Faculty of law blogs / UNIVERSITY OF OXFORD

On the Systemic Importance of Digital Platforms


Lindsay Sain Jones
Assistant Professor of Legal Studies at the Terry College of Business at the University of Georgia
Tim R Samples
Associate Professor of Legal Studies at the Terry College of Business at the University of Georgia


Time to read

3 Minutes

Systemic importance is an established concept in financial regulation, but it was not always so. The collapse of Lehman Brothers in 2007—a catalyst for the Great Recession—exposed lurking risks that endangered the broader economy. By tipping global financial systems towards an abyss, the Lehman bankruptcy forced a reckoning. Afterwards, the logic of systemic importance was embedded into financial regulation: essentially, if a financial institution is consequential enough to pose risks to the broader economy, heightened oversight applies.

With the benefit of hindsight, the preconditions of that crisis may seem obvious. For instance, among the conclusions of the US Congress’ Financial Crisis Inquiry Commission: ‘widespread failures in financial regulation and supervision’ marked by decades of self-regulation had ‘stripped away key safeguards, which could have helped avoid catastrophe’. In the absence of meaningful oversight, too many financial institutions took too many risks, at great external cost. As the memories of the Great Recession fade, certain platforms have attained systemic proportions in digital markets.

Acute concentrations of risk and externalities have proliferated in the technology sector. A small number of companies—some governed by dual-class share structures—exercise tremendous sway over social behavior, human health, and the information ecosystem. The sheer power and costly externalities of digital platforms have prompted a reckoning, as an increasingly wide range of states marshal resources to regulate digital markets. In parallel, a growing number of scholars have explored aspects of systemic risk in the digital realm. In our recent paper, ‘On the Systemic Importance of Digital Platforms’, we draw on lessons from financial regulation to address the systemic importance of digital platforms.

Our inquiry is not whether digital platforms are ‘too big to fail’, but rather whether some possess enough systemic importance to justify heightened oversight. As an initial step, we develop a theory of systemic importance for digital platforms. We argue that that the systemic importance of digital platforms is a function of the risks posed by their immense power and their far-reaching externalities. Second, we lay out foundational criteria for identifying and overseeing systemically important platforms. In doing so, we suggest an agency-driven approach to managing systemic risks and externalities in the tech sector.

Our proposals are consistent with the prevailing logic of systemic importance. We take stock of an emerging body of literature that evaluates systemic risks in digital markets with tools developed in the wake of the financial crisis. Nizan Geslevich Packin, for instance, raised the question of whether some digital service providers (ie providers of social networks, search engines, and cloud computing services) have become too big to fail in her article in the Indiana Law Journal. After discussing the potential impacts of tech failures, Packin called for a systematic approach that includes enhanced risk management resembling that of the Dodd-Frank Act. In his article, Rory Van Loo similarly applied a systemic risk regulatory framework to Google and Apple in order to mitigate the risks to financial stability posed by their digital assistants.

Implicit in proposals to regulate tech companies more like big financial institutions is the logic of systemic importance. Coining the term ‘systemically important technology institution’, Carl Öhman and Nikita Aggarwal explored the implications of failure risks posed by Facebook specifically and called for further research on the SIFI-tech parallel in their article in the Internet Policy Review. Scholars have responded to their call. Caleb Griffin, in his recent article in the Cornell Law Review, proposes a framework that identifies platforms as systemically important based on their addictive and manipulative design. Meanwhile, an article by Kevin Werbach and David Zaring forthcoming in Texas Law Review addresses the risks of failure within the connective tissue of systemically important network institutions.

While we build upon this important research, we offer a different approach to defining the systemic importance of tech. In financial regulation, systemic importance is often focused on the consequences of a firm’s failure or ‘material financial distress’. Fixating on failure and connectivity risks is reasonable for the highly-interconnected financial sector, where one bad apple can spoil the system. Yet even the Dodd-Frank Act allows the designation of a financial institution as systemically important when its on-going activities pose a threat to financial stability. In other words, the US Congress recognized that a stable financial institution could create intolerable systemic risks through externalities and risks inherent in its operations.

We conclude that the systemic importance of digital platforms is a broader inquiry still. With impacts ranging from election interference to mental health, digital platforms generate systemic risks well beyond the financial realm. Moreover, some digital platforms have eclipsed their counterparts in finance in terms of global power. By accruing powers approximate to digital sovereignty, platforms have become geopolitical protagonists in and of themselves. In our view, any framework that identifies platforms as systemically important must reckon with their far-reaching externalities, extraordinary scale, and the distinct nature of the power they wield.


Lindsay Sain Jones is Assistant Professor of Legal Studies at the Terry College of Business at the University of Georgia.

Tim R Samples is Associate Professor of Legal Studies at the Terry College of Business at the University of Georgia.


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