(Meta)verse as the next escaper from competition public enforcement, Luca Megale

Abstract ITA: Il contributo affronta il tema del metaverso e del suo potenziale impatto sull’enforcement in materia di concorrenza. Solo recentemente i regolatori hanno posto la dovuta attenzione sulla regolazione dei mercati digitali e, ora, il focus e gli investimenti delle Big tech sul metaverso stanno ponendo le basi per una nuova società digitale (i cui confini con il mondo reale sono sempre più sottili).
Si discute il tema della decentralizzazione; tuttavia, si prospetta un nuovo contesto digitale in mano ai pochi personaggi principali che governano il settore, così com'è oggi – e non agli utenti. A tal riguardo, si evidenziano le possibili criticità per il settore della concorrenza e le problematiche legate ad una errata regolazione del mercato.
In conclusione, si suggeriscono potenziali elementi chiave per un approccio regolatorio in grado di consentire lo sviluppo tecnologico e, al contempo, capace di salvaguardare il mercato e i soggetti coinvolti.

Contributo completo qui | Full article here.


The metaverse is a virtual reality with subtle boundaries between digital environments and the physical world. While such a parallel virtual world will probably bring important innovations and potential benefits, new risks of regulatory enforcement failure are high. The latter with relevant effects on competition, a concern that regulators and enforcers already have a relevant struggle to curb. Margrethe Vestager stated “the metaverse will present new markets and a range of different businesses. There will be a marketplace where someone may have a dominant position” and “we should start thinking about it now”.

What effects can the development of this new digital ecosystem have? Can current antitrust laws work with the Metaverse?

No definitive solution to these questions is given below, and, on this research note, the potential impact on single elements of competition is not deepened as for the specific regulatory approach to potentially solve each of the several situations. Here for a more in-depth analysis of the matter.

What kind of metaverse?

Is it a new virtual environment completely in the hands of users or a reality set up similar to the Internet before and digital platforms now?

The concept behind the metaverse is that it should belong to its users, not to a single undertaking: changing the way in which data is managed, taking power away from central governing structures -  being a decentralized community with users in control.

If we interpret social networks as the place in which virtual platforms allow individuals to create their virtual public life, and companies to develop products or serve, the metaverse could be seen as a highly immersive social network.  The former are not designed for the direct purchase of products, but to redirect consumers towards e-commerce.  The metaverse will probably get those two above-mentioned worlds as close as possible. Facebook’s idea might be to create a next-level social network (95% of Meta’s revenues come from ads), in which businesses will change their approach – bringing it closer to the real world. 

A decentralized network is intended as being an alternative social, economic and political structure to tackle inequality and information asymmetry. The main differences are that there is no central authority control and gatekeepers, and thus censorship is more complex due to the decentralization of the information distribution. At the same time, the lack of a central authority raises coordination issues, and lack of censorship allows less possibility of supervision.

However, market participants are inclined to become monopolists, or at least to outsmart their competitors. This leads back to centralization; in the case of harmonized rules, each partner would be incentivised to deviate from what was agreed upon. Without central administration instruments set up, hubs might conspire, individuals might deceive one another, etc.

The virtual server structure of centralized platforms has resulted in undertakings like Amazon, Facebook, and Google to establish highly centralized virtual networks of communications or e-commerce. The metaverse clashing against the market (which will lead to the development of dominant participants and therefore centralization) will make its concept fail, as other decentralized-based concepts have done in the past.

Metaverse will still exist: in one scenario, if the infrastructure providers act solely as supervisors – it is difficult to imagine that Facebook will leave the business model characterizing its social network empire. In another one, leading undertakings will act as users’ exploiters in exchange for the offering of unique and essential services for everyday life, as it is today.

Some argue that it will not be possible to have a unique metaverse dominated by, for instance, only Facebook. Even today’s Internet is not centralized (it was the primitive concept behind it; however, from a network of networks, the internet is today a network of platforms) by an individual undertaking, but a few dominant ones.

Antitrust concerns (in short, more in-depth here on the analysis of each potential impact)

In today’s internet interaction, a server connects with another server or an end-user device on a need-to-know basis: metaverse will probably be as simultaneous video/social interactions, in terms of user experience and engagement. The accomplishment will need to be based on infrastructure. In a potential scenario, Meta and other players could aim to become the undertaking providing the infrastructure and the underlying platform on which the metaverse could be based.  The imagination could thus be oriented versus the doctrine of the so-called essential facilities. Technological revolution means the rise of a more pervasive power than the one of Governments. Already as of today, this requires a sophisticated technological structure that competitors are unlikely to be able to deploy, representing a formidable barrier to entry into these markets capable of excluding undertakings from the competition.

Encouraging a global and interoperable metaverse – and multiple companies to co-operate – might lead to sharing competitively sensitive information or agreeing on pricing.  Thus, regulators and enforcers should be put in the position to understand what is happening outside but, more importantly, inside the metaverse. Tacit collusion, in which each participant might reach the anticompetitive outcome in benefiting from collective market power without explicit communication, should not be underestimated. As well as algorithms – which will be the foundation of the metaverse – educated to collude should not be belittled. This could lead to an extreme virtual world based on algorithms, facilitating collusion in a market prone to coordination.  Not underestimating algorithmic collusion, blockchain-based one could also be pivotal: see Gallagher v. Bitcointalk.org, and the recent In re Tether v. Bitfinex Crypto Asset Litigation.

