Regulation of Digital Markets with Competition Soft Law: A Law and Economics Perspective

Most legal regimes adopt a hybrid model of competition law that combines both hard law and soft law. Although EU competition law features more soft law than hard law instruments, existing literature has rarely explored why the European Commission often employs competition soft law, nor is there much empirical research examining the efficiency of soft law in addressing competition concerns in digital markets. The law and economics literature suggests that using competition soft law rather than hard law has theoretical advantages, specifically in terms of lower costs, increased flexibility, and better information. Hence, soft law can address certain disadvantages of hard law in governing digital markets, whereas hard law is often considered inflexible and costly (in terms of time and money) to formulate. To evaluate the validity of these economic predictions, this paper conducts an empirical analysis to test whether the formulation of soft law incurs lower costs and enhances the flexibility of regulation. It further assesses the information provided by soft law, taking into account that more precise information can reduce error and transaction costs associated with digital regulation. Our observations suggest that competition soft law can contribute to fostering (dynamic) efficiency in the governance of digital markets.