This paper is quite long and dense, so I am afraid this review will be both as well.

A series of studies and reports on digital platforms have suggested that antitrust policy requires an overhaul. This view is driven by the belief that, as regards digital markets, the risk of making “Type 2” errors (i.e., under-enforcement) is greater than the risk of making “Type 1” errors (i.e., over-enforcement); and that, in addition to competition enforcement, there may be a role for regulation as well.

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While the authors take the view that the imperative for radical change is less pressing in the European Union than elsewhere, it is nonetheless appropriate to develop a blueprint for intervention against digital platforms both ex post and ex ante. This blueprint is developed as follows:

A first section outlines the principles governing when to intervene in the digital economy.

The Internet has generated significant levels of consumer welfare. Digital markets nevertheless have characteristics which lend themselves to commercial behaviour leading to anti-competitive impacts by firms with market power, on the one hand, or which can result in particular forms of market failure, on the other. The former can be addressed by the application of ex post competition rules, whereas the latter may require the targeted application of ex ante regulation.

The overarching policy objective to be pursued by any future intervention is to support sustainable, effective and dynamic competition in the digital economy. To this end, it is widely understood that policy-makers should protect competition for the market as well as competition in the market. Appropriate measures should be in place to facilitate competition between platforms (inter-platform competition). To the extent that commercial relationships flourish over any individual platform which itself has the characteristics of a market, competition should also be facilitated on individual platforms (intra-platform competition).

Given this, policy-makers should follow a number of principles when intervening in this sphere. One principle is that rules should be both flexible and clear. Another is that policy-makers should avoid erroneous intervention, while acknowledging that there are risks to failing to intervene, Yet another principle is that intervention should draw upon prevailing ex post legal standards, while taking into account the possibility of having to uphold some ex ante normative standards, Finally, intervention should be effective, justified, reasonable and proportionate. This may justify the adoption of more experimental remedies, while respecting legal certainty.

Section II reviews relevant precedents in EU competition law and regulation for intervention in digital markets.

While international studies identify a number of shortcomings by traditional competition policy in the digital sphere, the EU legal tradition contains a number of doctrines which can be harnessed to better understand the competitive implications of digital platforms and Internet ecosystems. There are also a number of other concepts used in the context of antitrust proceedings which the authors feel can play an important role in the potential development of targeted policies that can complement or supplement competition enforcement. These include:

  • Special responsibility: this European doctrine holds that firms with market power are obliged to be mindful of the anti-competitive effects of their unilateral commercial practices, given that such effects are unlikely to arise from comparable actions taken by firms without market power. Whereas the traditional doctrine has been focused on the foreclosure of rivals, the doctrine could also extend to the exploitation of relationships by platforms with direct customers and end consumers. However, they would restrain the application of this doctrine to situations where the exploitative abuse on one side of a digital platform (i.e. an action directed at the expense of consumers) can support or sustain a foreclosure abuse on another side of that platform (i.e., an action directed against competitors). The application of the doctrine would thus facilitate reliance on theories of harm which involve practices such as discrimination, self-preferencing, adversely affecting consumer choice, and the abuse of procedures, all of which reflect a link between the various sides of the market intermediated by a digital platform.

At the same time, in the context of a digital platform this special responsibility might involve requiring dominant platforms to adopt positive steps to be taken in order to avoid a market failure. However, such requirements have more in common with regulatory intervention rather than intervention under competition rules. Many such requirements are already addressed in legislation which establishes standards in terms of transparency vis a vis customers with insufficient bargaining power and in terms of discriminatory behaviour. If one is to use such legislative yardsticks for competition enforcement, it is reasonable and proportionate that any intervention should be limited to the pursuit of the principle of efficiency, rather than the pursuit of wider distributional welfare goals.

