Classroom Companion: Business

 
Chapter 22 · Digital Regulation

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the mobile phone allows the user to disconnect data calls while roaming into 
another country while maintain roaming for telephone calls and SMS. In 2017, the 
EEA forbid member states to continue this practice: data calls should be handled 
in the same way as telephone calls and SMS while roaming in the EEA. The home 
network of the mobile user should inform the user that the mobile had roamed into 
a safe network and warn the user if the phone had roamed to a network where data 
roaming prices may not be regulated.
The increased popularity of the Internet in the 1990s triggered the rise of the 
cyberlibertarian movement (Borsook, 
2001
). The cyberlibertarian’s main opinion is 
that the Internet should not be regulated by international, regional, or national 
laws. They claim that the Internet—or cyberspace—does not follow national bor-
ders. Data packets are often routed over several countries and legal jurisdictions 
from the sender to the receiver. Data from a single transaction could even take dif-
ferent paths in the network crossing different national borders. The legislation of a 
single nation can, therefore, not be applied to the Internet. The Internet user, 
including ASPs and content providers, could then exploit regulation arbitrage, 
meaning that the laws of the country with the most liberal laws and regulations 
would be used, for example, by placing the servers supporting the service in low-tax 
countries.
The cyberlibertarians argue that the Internet should be allowed to govern itself, 
democratically, and without any central control.
As a response to the cyberlibertarian movement the cyber-paternalists came on 
to the scene. They claimed—contrary to the cyberlibertarians—that the Internet 
should indeed be regulated to function properly. Even though cyberspace invisibly 
crosses national borders, cyberspace is built up of equipment—routers, switches, 
terminals, mobile stations, fiber-optic cables—owned and used by people or com-
panies under the jurisdiction of the legal framework of a country. The question 
raised by the cyber-paternalists is not whether cyberspace should be regulated or 
not, but rather whether such regulations could be done by applying existing laws or 
by developing new laws and rules particularly for the cyberspace.
Today, most academics and decisions makers agree that the Internet both can 
and should be regulated. Indeed, legal frameworks of many countries have been 
or are about to be updated because of the widespread use of the Internet and 
other related information technologies. One major reason for regulating the 
Internet is to prevent market dominance. Because of strong network effects and 
that the marginal cost associated with many digital goods is zero, several markets 
in the digital economy will be dominated by de facto monopolies if regulations 
are absent.
One example of a de facto monopoly is Facebook. The market of Facebook is 
not regulated and, therefore, prone to market failure. Dominating network effects 
and path dependence have turned Facebook into a de facto monopoly as we have 
deliberated several times in this book (
7
Chaps. 
9
, 
11
, and 
13
). Moreover, the 
product Facebook offers the users has zero marginal cost and is provided to the 
users for free. The question is whether markets subject to such conditions can be 
regulated at all. One concern is that if Facebook is split into two competing com-