital platforms. For example, in my view, Google has a dominant market position in five products (Search, short-form video/YouTube, the digital ad market, Android and personal data). Some of these they developed organically (e.g. Search, data via “free” services like Gmail, Maps, Chrome and more), while others they achieved via acquisitions (Android, YouTube, the ad tech stack). Because many digital products are complements, there is the strong incentive to leverage market power from one market into another (often via tying or bundling). In the ad tech market for example, Google now has a dominant position in Demand-Side Platforms, Supply-Side Platforms and the Exchange that mediates supply and demand. Such a situation would never be permitted to arise in financial markets! We need to have strong regulation, including breaking up dominant companies that have a track record of leveraging market power from one market to another.
What is your role as Zalando's first Chief Economist? What goals have you set for bringing economic insights into the business?
My role is to help senior business leaders make better decisions by providing trustworthy data-driven insights. And – in the process – to build a culture of data-driven decisionmaking across the organization. A key (but not exclusive) element of doing this is to empower experimentation across the company. Many of the most profitable companies in the world have a data-driven culture empowered by experimentation and I can see why – it’s an incredible tool! More generally, I see a tremendous opportunity for PhD economists inside businesses. At the moment, this practice is concentrated in tech companies (e.g. Amazon, Netflix, Microsoft, Uber, Spotify, AirBnB and more). I’m confident these practices will diffuse to non-tech companies as well.
In my view, economists are uniquely well suited to help businesses due to their breadth of experience with alternative empirical methods (including prediction, experimentation and observational causal inference methods), deep experience in knowing how much belief to put in empirical estimates, and, with what I call the “secret sauce”, having been trained in a framework to understand drivers of market outcomes. Taken together, these skills help with both problem framing (i.e. what is the right problem to solve) and solution design (i.e. what are the right tools to solve that problem).
That being said, a key hurdle is to educate current and future commercial business leaders with the economic frameworks and empirical skills needed to prepare them to drive innovation in a data-rich future. I know the Faculty of Business, Economics and Informatics shares this view!
To which extent can a business such as Zalando help shape public regulations?
I definitely think Zalando can play a role in shaping public regulations. First, while I realize this will appear self-serving, it’s worth pointing out that Zalando is tiny compared to the big American and Chinese digital tech platforms. So, while we may be “big for Europe”, we are definitely not big from a global perspective! This “in-between” position gives us a unique perspective, however, and we therefore often comment on proposals from the European Commission and the member states.
One place that Zalando can play a leading role is in helping design sustainability regulations. It is very challenging to make progress in this space. Both brands and retailers like Zalando definitively want to address sustainability in the fashion industry, but it is very hard to do so without concrete leadership at the European (or ideally global) level. The reason is that while consumers say they care about sustainability, they also like inexpensive fashion and when these two interests conflict, the vast majority appear to prefer the latter. In such settings, we need coordinated regulatory rules that can balance the needs of consumers, brands, retailers and the planet. By virtue of its position as the largest fashion e-commerce platform in Europe, Zalando can play a role helping to define these rules.
Gregory Crawford is a professor of applied microeconomics at the Department of Economics UZH. He is Co-founder and Director of the Centre for Economic Policy Research (CEPR) and Chief Economist at Zalando. The replies in this Q&A are his personal views and do not necessarily represent the views of Zalando.
Source: Oec. Magazine issue #22