  • Bottlenecks: a bottleneck is a point of congestion which has the potential to lead to objective inefficiencies. For historical reasons, bottlenecks have often been treated in EU regulatory policy as the equivalent of an “essential facility”, which has provided the analytical basis for the regulation of access to electronic communications networks. The bottleneck concept has, on balance, more in common with the regulatory tradition, and it should not be used freely in competition enforcement.
  • Digital gatekeepers: loosely, a gatekeeper is an economic agent that can control access by a group of users to some goods or to another group of users. In the context of digital platforms, the concept is associated with the gatekeeper having a privileged relationship with a customer which is critical in directing the customer’s access to services or apps. The larger the network effects generated by a gatekeeper, the more difficult it is for consumers to avoid dealing with it. However, gatekeeping need not be directly related to market power, nor can it be equated with it amounting to an essential facility. Thus, the ‘digital gatekeeper’ concept is unable to constitute a self-standing legal test of dominance. As such, it is arguably a concept that is best utilised in a regulatory context as the basis for potential targeted obligations.
  • Unavoidable trading partner: by being an unavoidable trading partner, an undertaking is able to behave independently of customers, a characteristic of market power. Such a company might be capable of exercising market power even in fragmented markets if there are multiple sides to the market in which the platform operates, at least to the extent that groups of customers feel they have little option other than to deal with particular providers. However, where a firm is an unavoidable trading partner but is nevertheless not ‘dominant’, it may be more appropriate to utilise the concept of an unavoidable trading partner in tandem with the concept of a ‘digital gatekeeper’ as the basis of a future regulatory standard of intervention.
  • Economic dependency: The overriding principle behind the application of the doctrine is the view that the dependent customer or competitor has insufficient and unacceptable means of switching to other providers. The doctrine can be easily associated with the concept of special responsibility but, since it may apply without recourse to a finding of dominance, the doctrine may be more appropriate as a policy option to address market failure rather than market abuse, and thereby as providing the basis for adopting regulatory measures rather than pursuing competition enforcement.

Section II also discusses theories of harm that may be useful in the digital sphere.

This looks at the Commission’s practice in applying competition law to digital platforms and Internet ecosystems. The section discusses the various Google cases, where the Commission applied (and adapted) traditional EU competition law doctrines. This included the application of non-discrimination as regards self-preferencing practices (Google Search); the application of traditional leveraging theories to sanction restrictive obligations imposed on device manufacturers (Android); and quasi-exclusive relationships with publishers designed to dis-intermediate Google’s search advertising rivals (AdSense). In other words, it would appear that traditional competition law doctrines have been sufficiently robust to allow the Commission to sustain its investigations. It is true that the abusive practice of self-preferencing in Google Search has been more controversial, but it finds support in case-law on margin squeeze in the telecommunications sector and under Article 106 (1)TFEU relating to potential leveraging and conflicts of interest arising from special or exclusive rights.

The authors also consider other theories of harm, such as those adopted against Facebook in Germany, and in some post-Google investigations in Europe (e.g. into Amazon’s and Apple’s self-preferencing practices). The final resolution of these investigation should clarify the extent to which traditional competition rules require any re-tooling to be able to address the particular types of competitive concerns raised in digital markets. However, any reluctance on the part of the European Courts to endorse the Commission’s antitrust enforcement policy may be met with recourse to ex ante regulation by European legislators.

Section II further discusses the possible need for complementary regulation.

Competition rules are less effective in addressing the sorts of problems that might arise where competition is for the market. In such circumstances, markets may have already “tipped” before effective intervention is possible, or perceived ills may flow more from market failure rather than abusive strategic market behaviour. In such circumstances, ex ante regulation may be preferable to competition enforcement.

In effect, and in parallel with competition rules, several complementary regulatory tools already apply in the digital sector and beyond. These legislative forays into market dynamics have been driven by the acknowledgement that traditional competition tools are compromised when dealing with various instances of market failure brought about by a combination of shifting market boundaries, indirect network effects, customer acquiescence and information asymmetries with their digital providers, and varying levels of dependency on key players which undermine effective countervailing bargaining power.

The electronic communications’ sector provides a series of relevant examples of both symmetric and asymmetric regulatory models for intervention. In the electronic communications sector, a range of asymmetric obligations apply to those undertakings in relation to which national regulators have determined, following a market analysis exercise, that they enjoy Significant Market Power (“SMP”). Asymmetric obligations are imposed on undertakings with market power, with regulation being as much driven by the need to ensure connectivity and interoperability because of the structural nature of electronic communications networks as by the desire to regulate essential facilities. In addition, there are also symmetric rules aimed at all undertakings, with the goal of resolving the competitive concerns that arise from various types of dependency relationships or of ensuring interoperability. Furthermore, the authorities might also involve the regulated firms in the design of the remedies – something which has already occurred under competition law. Examples of this include FRAND licensing negotiations, which can be said to be analogous to interoperability negotiations in the context of codes of conduct; and voluntary commitments, which have been introduced into the regulation of electronic communications under a procedure inspired by competition law.

After this extensive scene setting, section 3 discusses the need to adapt EU competition law enforcement.

Digital platforms raise particularly complex issues regarding the essential analytical building blocks of any antitrust analysis – namely, market definition and the assessment of market dominance. These complexities inevitably mean that the assessment of competitive harm is a much more arduous exercise than in relation to markets with more common patterns of supply and demand.

