Japan’s Interim Study on Digital Platforms and Fundamental Principles for Improvement of Rules Corresponding to the Rise of Digital Platform Businesses (sic) [Updated with correct link]

Japan published late last year an interim study on digital platforms and a number of Fundamental Principles for Improvement of Rules Corresponding to the Rise of Digital Platform Businesses (sic), both available here. The study, which was produced by a working group, is structured as follows. Section I and II review the characteristics of digital platforms and the legal regime to which they are subject. The study begins by outlining the characteristics of online platforms and the various benefits they bring in terms of innovation, ease of market entry and consumer welfare. The study also notes how digital platforms benefit from direct and indirect network effects and from economies of scale. These features can raise switching costs between different platforms, which would tend to facilitate monopolisation or oligopolisation. Further, once a business model based on using and accumulating data is established data, a virtuous cycle may be created, where the competitive advantage of such business is maintained and strengthened through further…

Italy’s Big Data Report

This is a report published by Italian competition authority, together with the telecommunications regulator and the data protection authority, on how to address big data. It is available here. In my analysis below, I will focus on the elements of the report that touch or focus on competition law. I would also emphasise that this is not the first competition authority in Europe to look at data – the joint Franco-German report in 2016 also looked at the intersection between competition and data. The decision to pursue an interdisciplinary study arose from a recognition that the characteristics of the digital economy are very often such that it touches on the competences of the three authorities. The relationship between competition, privacy and pluralism requires a particularly close coordination between different regulators, not only to ensure effective regulatory action but also to identify and reconcile possible trade-offs between the values protected by different regulatory schemes. Furthermore, joint action will allow a better understanding of…

UK Furman Report – Unlocking digital competition, Report of the Digital Competition Expert Panel,

This Report, which can be found here, follows a review ordered by the UK’s Treasury to make recommendations on changes to competition and pro-competition policy to help unlock the opportunities of the digital economy. The report’s recommendations build on a number of propositions, namely that: the digital economy is creating substantial benefits; that a number of digital markets are prone to tipping and being ‘winner-takes-all’; market concentration in these markets both creates benefits and incurs costs; but government policy and regulation have limitations. In the light of this, the report found that the standard tools of competition policy, evaluating whether mergers can proceed and whether antitrust action is warranted to remedy abuses by companies, could play a role in helping to promote competition and the associated better outcomes for consumers and innovation. To do so, competition policy will need to be updated to address the novel challenges posed by the digital economy. Some of these updates can happen within current powers,…

EU group of experts, ‘Competition Policy for the digital era’

This Report, which can be found here, explores how competition policy should evolve to continue to promote pro-consumer innovation in the digital age. It is structured as follows. Chapter 2 describes the digital world and markets. The report focuses on three key characteristics of the digital economy: extreme returns to scale, networks externalities and role of data. Regarding returns to scale, the cost of production of digital services is disproportionate to the number of customers served. While this aspect is not novel as such (bigger factories or retailers are often more efficient than smaller ones), the digital world pushes it to the extreme and this can result in a significant competitive advantage for incumbents. Concerning network externalities, the convenience of using a technology or a service increases with the number of users that adopt it. Consequently, it is not enough for a new entrant to offer better quality and/or a lower price than the incumbent does; it also has to…

German Monopolies Commission ‘Algorithms and Collusion’, Chapter I of the XXII. Biennial Report

The Monopolies Commission is a permanent, independent expert committee which advises the German government and legislature as regards competition policy-making, competition law and regulation. The chapter is already one year old, and can be accessed here. In data-intensive sectors such of the digital economy, pricing algorithms can facilitate collusion by automating collusive behaviour. For example, algorithms can stabilise collusion by allowing the collection of information on competitors’ prices and sanctioning deviations from collusive market outcomes more quickly. The use of pricing algorithms can also render explicit anticompetitive agreements or concerted practices dispensable. As a result, difficulties with determining whether a concerted practice is actually taking place will increase with the use of pricing algorithms. The Monopolies Commission considers that the use of pricing algorithms makes it necessary to strengthen market monitoring through sector inquiries. Since consumer associations are most likely to have indications of collusive overpricing, the Monopolies Commission recommends that consumer associations obtain the right to initiate competition sector…

Emilio Calvano, Giacomo Calzolari, Vincenzo Denicol and Sergio Pastorello ‘Artificial Intelligence, Algorithmic Pricing and Collusion’ Centre for Economic Policy Research, London

