In 2020, the European Commission embarked on a major reflection and consultation exercise aimed at adapting EU economic law to contemporary challenges, in particular to the competition issues raised by the deployment of digital technologies. One option that was considered was the adoption of a New Competition Tool to deal with structural competition problems which could not be addressed adequately by existing instruments. Two main models were considered: a wide version, applicable to all sectors of the economy, similar to market studies; and a narrow version applicable to the digital sector (or platforms) only. In December 2020, the Commission opted for the narrow version in its proposal for a Digital Markets Act (DMA), a sector-specific instrument applicable to “gatekeepers” of “core platform services”, which includes three types of what is termed “market investigation”.

This chapter analyses how to integrate both types of market studies/investigations within EU economic law.

Section II deals with the characteristics of competition law and sectoral regulation in the EU.

In addition to competition law, EU economic regulation includes a number of more specific regulatory regimes, usually dealing with individual economic sectors. Specific regulation tends to be formulated in more detailed provisions than competition law. Accordingly, implementation and enforcement are often more focused on narrow issues. In comparison to competition law, the remedial arsenal of specific regulatory regimes tends not to rely on fines, but rather on the imposition of (mostly) behavioural obligations on wholesale or retail markets.

At the institutional level, the Commission can directly enforce EU competition law, a task in which it is assisted (and complemented) by national competition authorities. EU economic regulation is usually enforced by Member States. Most regimes require Member States to set up a dedicated National Regulatory Authority (NRA) for implementation and enforcement. Given the importance of applying economic regulation effectively and in a non-discriminatory manner across the internal market, EU law generally sets institutional requirements for those NRAs. In order to guarantee the consistent application of EU law and some measure of coordination between NRAs, EU sectoral regulation regimes often establish an EU-level forum for NRAs, in the form of a network, an agency or other. In general, the Commission plays a very active role in those network. Exceptionally, EU economic regulation can be enforced directly by EU-level agencies or bodies – e.g. financial supervision of systemic banks.

Section II also looks at market investigations in the EU.

Recently, the European Commission envisaged proposing a new market investigation tool – named “New Competition Tool” – to address certain structural competition problems. To tackle those structural competition problems and the related market features, the inception impact assessment of the Commission envisaged four different options depending on: (i) the scope of the market investigation: (a) a wide scope applicable horizontally to all sectors of the economy (as it is the case for standard competition rules) or (b) a narrow scope limited to certain sectors, in particular the digital or digitally-enabled markets; (ii) the threshold for intervention: (a) a low threshold applicable to all cases of structural competition problems (and potentially to all firms in those markets) or (b) a high threshold limited to dominant firms as it is the case under Article 102 TFEU (but without having to prove abuse).

On the basis of the results of the public consultation and its own internal thinking, the Commission decided in the end to propose an instrument – the Digital Markets Acts (DMA) – with a narrow scope, limited to digital gatekeepers. The DMA features three types of market investigation that relate to these concepts: (i) The first type of market investigation allows the Commission to designate as gatekeeper a provider of core platform services, on the basis of a series of quantitative and qualitative indicators set out in the DMA. (ii) The second type of market investigation allows the Commission to impose behavioural and, if necessary, structural remedies when a designated gatekeeper systematically refuses to comply with the obligations and prohibitions imposed by the DMA. (iii) The third type of market investigation allows the Commission to extend the scope of application (i.e. add new core platform services to the list) and add to the list of obligations contained in the DMA. Regarding the scope, the Commission could propose to the EU legislative bodies a revision of the DMA to include new digital services and business models in the regulation. As for the obligations, the Commission could, with a delegated act (and thus without going back to the EU legislature), enlarge the list of obligations incumbent upon the designated gatekeepers

Section III reviews the relationship between competition law and sectoral regulation at various levels.

A market investigation tool will therefore be introduced into a well-populated landscape of legal regimes of economic governance in the EU – which includes bothy sector-specific regulation and demand-side regulation dealing with consumer protection or data protection (in particular the GDPR). The introduction of such a tool requires thoughtful consideration of how all these regimes interact.  In the EU, competition law and sectoral regulation are complements which pursue similar objectives through different means. Over the years, it has become customary to refer to competition law as a general, across-the-board component of that body of economic regulation, next to which a number of specific regulatory regimes are concerned with specific sectors or issues. Specific regulation contributes to achieving the overall objectives of EU economic regulation by dealing with questions that either lie outside the purview of general competition law because competition law was not conceived to deal with them, or are recurrent systemic issues for which competition law is not the most effective instrument. Overlaps between competition law and specific regulation are therefore unavoidable.

If the various regimes of EU economic regulation are complements within a larger body of law, with some overlap between them, their respective substantive rules should be compatible. The starting point is that all of these regimes share a common theoretical basis and methodology. This methodology focuses on the pursuit of the public interest broadly considered, and incorporates the use of economic analysis, in the development of regulation and, to the extent necessary, in its implementation and enforcement as well. In principle, the substance of a new EU market investigation tool, as a general regime of economic regulation, should fit within this common theoretical basis and methodology.

At the institutional level, the picture is complex, and multi-level. To address this, EU law typically provides for means of horizontal and vertical coordination between the relevant authorities concerned with each EU economic regime. While no comparable mechanisms exist as between two different regimes in EU economic law at the moment, two features of existing mechanisms could be useful in the design of what would be a more limited transversal coordination regime involving a new EU market investigation tool. Firstly, the duty to consult is designed to be as effective as possible. Secondly, regulators are required to take ‘utmost account’ of the objectives and principles underlying each regime. Coordination mechanisms based on national experiences in coordinating various regulators – such as Italy and the UK – could also be useful.

Section IV deals with how market studies should interplay with sectoral regulation.

