‘Scaling Laws’ and Interoperability as the Backbone of the Digital Economy

Nicholas Economides (), Ioannis Lianos () and Christos Makridis ()
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Nicholas Economides: Stern School of Business, New York University, New York, NY, USA
Ioannis Lianos: Faculty of Laws, University College London, London, United Kingdom
Christos Makridis: Arizona State University

No 25-11, Working Papers from NET Institute

Abstract: We examine when interoperability should serve as a structural response to market concentration produced by scaling laws, network effects, and data driven complementarities and capabilities in the digital economy. Digital infrastructures such as operating systems, cloud platforms, payments, and AI systems exhibit superlinear returns to scale that interact with multi-sided feedback loops to generate dominant positions and persistent bottlenecks. However, interoperability can also dilute beneficial complementarities, create security and privacy risks, and in some cases weaken incentives to invest. The paper makes two contributions. First, we develop a conceptual framework that treats digital ecosystems as lattices of complementarities linking users, developers, data, and infrastructure. Scaling laws are empirical signatures of supermodular relationships. Interoperability becomes a lattice restructuring tool that selectively weakens complementarities that entrench market (economic) power while preserving those that support quality, safety, and innovation. Second, we pair this economic account with a comparative analysis of legal and institutional approaches to interoperability. Examples include telecom interconnection, the Microsoft antitrust cases, the EU Digital Markets Act and Data Act, digital health regulation in the EU and the US, and emerging sector specific regimes in blockchain and AI. This comparison clarifies how horizontal and vertical interoperability obligations distribute network (complex systems) complementarities across layers and how ex ante and ex post tools differ in their ability to reshape digital ecosystems. We also argue that interoperability has emerged in the EU as a broader legal principle enshrined across multiple areas of law, including competition law and digital regulation. In sum, we provide a unified view of interoperability as a family of interventions that determine which complementarities are internalized by a single platform and which are shared across rivals and customers. Effective policy requires aligning the locus of interoperability with the structure of complementarities and the risks of fragmentation.

Pages: 111 pages
Date: 2025-12
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