Algorithmic pricing is not new, but newer software programs are much more “autonomous” than their precursors. Powered by Artificial Intelligence (AI), pricing algorithms can develop their pricing strategies from scratch, engaging in active experimentation and adapting to the evolving environment. In this learning process, they require little or no external guidance. Taken together with the diffusion and evolution of pricing algorithms, these developments raise various issues for competition policy, particularly as regards tacit collusion. While so far no one has brought an antitrust case against autonomously colluding algorithms, antitrust agencies are discussing the problem seriously. In addition to the OECD, competition authorities in the US, Canada and UK have held roundtable or issued papers on the topic. This paper, available here, tries to understand whether tacit collusion arising from AI should be a real concern by looking, for the first time, at the emergence of collusive strategies among autonomous pricing algorithms. It takes an experimental approach, by constructing AI pricing agents and…

Francisco Beneke and Mark-Oliver Mackenrodt ‘Artificial Intelligence and Collusion’ (2019) International Review of Intellectual Property and Competition Law 50 109

Current technological developments in the field of artificial intelligence (AI) have added further complexity to the discussion of whether, in the absence of overt communications, mere tacit coordination between competitors should be outlawed. Whereas some commentators argue that the dangers posed by AI should tip the balance towards making tacit coordination illegal, there are others who are either not entirely persuaded of the plausibility of such dangers or who point out that a competition rule focusing on mere inter-firm interdependence is not administrable. This paper, available here, reviews this debate with a view to establishing whether successful price coordination achieved by self-learning algorithms should be punishable under EU competition law, and whether the current regulatory framework is suitable. Section 2 explains how AI relates to antitrust. AI is expected to arise from certain types of software algorithms. An algorithm is merely a specified sequence of steps for producing a solution to a problem. Software is a composition of individual algorithms…

European Parliament Report on ‘Competition issues in the Area of Financial Technology (FinTech)’

This Report, which can be found here,  provides an interesting overview of potential competition issues in this sphere, while acknowledging ‘the discussion about the competition problems is still hypothetical‘. Even as I am unable to summarise the (136 pages) Report, it is worthwhile emphasising that the authors believe that the application of competition law to potential anticompetitive behaviours in the FinTech sector faces several challenges, the most relevant being the difficulty in applying existing tools and methodologies to new market phenomena such as: (i) many providers operating in multi-sided markets, with concomitant difficulties in terms of market definition and identifying market power; (ii) the possibility of network effects operating as barriers to entry, together with restrictions on interoperability and the adoption of standards; (iii) the role that access to data can have in restricting competition. As far as it goes, these observations are in line with widespread concerns about digital platforms more generally – and with the recent report on the…

Reuben Binns and Elettra Bietti ‘Acquisitions in the Third-Party Tracking Industry’

This working paper, which can be found here , draws attention to one particularly complicated kind of digital data intensive industry: third party tracking, in which a firm does not (only or primarily) collect and process personal data of its own customers or users, but focuses instead on collecting data of users of other ‘first party’ services. The authors focus on mergers and acquisitions of third-party tracking firms because they raise some unique challenges which are often missed in regulatory decisions and academic discussions of data and market concentration. The paper is structured as follows: Section 1 contains a brief overview of the technical elements of third party tracking and of the business practices associated with it. This description is somewhat long because it provides a good overview of these business practices; you may want to skip it if you are familiar with them. ‘Tracking’ refers to a range of data collection and processing practices which aim to collate the behaviours…

Marco Botta and Klaus Wiedemann ‘EU Competition Law Enforcement vis-à-vis Exploitative Conducts in the Data Economy’ Max Planck Institute for Innovation & Competition Research Paper No. 18-08

This long paper (90 pages), which can be found here, seeks to understand how traditional principles of EU law – particularly those related to exploitative abuses and respective remedies – apply to new business models that mainly rely on processing large amounts of users’ data. The analysis does not extend to the US because, following Trinko, the authors consider that antitrust law there does not extend to exploitative practices, even if the FTC has powers under the Sherman Act to pursue such practices under consumer and unfair practices law. I am afraid the review is rather long, because this paper’s contents are the equivalent of multiple articles. The paper is structured as follows: Section 2 provides an overview of European case law vis-à-vis exploitative abuses. Art. 102 TFEU lists a number of exploitative abuses. Nevertheless, the European Commission has long focused on investigating exclusionary, rather than exploitative abuses. While this has led to limited case law on exploitative abuses, the authors identify…