This has led to many proposals to make enforcement more effective. One such proposal is to focus more on market power instead of market definition. Digital platforms’ market power is the result of the intimate connection between different markets or sub-markets within (and without) a platform. For the determination of market power, competition authorities should therefore take into account the different conglomerate relationships in the market, as well as take a more dynamic approach by focusing on potential competition and on the control of the key innovation capabilities (such as essential data, computing power and related skills or risky and patient capital). Such an approach can build on earlier administrative practice of the European Commission when assessing mergers with conglomerate effects or business conduct Article 106 TFEU (concerning markets where an incumbent benefits from special or exclusive rights).

Another question concerns whether procedural rules are too strict for effective enforcement to occur. Proposals for sweeping changes to the onus of proof for abusive practices are very difficult to reconcile with sixty years of jurisprudence of the European Courts and with the presumption of innocence which prevails under human rights legislation. However, one can nevertheless draw a distinction between the “ultimate burden” of proof in establishing the anti-competitive effects of a practice – which should remain – and the “evidentiary” burden on a defendant to provide sufficient evidence in relation to any issues which a party may believe to be material in the determination of the ultimate factual issue under investigation – which can be reformed.

When seeking to prove cases in the digital sphere within the existing procedural framework, the dynamics of digital platforms are consistent with the exploration of theories of harm whose roots lie in the theory of conglomerate effects. The principal antitrust concern in conglomerate markets is that an undertaking will be able to foreclose competitors through the leveraging of its market power from one market (“the leveraging market”) into another market (“the leveraged market”). This inevitably involves an analysis of the connections between two markets, a determination of whether a sufficient degree of market power exists in one of these markets, and the likely negative effects on consumers brought about by the resulting foreclosure of competitors. Conglomerate effects theory, especially given its potential to rationalise tying and bundling practices pursued by firms with market power, provides a fertile base upon which to build compelling theories of harm in a digital platform context. Such theories have the added advantage of being able to address concerns about the stifling of potential competition.

As a matter of prioritisation, competition authorities should focus on the most problematic practices in the digital economy, i.e. bundling and envelopment strategies within a specific digital platform or eco-system, refusal to grant access (including interoperability) to key inputs and innovation capabilities, discrimination and self-preferencing, and persistent violations of normative regulatory principles. To the extent that the goal of policymakers is to ensure contestability between digital platform or ecosystem alternatives, however, intervention might need to take the form of ex ante regulation.

Section 4 investigates the conditions for regulatory intervention against digital platforms.

Regulatory intervention in the EU should be a natural extension of existing policy orientation – as reflected in instruments such as the rules on electronic communications, the Open Internet Regulation, the P2B Regulation and the PSD2 Directive. A digital platform-specific version of the “three criteria test” currently used in the electronic communications context might be relied upon to justify interventions that seek to ensure the existence of a level playing field which promotes market contestability. This test lists a cumulative set of criteria that should be met before regulation is issued. First, policy-makers should intervene only if there is a non-contestable concentrated market structure. Second, the digital platform must have the commercial and structural characteristics of a digital gatekeeper which is an unavoidable trading partner. Third, the problem cannot be effectively addressed under ex post competition rules within a reasonable time. If this last condition is not met, competition enforcement should be preferred.

Section 5 focuses on remedies.

Crafting remedies in this sphere is not straightforward, but policy-makers already have a number of options to choose from.

  • The first is to break up a platform; however, the authors’ view is that the interaction of ex post and ex ante disciplines in EU law allows for enforcement flexibility without the need for recourse to such extreme structural measures.
  • A second possibility is the mandated sharing of essential innovation capabilities (such as data) among competitors, in order to promote interoperability and promote innovation. Such intervention would need to strike the appropriate balance between interoperability to avoid consumer lock-in and sufficient flexibility such that platforms could continue to compete on the basis of differentiation and innovation. In principle, the development of interoperability standards should be left to industry participants, with some form of independent oversight, and licensing should occur on FRAND terms unless the bottleneck is so severe that some form of regulated price (e.g. LAIRC) is called for. The existing data privacy framework complicates access to data, but to the extent that data amounts to a critical input it should be subject to the same principles. Given the difficulties that such a solution may entail, an ex ante regulatory approach may be more pragmatic.
  • A third remedy would prohibit discrimination and self-preferencing, which could benefit from past experience in the telecommunications’ sector. Discrimination would need to be assessed both by reference to quantitative (price) and qualitative (terms and conditions, display formats, etc.) criteria.
  • A last type of remedy would seek to facilitate consumer switching and the prohibition of exclusivity. This would prevent digital platforms on Internet ecosystems from exerting pressure on business customers to deal with them exclusively, or from generating inappropriate economic incentives which dissuade customers from switching between digital platforms or Internet ecosystems.

