Digital Platforms as Second-Order Lead Firms: Beyond the Industrial/Digital Divide in Regulating Value Chains

Abstract

<p>Major parts of global trade in commodities and services are shifting to digital platforms. Yet, current regulatory debates surrounding global value chains (GVCs) and digital platforms are mostly siloed from each other. They share however the challenge of adjusting regulation to a novel mode of economic organization that breaks with our established cognitive frames in both law and economics. By consequence, we contend that both debates should be read in an interlinked manner – overcoming the industrial/digital divide. Digital platform operators should be understood as a ‘second-order lead firm’. To illustrate this, we assess the compatibility of the platform economy with the reigning model of GVC capitalism and its regulatory underpinnings.</p><p>The imaginary of the platform as an intermediary separate from its users is pervasive in economic and legal thought. As a result, platforms are not explicitly targeted by GVC regulation focused on sustainability or security of supply. Neither do regulatory proposals focused on the interface between users and platforms, such as the EU’s Digital Markets Act (DMA) and the Digital Services Act (DSA), address the radical effects of platforms on deeper tiers of production. To counter the legal arbitrage offered by digital platforms, we draw on recent GVC regulation and private law doctrine and contend that platform operators should conduct due diligence vis-à-vis the value chains intersecting on their platforms. Foundations exist to broaden conceptualizations of ‘lead firm’ and ‘value chain’ to cover ‘second-order lead firms’ and the value chains of their users, even if extra-territorial platforms pose a unique problem.</p>