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Ad-Tech Industry’s Competition, Productivity, and Regulation

PUBLISH DATE: 29 July 2022

The rise of the advertising technology industry is frequently seen as a historic moment in advertising history. Ad-tech delivers distinct benefits to marketers and consumers by algorithmically personalizing ads based on individual actions and interests.

Despite these potential benefits, the fast-paced nature of this sector has resulted in possibly anti-competitive behavior. These have prepared the way for revolutionary reforms, such as the European Union’s recent Digital Services Act and Digital Markets Act.

To a great part, anti-competitive behavior in the ad-tech business stems from the industry’s supply chain’s complexity, along with the “winner takes it all” mentality of certain firms that exploit vertical and horizontal integration.

Several companies in the business, for example, are vertically integrated ad-tech suppliers that also provide relevant consumer-facing services. They can use foreclosure methods or horizontal collaboration to hurt the competition.

Furthermore, the expanding usage of “attention markets” in the digital economy shows the erroneous belief that advertising is customers and that users’ attention is the commodity sold to advertisers. This has the potential to hurt customers since their ideas are being targeted by computational techniques. These ideas may be adjusted using attention-focused criteria to successfully convert visitors to buyers.

This algorithmic technique results in information asymmetry between marketers, publishers, and consumers, with people ignorant of how their personal data is being utilized to manipulate their judgments, choices, and views. The collection of such data by enterprises in this market also raises major entry hurdles, allowing big tech corporations to capitalize on their first-mover advantage by acquiring stakeholders and developing 360-degree consumer technology.

New entrants may find it difficult to compete with assets such as an existing user base, especially if restrictions such as a lack of data and user interoperability, as well as data portability, exist. These are the consequences of network effects, which arise when the number of other customers who use a product or service influences the demands for that product or service. The multifaceted character of digital marketplaces exacerbates such damages.

To conclude, the goal of regulatory intervention is to increase market efficiency while protecting stakeholders such as consumers. This, in conjunction with the core of competition law, which states that the goal of competition law is to safeguard the competition rather than the competitor, allows one to rethink the balancing act of competition, efficiency, and regulation in the ad-tech business.