M&As play a key role in shaping the structure of the digital market.  Boundaries and barriers can change rapidly: complementary products might become substitutable. Facebook has already completed several acquisitions: BigBox VR, Unit 2 Games, Beat Games, Sanzaru Games and Ready at Dawn, Within, not to mention the significant Oculus. One may argue that Facebook is not the leader in virtual reality right now, but was it in social media networking?  FTC Commissioner Rebecca Slaughter stated “I think of serial acquisitions as a Pac-Man strategy. Each individual merger, viewed independently, may not seem to have significant impact. But the collective impact of hundreds of smaller acquisitions can lead to a monopolistic behemoth”. On the matter, does differentiated intervention between Countries (see Germany and UK) without a uniform strategy work? What can such a differentiated and individualist approach to innovation and regulation bring?

Following a study on the topic, 91 % of adults think consumers have lost control over how companies collect and use personal information.  In the metaverse, platforms will probably track data concerning: a) in which environment an individual goes, b) how long the individual remains in a certain place, c) the physiological responses to the environment and the interaction with other users and products.

Moreover, research shows that a 5-minute VR session results in 5.4 million data points about individual body language. Out of a pool of 511 participants, the VR system identifies 95% of users correctly when trained on less than 5 min of tracking data per person. These results show that regulators should understand nonverbal data as personally identifying, leading the undertaking(-s) to have the control on the metaverse to know the consumers in a way that today is not conceivable. Moreover, the dataset owned by the online platform could effectively become a barrier precluding access to the market. How will another new-entry player be able to reach such a data set on which the metaverse profits will be based?  How will authorities be able to control the environment and enforce competitors' and citizens’ rights?


Should regulation play a role?

Regulatory reforms must consider the link between regulation and innovation: innovation impacts regulation and, equally, regulation can affect the innovation process. Some argue that strict policies slow the rate of technology developments; others, that regulation favours it, and that its absence could actually have the opposite effects. It is essential to 1) properly understand the new technology and have an oversight on potential effects; 2) avoid regulations that can represent a burden to the pace requested by innovation; and 3) be harmonized internationally, to avoid conflicting regulations and barriers.

It has been highlighted as delayed regulation does not allow power to do much against platforms, resulting in systemic compliance issues and risks to democracy and market stability. Considering that a regulatory intervention for competition public enforcement is already needed in a first-phase development of the metaverse, it becomes relevant to understand which approach might be appropriate. The OECD highlights five questions regulators need to ask themselves: (1) what is the current state of regulation?; 2) what is the right time to regulate?; 3) is regulation the right approach?; 4) what is the right regulatory approach? and 5) what has changed since regulations were enacted?

Focusing here on the fourth one: regulation does not come in a one-type formula and, as such, can have multiple effects based on how it is structured. Different regulatory approaches can impede or accelerate technological developments or shape them differently, favouring some technologies, or firms, instead of others. An ex-ante regulatory framework is based on the analysis of the risk posed by the product or service, or sector development and requires a balance between 1) science-based risk assessment and risk management by policymakers, and 2) between risk perception by the public and the scientific world and the communication of the risk and adequacy of intervention to the public.

An ex-ante approach based on risk requires identifying and managing the risk in a fast process (see artificial intelligence). However, risk involves a causal relationship between the event and the not-to-be-desired outcome.

It is a different situation when uncertainty is the topic to deal with. In the metaverse, at least at the beginning, “risk” will be difficult to identify and not instantly evident; while entering a parallel virtual world, uncertainty will be the describing word. Uncertainty leads to regulators being unable to understand what approach to use and thus intervene. To regulate uncertainty, the regulatory approach should be characterized by strategic foresight. It has recently been defined in the EU Better Regulation toolbox as the discipline of exploring, anticipating, and shaping the future into policymaking. This is by assuring a future-oriented analysis of the problem drivers (so-called megatrends) and the future scenarios. Among the megatrends of the EU 2021 strategic foresight report are digital hyperconnectivity, digital transformation, separation of networks and services, and more sophisticated networks that consent to a more efficient use of artificial intelligence predictive systems. 

Uncertainty is not taken in enough consideration, even if it heavily affects regulatory intervention development, and the same competent institutions. To tackle uncertainty and assure future-proof intervention efficiency, it is not sufficient to use one approach or tool. What is crucial is allowing systematic and gradual application of different approaches to reach foresight governance.

An essential step would be laying institutional foundations for the establishment of an international regulatory co-operation and joined up-approaches; to provide a borderless framework of the metaverse regulation. Besides, it should be added the idea of adapting the governance frameworks to enable the development of a future-proof regulation. For instance, to avoid an essential facility excluding competitors by design, regulators must first of all be included in the development of the infrastructure. In a strong oversight on the metaverse development (due to the metaverse potentially being more than a service, close to a new market segment), regulators and enforcers should have a continuous and open discussion with the infrastructure provider, other market participants, and technical experts. The latter is to assure that the infrastructure is structured in a way that, from the beginning, easily allows the use of third-party internal and external tools. Thus, granting access rights. For instance, by using code parameters that allow the same compatibility and potential use of all the musical services, such as Spotify, Apple music, etc.

The central role of an oversight of regulators on the metaverse would lie in assuring the development of a facility open to competitors’ access. This would also be an opportunity for the undertaking involved to be ex-ante sure of respecting the rules. To this aim, it could be useful to establish internal assessment mechanisms for auto-detecting issues in the metaverse source code. This could be seen as a form of co-regulation. Lastly, one should not only avoid having rules that suppress innovation, but also avoid norms that suppress the applicability of adaptive regulatory approaches.

Luca Megale
is a PhD Student at LUMSA University of Rome 

and tutor of the European Master in Law and Economics - EMLE (Rome term)