Given the novelty of many issues, combined with the important information asymmetries which prevail between enforcers and digital firms, the effectiveness of public intervention may require involving the regulated firm in the design of remedies. This underlies the recommendation in several EU legal instruments relating to digital platforms for the adoption of Codes of Conduct. Departures from such a Code of Conduct could, in turn, be treated in a similar fashion to a dominant firm’s departure from the terms of its agreement in the SEP context.

Finally, section 6 focuses on how these proposals may be implemented in practice.

As regards competition enforcement, no fundamental changes are required to the standard or burden of proof borne by the Commission, nor to the standard of judicial review. At the same time, the scope of the doctrine of “special responsibility” across multiple sides of a market, the importance attached to a platform or ecosystem being an ‘unavoidable trading partner’, and the application of conglomerate effects theory are all important matters that require further clarification through Communications, Notices or Guidelines. The modernisation of a number of existing instruments may be desirable to this end. From an ex ante perspective, the adoption of market studies on the UK and Australian model could also be beneficial, e.g. by amending Regulation 1/2003 to extend the powers of DG Competition to conduct market investigations.

Given that any ex ante legislation will ultimately be drafted from a competition law perspective and designed to complement existing competition principles, the recent extension of the Competition Commissioner’s powers to cover such developments seems to be proportionate and likely to yield positive results. An alternative approach would be to entrust a separate (or an existing) Regulatory Authority to develop and apply complementary ex ante regulation. Such an authority could be akin to the Single Supervisory Mechanism, or, instead, follow the internal market procedures for electronic communications.

Comment:

This is an extremely ambitious paper – the footnotes and annexes alone take 20 pages. Its ultimate argument seems to be that, despite the proliferation of reforms suggested in a variety of studies, European competition law already possesses the vast majority of tools it needs to address digital markets – particularly if this is coupled with an understanding of when ex ante regulatory intervention is appropriate. As someone who has been beating the drum for the need to take both a regulatory and competition enforcement approach to these matters, I can only agree and congratulate the authors for publishing such a comprehensive study of how both dimensions may interact.

I think that the discussion of EU regulatory precedents is particularly useful, as a lot of the discussion in academic and policy-making circles seems to borrow from them without really understanding how they are applied in practice. These discussions also typically fail to acknowledge that a number of these doctrines are not instances of competition law, but of market regulation more widely. In short, I think that the discussion of potential changes to competition enforcement in the paper is quite thoughtful, and that the focus on conglomerate theories of harm is something which not only makes perfect sense but has also been ignored in debates thus far.

Despite its length – or because of how comprehensive the paper is – there are some topics which could benefit from a bit more work. I have some reservation concerning the list of intervention principles in the first section of the paper: since most principles require balancing between different goals, I am not sure they provide much guidance. As such, I did not get the sense that this section added much to the rest of the paper. From a substantive standpoint, I was struck by how much the authors sought to keep competition enforcement within its traditional sphere, but also by how flexibly they relied on the ‘special responsibility’ concept. This is important because, without limiting principles, this concept can easily be extended to justify many forms of regulatory-type ex post intervention. As such, I would have liked to see a bit more on the limits of this doctrine. A related point concerns the extent to which doctrines deployed under Art. 106(1) TFEU – which concerns instances where companies exploit market power granted to them by the State – can be freely deployed under the aegis of Article 102 TFEU to digital platforms that acquired such power through competition. This objection is bound to be raised in this area, so it might be useful to address it in this paper.

Another concern I had while reading this paper was that it mentioned difficulties to implement reforms as regards competition enforcement, but not as regards the adoption of regulatory instruments. The authors develop their argument as if adopting regulation is not affected by legislative procedures and political pressures, while competition enforcement is strictly constrained by the existing regulatory and judicial framework. However, this is not so, and without comparing the institutional constraints of following each path it becomes impossible to make the educated institutional analysis which must precede the ultimate choice of what regulatory option to pursue.

Lastly, it is a pity that the analysis is so focused in the EU, but I acknowledge that it may be difficult to do otherwise given the different substantive scopes of competition policy and regulation around the world – in effect, this is something the OECD would be well placed to do.

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