A report published this month by The Economist Intelligence Unit explores the impact of digital innovation on market fairness. The report shares findings and recommendations from an advisory board composed of US city and state policymakers and innovation academics. It is supplemented by in-depth interviews with technology executives and entrepreneurs. 

Finding a level playing field, sponsored by Two Sigma, describes a challenging environment for regulators as they work to balance the interests of both disruptors and incumbents while protecting the public interest. Much innovation and growth today are driven by information technology, which among other effects makes markets more efficient by “levelling the playing field” for a great number of participants. However, this situation also creates new difficulties for regulators such as digital disruptors that exploit regulatory inefficiencies and fast-growing internet monopolies.

These challenges can be addressed by three models that successfully balance regulation and entrepreneurialism across industries:

1) Create forward-looking and principles-based, rather than prescriptive, policies that are  reinforced by an open channel of communication with the private sector

2) Increase government staffers’ tech literacy by hiring additional technical subject-matter experts and creating special agencies within departments

3) Treat businesses as a trusted partner and part of the regulatory solution — while maintaining necessary regulatory oversight for the sake of public safety

Sunmin Kim, the editor of the report, said: “Companies like Airbnb and Uber redefine ownership of a product or offering of a service in ways regulators hadn’t anticipated. In addition, the cost of scaling up digital (rather than physical) goods or services is marginal.

According to our research, policymakers acknowledge that no single set of rules can address or anticipate the fast-changing needs for oversight created by companies like these. Instead, flexible and forward-looking policies that remain relevant through rapidly changing landscapes are needed—approaches only possible with better communication and collaboration with the private sector and policymakers’ own embrace of technology.”