Market Power Parasites: Abusing the Power of Digital Intermediaries to Harm Competition

Some digital information intermediaries, such as Google and Facebook, enjoy significant and durable market power. Concerns regarding the anti-competitive effects of such power have largely focused on conduct engaged in by the infomediaries themselves, and have led to several recent, well-publicized regulatory actions in the US and elsewhere. This article adds a new dimension to these concerns: the abuse of such power by other market players, which lack market power themselves, in a way which significantly harms the competitive process and undermines the integrity of the relevant in-formation market. We call such abusers “market power parasites.” We provide three examples of parasitic conduct in online information markets: (1) black hat search engine optimization, (2) click fraud, and (3) fraudulent ratings and reviews. In each of these examples the manipulating parasite utilizes the infomediary’s market power to potentially turn an otherwise limited fraud into a manipulation of market dynamics, with significant anti-competitive effects. This separation between power and conduct in the case of market power parasites creates an unwarranted lacuna which is not addressed by existing laws aimed at preventing abuses of market power. Anti-trust law does not capture such parasites because it only prohibits unilateral anti-competitive conduct if such conduct is engaged in by a monopolist. At the same time, fraud torts require proof of specific reliance and are therefore limited to a particular wrong, disregarding the broader competitive concerns resulting from parasitic conduct. To bridge this gap, we suggest a fraud-on-the-online-information-markets rule, akin to the fraud-on-the-market rule in securities law. We propose to eliminate the rigid fraud tort requirement to prove reliance, and replace it with a presumption of reliance that will apply once the plaintiff proves harm to the integrity of an online infomediary. Our proposal strengthens competitors’ cause of action, releasing them from the arguably ill-fitting need to prove specific reliance, thereby increasing enforcement against the anti-competitive acts of market power parasites which harm the integrity of information in digital markets.