This paper  can be found here. I have already reviewed it in an earlier post. At the time, I focused on the article’s overview of the goals of EU competition law. However, the article also contained a detailed discussion of the impact that the digital economy may have on these goals. I was unable to review this discussion then, so I propose to do it here.

BEUC

Competition policy is one of several instruments used to advance the goals of the European Treaties. According to the European Commission, competition on the market is protected as a means of enhancing consumer welfare and of ensuring an efficient allocation of resources. This notwithstanding, EU competition law has also consistently been held to protect ‘not only the interests of competitors or of consumers, but also the structure of the market and, in so doing, competition as such.’ Moreover, a genuinely indigenous objective is worthy of note, namely that of promoting European market integration. In addition to these core goals, the Treaty-based competition rules – owing to their constitutional nature – must be interpreted in the light of wider EU normative values. EU policies have to be implemented by taking into account, among other things, equality considerations, consumer protection, social protections, public health, environmental concerns, investment, transportation and regional development.

The pluralism of values underpinning EU competition law may affect the scope of competition intervention and what conducts are found to be anticompetitive in Europe. In addition, this pluralism creates inevitable frictions with purely economic approaches, which support a narrower analytical focus for competition law. While broad consensus exists as to the crucial role that economics plays in shaping competition enforcement and intervention, controversy remains as to the extent to which economisation may substitute legal norms and lead to the erosion of non-efficiency objectives. Importantly, the position one takes in this controversy affects the weight one attributes to non-economic values and goals, and the trade-offs between them and economic objectives.

In practice, competition law is an integral part of a polity’s legal, social, and political fabric and cannot be pursued in isolation, as an end in itself, without reference to the legal, economic, political and social context. Indeed, one needs only glance at the global arena to realise that different legal systems advance various goals suited to their respective economic, social and political realities and institutional framework. Such a global perspective also reveals differentiated views as to the roles and values that competition regimes should advance, as well as to the adequate scope of enforcement. Moreover, each jurisdiction determines the basket structure of laws and regulations around which it wishes to articulate its competition policy. Overall, this reality implies that competition law cannot simply be imported and implanted as if it exists in a vacuum. Such implantation disregards institutional design and legal frameworks, and amounts to imposition of values and norms advanced by the exporter.

The paper then considers the core goals of EU competition law and intervention benchmarks. The discussion highlights the multitude and interdependence of goals, as well as their significance in a digitalised economy.

The goals of European Competition law centre on consumer welfare, but are not limited to it. The promotion of consumer well-being and the prevention of consumer harm have long been established by the European courts as prime goals of competition law. The term ‘well-being’ embodies somewhat abstract normative properties, and has at times been substituted by the European courts with the narrower prism of consumer welfare. While the latter hints toward a clear economic benchmark, it does not embody universally agreed properties: different views exist as to its scope, measurement and the means to promote it. Consumers may be harmed by higher price levels, quality limitation or reduction in consumer choice. In an attempt to transform these goals into workable benchmarks, competition authorities have often approximated them through the use of the consumer surplus benchmark.

The consumer welfare benchmark provides a central pillar for intervention in digital markets. However, the digital economy highlights a number of limitations of such a pillar. First, there is a potential discrepancy between the abstract goal of well-being, the concept of consumer welfare, and the narrower economic benchmarks of consumer surplus used to approximate them. Being static in nature, consumer surplus may only partially reflect the original goal of consumer welfare and could ignore the full spectrum of effects in the digital economy. Second, there are limited amounts of practical price-centric tools that are used to approximate the effects on consumer welfare, but these seem to fail more often in the context of the digital economy, leading to distorted pictures as to effects of business practices in this world. Third, the proliferation of multi-sided markets has emphasised how a focus on consumer welfare does not tell us how to deal with practices that affect different groups of consumers differently. Fourth, the focus on this welfare standard on consumers highlights the consideration of wealth distribution as part of EU competition law.

 

A second goal of EU law is to protect the competitive process. The European Courts have long held that competition law ‘is not only aimed at practices which may cause damage to consumers directly, but also at those which are detrimental to them through their impact on an effective competition structure’. The protection of the structure of the market indirectly protects consumers because where competition as such is damaged, disadvantages for consumers are also to be feared. The protection of an ‘effective competition structure’ provides for a wider prism than that reflected by the consumer welfare benchmark. It draws attention to the competitive process as such and has led to the condemnation of conducts that impair genuine undistorted competition. Importantly, this means that a finding of anticompetitive action is not conditioned on direct harm to consumers.

In the context of the digital economy, the wider prism offered by the goal of protecting an ‘effective competition structure’ has significant implications. First, it offers a wider mandate for intervention, detached from identifying direct effect on consumers. Second, it focuses on the effects that online platforms, intermediaries and other economic actors have on the process of competition. Third, the focus on the competitive process draws attention to the potential use of networks, platforms or data pools as possible barriers to entry or expansion and as mechanisms to raise rivals’ costs. Fourth, considering upstream effects could offer a fresh perspective on how bottleneck digital players can influence the viability of input providers through practices that may negatively affect both upstream and downstream markets and, thus, end consumers. Fifth, the focus on the process of competition has a role in supporting undistorted innovation in digital markets. Sixth, with the increased significance of data in shaping markets and influencing their development, data protection becomes a relevant parameter in the assessment of markets and possible distortions of competition.

