One-size-fits-all liability reduces small sellers – that restricts competition and raises consumer prices

Some considerations can also be made on the interplay between liability rules and competition. As already discussed, liability regimes impact both the fixed and marginal costs a platform faces to operate in the market. The lenient liability regime that online platforms have been subject to in the past years may have helped the existing platforms to grow as well as to become well-equipped and have the financial resources to comply with more stringent liability than entrant platforms. Thus, a more stringent one-size-fits-all liability regime for platforms might further amplify asymmetries in the market.36 To see why, consider a competitive environment in which a big incumbent platform faces smaller potential entrants. A stringent one-size-fits-all liability regime increases the cost of entry and may result in the potential entrants deciding to stay out of the market, which would benefit the incumbent platform. Of course, this platform will also suffer from higher liability costs but this negative effect on its profit may well be outweighed by the positive effect resulting from the increase in entry barriers. This is to the detriment of market participants, who may face higher prices and fewer choices. An interesting analogy can be drawn with the implementation of the General Data Protection Regulation (GDPR) which may have helped big tech giants (Batikas et al., 2021; Gal & Aviv, 2020; Johnson et al., 2020).