Competitive Effects of Regulatory Sandboxes as Implicit Subsidies: An Institutional Economics Perspective

This paper employs the New Institutional Economics framework to examine the impact of classic regulatory sandboxes as implicit subsidy mechanisms on market competition. It finds that, even before a market structure has emerged, sandboxes grant specific firms differentiated institutional advantages through selective admission, rule exemptions, reduced transaction costs, and policy signaling. Through path-dependent mechanisms such as data accumulation, capital market signaling, technological lock-in, and regulatory capture, these advantages become institutionalized as an implicit subsidy. Traditional competition law is inadequate to address it. Therefore, this paper proposes an embedded ex ante competition governance framework that shifts competition governance regarding these distortions forward to the rulemaking stage. It introduces four principles: competitive neutrality, proportionality, transparency, and accountability. Based on these principles, it proposes specific governance tools, including Competitive Impact Assessment (CIA), symbolic neutrality obligations, data-sharing protocols, and institutional correction mechanisms. An examination of existing institutions shows that elements of the framework can be accommodated within existing regulatory systems.