In the ever-evolving digital landscape, virtual worlds are disruptive technologies with great potential. Competition policy in virtual worlds has been on the Commission’s radar for a few years now (e.g., in July 2023, a Communication on Web 4.0 and virtual worlds was published), and has been particularly heightened after Meta revealed its plans to enter the space. Recognizing the complexity of this new frontier, the European Commission launched a call for contributions on competition in virtual worlds in January 2024. As a research centre with a particular focus on competition and information technology regulation, CREATe is undertaking research that addresses the specific questions raised by the Commission on virtual worlds. As laid out in our response, the entry of big tech into virtual worlds, coupled with the development of multi-product and multi-service ecosystems around them, and the introduction of blockchain technology, has made the environment significantly more complex and competitive.
Our response has identified and discussed a range of competition concerns, including the barriers to entry, the role of infrastructure, user interface compatibility, regulatory compliance, and the impact on user choice and market dynamics. We firstly identify several elements that could be potential entry barriers and obstacles including: (1) the high infrastructure demands, and network capacities required for immersive virtual experiences as significant barriers, particularly for SMEs. The integration of blockchain technology in virtual worlds adds another layer of complexity; (2) the diversity in user interfaces across virtual worlds imposes additional challenges, requiring developers to adapt their offerings for different platforms, a task complicated by intellectual property rights and the need for cross-platform compatibility; (3) the stringent requirements of data protection and privacy regulations, such as GDPR, which pose significant compliance challenges, especially in the handling of personal and biometric data crucial for immersive experiences; (4) the detailed and integrated nature of user profiles in virtual worlds creates a high barrier for switching platforms, further complicated by intellectual property law that limits the transferability of digital assets and accounts.
Additionally, we also highlight the need for revaluating the existing competition frameworks to address unique aspects of virtual worlds, such as governance and tokenomics. We identify a need for a nuanced approach to determine which actors in virtual worlds are considered undertakings under competition law. Our response identifies new potential anticompetitive behaviours in virtual worlds. For example, the governance of virtual worlds, whether centralized or decentralized, could influence competition by controlling interaction rules, protocols and consensus algorithms. Such architectural power and the control of governance mechanisms are highlighted as potential sources of market power. Moreover, virtual worlds also bring new business and data monetisation models. The integration of native cryptocurrencies or tokens in virtual worlds for transactions and governance is anticipated to have significant implications for competition. Tokenomics is identified as a key area requiring attention from competition economists.
Our response reflects the complexity and multifaceted nature of challenges in virtual worlds industry, and the need a reimagined approach to competition law and policy. The evolving dynamics of user engagement, driven by sophisticated accounts and profiles, as well as the use of tokenomics, necessitate a careful evaluation of how competitive forces operate within virtual worlds. As we stand on the brink of this rapid digital evolution, it is clear that navigating the competition in virtual worlds will require interdisciplinary efforts to foster an ecosystem that is both vibrant and sustainable.
The text of the response can be downloaded here.Competition in Virtual Worlds - CREATe contribution to EC consultation