This paper, which can be found here, seeks to portray the challenges that might arise regarding unilateral practices as a result of the deployment of blockchains.
It is structured in three parts:
The first section details how unilateral practices can be implemented on blockchain and draws a risk map.
It begins by describing how the blockchain works. This was already described in my reviews above, but it is worth pointing out that the author places some weight on the existence of two main forms of blockchain: public blockchains, also called permissionless or open blockchain, and private blockchains, also called permissioned blockchains. The main difference is that in the latter the permission to access the contents of the blockchain may be restricted to certain participants only. In practice, semi-private and private blockchains can have a multitude of access levels.
The paper then turns onto conditions for the enforcement of competition law against unilateral practices. It begins by noting that there are a number of difficulties regarding the identification of the subject of enforcement. First, because decentralised organizations are not recognised as legal entities, a first question that arises is whether a nonentity (i.e. an entity other than a firm) can hold a dominant position. A number of alternatives are possible. One can assume that the creator(s) of the blockchain should be held (jointly) liable for the practice. Alternatively, users of the blockchain could be held liable for the practices committed on it. Another possibility is to fine the blockchain organization itself.
A second difficulty concerns with the identification of dominance. A first option would be to find that a blockchain constitutes its own market, and is dominant in it. A second option would be to evaluate the power of blockchains based on the number of users, revenues, number of recorded transactions, number of blocks, or even the market power of members of the platform or their governance model. Yet another option, which is favoured by the author, is to evaluate market power on the basis if the type of applications that run on the blockchain, which would allow one to identify blockchains with similar characteristics and may, as a result, be competitors.
As regards the identification of unlawful unilateral practices, the author seems to consider that most of the types of abuse that we are currently familiar with may be implemented in private (but not public) blockchains. The author describes a number of typical leveraging abuses whereby the owner of a blockchain may seek to use its market power to favour its own products that run in the blockchain. These may include refusals to deal with competitors of the owner of the blockchain; tying / bundling of, say, accounts in other platforms in order for a user to obtain access to a blockchain or to get tokens; “predatory innovation”, i.e. “the alteration of one or more technical elements of a product to limit or eliminate competition’; predatory pricing or margin squeeze, in particular as regards transaction fees; or exclusive dealing and loyalty rebates (e.g. as regards the obligation and fees to a register transaction in the blockchain).
The second section focuses on the practical challenges that blockchains pose to enforcers.
Blockchain is a technology that ensures the anonymity of its users. These anonymous nodes create obstacles in terms of enforcement. The blockchain creates a technical fortress and the practices that are carried out inside the blockchain – or via the blockchain – are very well protected. The solution to this challenge proposed by the author is regulatory infiltration – i.e. to have blockchain designed in compliance with a regulatory framework.
In order to minimise the impact of regulation on business practices, the author suggests that regulatory authorities should be allowed to access blockchains when necessary. At the same time, he calls for regulatory humility. While – for technical reasons – upstream regulation will be necessary at some point for the law to catch up with the technology, intervention should respect the foundational principles of blockchains. The answer might be to promote rules of good conduct e.g. regarding revealing the identity of users when a violation of competition law is committed.
A different challenge concerns the effectiveness of sanctions and remedies. Because there are no “choke points” on blockchain, enforcers may be unable to prevent anticompetitive conducts from taking place in the blockchain. Similarly, the blockchain creates issues related to interim measures due to the fact that injunctions against a decentralised autonomous organization are nearly impossible to enforce.
The last section questions the legitimacy of competition law in the face of this technology – what the author calls the “blockchain antitrust paradox” – and the need to decentralise competition authorities in response to this challenge.
Because we do not know how blockchain will evolve and which type of governance will emerge, it is still difficult to evaluate the scope of anticompetitive practices that might take place in the blockchain. Nonetheless, the author considers that the blockchain may be the death of antitrust for three reasons: (i) because competition law will become ineffective without regulatory infiltration; (ii) because public blockchains will greatly limit the number of abuses of a dominant position that can be committed on them; (iii) because of a conflict between the underlying ethos of the blockchain and of competition law. In particular, competition law requires centralised entities against which to act, while the philosophy of the blockchain attacks the very foundations of such centralisation. As a result, competition law may have to be de-centralised as well to remain legitimate.
I think this paper provides a valuable overview of the challenges that blockchains pose for competition law. However, I do not really share my friend Thibault’s conclusions – as noted above, I am somewhat sceptical about the impact of the blockchain in the short term, so I have serious doubts that the impact will be as dramatic as the author fears. From this scepticism flow a number of concerns.
While I think we may need to think about how to frame blockchains within the current antitrust framework, the fact that an economic activity is pursued in the blockchain should not prevent one from identifying undertakings that are a target for enforcement; this will ultimately depend on the investigated conduct. The same goes for market power: I do not see why this assessment does not depend on the relevant market in which the blockchain participates / activity in the blockchain takes place. Such assessments will ultimately depend on how the blockchain is used, and what the alternatives are for users, in line with traditional antitrust methods. While it may be true that blockchains can pose practical problems, this is true of any new technology – and thus far, the issue seems not to have arisen.
It follows that I would be surprised if the diffusion of blockchains would lead to the death of antitrust. Maybe it is true that blockchains will reduce the possibilities of collusive or abusive behaviour because of their transparency. This is good news, and it does not mean the end of antitrust. In effect, and as with algorithms and a number of digital markets, there are areas where increased transparency can easily lead to increased collusion (e.g. bid rigging), and I would not be surprised if it also led to new abusive practices. This intuition seems to align well with the fact that the abuses that the author identifies are similar to those that we already punish – and I must commend this part of the paper, as it provides a comprehensive overview of the perceived likelihood of certain abusive practices taking place in public and private blockchains.
I do agree, however, that the blockchain may pose significant challenges to enforcers, in particular due to difficulties in identifying culprits and imposing measures. However, this challenge is not specific to antitrust; on the contrary, it is a generalised regulatory challenge that concerns how to regulate blockchains and activity taking place therein. The same goes to the author’s concern that competition law is in contradiction with the ethos of the blockchain. As far as I can tell, the argument boils down to the de-centralised ethos of the blockchain challenging the current structures of all public authorities and States as we know them. I think this requires this blockchain ethos to become so prevalent that the way we organise ourselves politically will change completely. Maybe this will happen – but if it does, competition law will be the least of our concerns.
Since I circulated the email I have become aware that an updated version – the one that will be published – should be available shortly. I will try to provide a link when this happens.