How Can Digital Platforms Resolve Market Failures to Foster a Circular Economy?

Abstract

Market failures—such as asymmetric information, incomplete markets, externalities, and market power—present major barriers to a circular economy (CE) transition. Although government intervention is traditionally proposed, this paper examines the potential of digital platforms, particularly software-as-a-service (SaaS) business-to-business (B2B) models, to address such failures. Drawing on semistructured interviews with platform users, owners, and policy experts across Europe, this study develops and validates a conceptual framework that explains how platforms may resolve, moderate, or generate market failures. The findings show that SaaS platforms can improve transparency, reduce transaction costs, and help internalize externalities but may also introduce new risks, including data asymmetries, user lock-in, and market concentration. The analysis examines how platform ownership and design features influence strategic interactions among ecosystem actors and affect platform outcomes in CE contexts. This paper contributes to CE and platform governance theory and offers practical insights for EU policy and practice on enabling circular ecosystems.