The application of a new market investigation tool in a regulated sector – electronic communications, energy, transport, financial services, etc. – may be justified and useful to remedy a structural competition problem that either does not trigger regulatory intervention or for which available regulatory remedies would offer no effective solution. In this case, the market investigation could close a “regulatory gap”. It has also been suggested that the market investigation could be useful to intervene in situations where a structural competition problem could be addressed by sector-specific regulation but has not been remedied because of failure on the part of the NRA in charge of such regulation. However, there may be other, preferable means to address such failings – such as infringement proceedings at EU level, or those contained in coordination mechanisms.

To fit into the broader landscape of EU economic law, market investigation should rest on solid economic analysis, as do the other regulatory regimes. This does not mean fitting market investigations into a ‘competition law’ straightjacket. What is truly important for the market investigation tool to fit within the broader landscape of EU economic law is a clear commitment to the theoretical and methodological foundations of such law. Instead of insisting on the analytical structure of competition law, it is preferable to invest time and resources to ensure that the rationale for a market investigation is well developed, and that the provisions of the market investigation legislation properly render or translate the underlying economics.

At the institutional level, and since market investigation is closely linked with EU competition law, its institutional structure would be best embedded within that of competition law. In concrete terms, this would mean that a round of consultation within the ECN would be undertaken every time the Commission (or an NCA) proposes to launch a market investigation. Further, since the authorities in charge of sector-specific regulation are often national, transversal cooperation between the Commission and the NRAs is needed at every stage of the application of a market investigation in a regulated sector. At the remedial stage, if a structural competition problem has been identified in a regulated sector, then the Commission should design the remedies in close cooperation with the relevant NRAs. This is all the more justified since, in designing the remedies, the Commission would be well advised to take into account the different objectives the NRAs might be pursuing.

Section V deals with the interplay of sectoral regulation involving market investigations in the DMA with competition law.

The proposed DMA is a new EU sector-specific regulation applicable to the providers of a pre-defined list of eight “core platform services”. The DMA aims to cover competition law “gaps” and intervenes when competition law cannot act or can only act in an ineffective manner in achieving market contestability and B2B fairness in the digital economy. Hence, as for any other EU sector-specific regulation, the DMA will complement – and not substitute for – competition law. The DMA proposal foresees three different types of market investigation: the first to designate digital gatekeepers on the basis on quantitative and qualitative economic indicators, the second to sanction gatekeepers that systematically violate the obligations and prohibitions to which they are subject by virtue of the DMA, and the third to expand the scope or the obligations of the DMA.

As with market investigations more widely considered, the design and the implementation of the narrow version of market investigation should also be based on sound economic analysis without being put in the straitjacket of competition law methodologies. For example, regarding the addition of new obligations or prohibitions, the DMA proposal sets out two normative standards to guide the market investigation: (i) ensuring contestability of digital markets; or (ii) ensuring fairness in the B2B relationship between the gatekeepers and their business users. Given the openness of such standards, it is crucial that they are applied and interpreted on the basis of sound economic analysis. This will probably be easier for the contestability standard, than for the vague fairness standard, which includes distributional considerations (i.e., the distribution of the pie) that are always more controversial.

As the DMA will apply next to competition law, it is important that the authorities in charge of both legal instruments coordinate amongst themselves. The DMA will be enforced by the Commission while competition law is enforced by the Commission and the NCAs. However, while the DMA Proposal prohibits Member States from imposing further obligations on designated gatekeepers for the purpose of ensuring contestable and fair markets, it does not prevent Member States from imposing obligations on the basis of EU or national competition rules. In order to avoid such pitfalls, the DMA Proposal provides for two coordination mechanisms between the Commission and national authorities. Firstly, the DMA establishes a Digital Markets Advisory Committee (DMAC) which could issue non-binding opinions on Commission draft decisions under the first and the second types of market investigation. Secondly, the DMA requires prior consultation with Member State experts for the third type of market investigation. In addition, the authors suggest that it would probably be better to establish a new permanent forum where the Commission and the NCAs (possibly with other independent national authorities) could meet to discuss the enforcement of the DMA.

Section VI summarises the main recommendations.

At the systemic level, the different components of EU economic law (competition law and sectoral regulatory regimes) often overlap. They stand in a complementary relationship to each other. They all are meant to pursue the overall objectives of the Treaties but with different means, each of them focusing on its particular strengths. At the substantive level, competition law and sectoral regulation share a common theoretical basis and typically follow a public interest approach. They also share a common methodology, based on economic analysis and the application of the principles of subsidiarity and proportionality. At the institutional level, both competition law and sectoral regulatory regimes are implemented and enforced by a complex set of EU and national institutions. Therefore, a new market investigation tool could easily be integrated in the existing body of EU economic law.

Comment:

This is a very interesting and thoughtful paper – but I expected nothing else from the authors. The discussion of the interaction between competition law and sector regulation is top-notch, and the analysis of the interaction of these policy instruments in the EU is comprehensive and illuminating. Further, the paper is based on an expert study on the interplay between the New Competition Tool and Sector-Specific Regulation in the EU which was prepared in September 2020 for the Directorate-General Competition of the European Commission (see here).

I have some reservations concerning the feasibility of a ‘market study’ instrument at EU level which are foundational, and which I believe the authors have addressed in different contexts.  In particular, I am not sure a wide ‘market study’ tool at EU level is democratically sustainable. I may be wrong, but I thought one of the reasons the New Competition Tool was dropped was because the Member States understood that this might empower the Commission to restructure whole economic sectors outside the scope of the traditional (democratic) political process. Such concerns are already commonly voiced in the UK, and in the EU they would be much more serious. Of course the market study could merely lead to recommendations, but then it would beg the question of how different it would be to existing sector inquiry mechanisms.

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