 

A third goal of EU competition law is the efficient allocation of resources for the benefit of consumers. Although the scope and measurement of efficiency gains may be subject to varying approaches, a consensus exists as to their central role in competitive assessments, particularly as a counterbalance to anticompetitive effects. However, while of central significance in EU competition law, efficiency considerations are entwined with the promotion of consumer welfare and conditioned on consumers benefiting from them. The focus on consumers underscores the distributional ethos of European competition law (discussed further below). The imperative mandating a “fair share for consumers” implies that total efficiency (or total welfare) gives way to consumer welfare and surplus benchmarks.

In the context of the digital economy, the treatment of dynamic efficiencies – that is, innovation –, which characterise many digital markets has been brought to the forefront. Clearly, competition law has a role to play in fostering competition in innovation. The challenge for enforcement in the digital age pertains to the difficulties in apprehending dynamic changes. In the digital world, methodological limitations may undermine one’s capacity clearly to identify the effects of certain behaviours on innovation. Given the nature of dynamic efficiency and the uncertainty surrounding disruptive innovation, whether competition law can provide an effective tool to ensure competition for future markets (innovation for markets) remains unclear. While the unpredictable nature of innovation calls for cautious intervention, the dynamism of digital markets supports the protection of the competitive process (discussed above) as an independent value for the sake of protecting innovation and future efficiencies.

 

A fourth goal of European competition law is fairness, which has been the trigger for intervention in some cases involving exploitative prices imposed on consumers. Another example of the relevance of fairness may be found in the analysis of margin squeeze, where the unfairness of the spread between wholesale and retail prices is at issue. Fairness, in this context, may be viewed as ensuring equal opportunities for as efficient competitors and as protecting consumers. Fairness has also been linked to innovation, as a facilitating norm which ensures a level playing field. In its ‘abstract’ form, fairness is often seen as a guide, rather than a self-sufficient enforcement benchmark. Accordingly, fairness is often entwined with the protection of the competitive process. Fairness does not, however, protect the losers of a legitimate competitive process, but rather ensures this process’ legitimacy.

In the context of the digital economy, fairness could potentially play a number of roles. As an abstract norm, it can provide a guide to relations between companies and consumers, precluding unfair trading practices. It may also serve to support intervention against discriminatory practices by dominant providers, especially when these lead to almost-perfect-price-discrimination (first degree price discrimination); justify intervention when misleading information, data handling, data protection and privacy violations lead to distortions of competition or exploitation;  play a role when asymmetric information and asymmetric analytical capacity distort the relationship between users and providers, and allow the latter to exploit users; and establish fiduciary duties which restrain dominant companies’ ability to make use of data and analytics about biases and preferences, or use data for other exploitative or exclusionary purposes.

 

A fifth goal of European competition law is economic plurality and freedom of choice, which are inherently linked to the quest for an effective competition structure. The significance of economic plurality transcends the market economy and is normatively connected to the broader concern with ensuring a healthy political process, unimpaired by distortions induced by powerful firms. As such, the preservation of economic freedom has been viewed as creating the pre-conditions for democracy by safeguarding against political and regulatory capture. Similar to considerations of fairness, these values do not serve as stand-alone intervention benchmarks, but they nonetheless embody the European ethos.

In the context of the digital economy, the plurality of democratic values and freedoms may support intervention in cases where firms distort markets and information flows, and subsequently negatively affect consumers’ freedom. This include cases of stealth harvesting of consumer data and search engine manipulation.

 

A sixth goal is market integration. This is an independent goal inherent in EU law. Nonetheless, market integration can be seen through the prism of consumer welfare, as parallel trade is liable to exert pressure on prices and the segregation of markets may result in reduced competitive pressure. While the European courts and the Commission have alluded to the economic nature of market integration, the protection of the internal market may naturally affect the threshold for intervention. Market integration draws attention to possible segmentation of the EU-wide market into national monopolies, particularly as regards vertical agreements, licencing, and online sales.

In the context of the digital economy, market integration may, in particular, affect business strategies which limit the use of technology, interchangeability, online access, or freedom of online retailers and, in doing so, create barriers between Member States.

 

Comment:

As I noted in my earlier review, this is a very solid paper. I said there that I particularly enjoyed the breakdown and analysis of the various goals of competition law, while not being fully persuaded by the arguments regarding fairness and related values.

As regards the present review, I broadly agree with the analysis regarding the potential implications that the digital economy will have in the pursuit of these goals. The paper pursues a very valuable analysis of this. Unsurprisingly, however, I am not convinced that all the practices identified should be subject to competition enforcement, or at least that they should be subject to enforcement on the basis of certain normative objectives.

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