This paper – which you can find here – assesses the economic and legal implications of online marketplace bans in order to determine what treatment they should be subject to under competition law.
The discussion opens in Chapter 2 with a review of different types of online marketplaces. Online marketplaces bring together large numbers of sellers and buyers, and in doing so facilitate dynamic competition, both in relation to greater inter-brand competition and in relation to intra-brand competition. Nonetheless, there are various types of such marketplaces, which could be distinguished on the basis of their particular characteristics. These include: (a) whether online marketplaces are pure or hybrid intermediaries (pure intermediaries are merely platforms for buyers and sellers, while hybrid intermediaries provide a sales platform but also act as retailers on their own platform); (b) open or closed marketplaces (any seller can gain access to an open marketplace, while closed marketplaces impose access restrictions); (iii) the type and quality of the interface on offer; (iv) whether the online marketplace offers after-sales services or not; etc. Regardless of these differences, online marketplaces share a number of commonalities: (i) For consumers, these hubs provide a transparent and easily accessible market place with ample choice and competition; (ii) for sellers, online markets offer a number of efficiencies, including ease of access, reduced risk, and benefits derived from a marketplace’s reputation, payment guarantee and ease of transactions. Online marketplaces enable new entrants and small companies to reach their target audience and to compete on equal footing as the larger online retailers.
Having identified the pro-competitive benefits of online marketplaces, in Chapter 3 the paper looks into how online markets have given rise to issues concerning the seller’s ability to maintain a uniform, consistent brand image, and product and service quality. The strive for tighter control of distribution has led an increasing number of producers using selective distribution agreements. Such type of distribution schemes allow manufacturers to set qualitative criteria and restrict sales to unauthorized retailers, thus controlling market positioning, brand reputation, distribution quality, and information flows. While prima facie anticompetitive, such restrictions are usually deemed pro-competitive in the context of selective distribution agreements because they may serve to protect the integrity of the distribution system, and the brand image, uniformity, quality and reputation of the product. In addition, selective distribution agreements may facilitate client-specific investments or know-how transfer.
Having described the economic and legal nature of online marketplaces, the article moves in Chapter 4 to reviewing the various types of restrictions that may be imposed on internet sales. Ariel draws a spectrum of restrictions moving from purely qualitative criteria (which are valid under EU law) to absolute restrictions on internet sales (which are per se prohibited). In between these extremes, he identifies two areas of dubious legality (the legality of which is currently under appeal before the European courts): (i) contractual marketplace bans, i.e. instances where the producer requires the retailer to only utilize the retailer’s own approved website for sales and marketing, and prohibits the retailer from selling the products in question through online marketplaces; and (ii) de facto marketplace bans, i.e. instances where the use of certain standards and criteria in the agreement between producers and retailers could lead to requirements that cannot be met by any marketplace.
In Chapters 5 and 6, the article tries to anticipate the European Court’s decision in the Coty case regarding the legality of contractual and de facto market place bans. The main conclusion is that, from a legal standpoint, such bans should not be able to benefit from the Vertical Block Exemption. From an economic standpoint, a balance of the pro- and anti-competitive effects of contractual and de-facto online marketplace bans indicates that they should be subject to an effects-based assessment, as they are neither object (per se) restrictions nor suitable to be exempted from competition law scrutiny. Further, it is argued that the current Vertical Block Exemption is overly wide, and should be “fine-tuned” (i.e. its scope should be reduced).
This is a well-reasoned paper , but I think it is worth pointing out why he takes such pains to explain why the Commission is wrong in its assessment. The reason is that he is very suspicious of the supposed benefits of online commerce. In this paper alone (and without discussing his work on big data, algorithmic collusion, etc.), Ariel argues that: (i) successful entry in the online world is not as likely as it would seem, since network effects and existing online presence pose barriers to effectively reaching customers; (ii) these issues are aggravated by mobile shopping, which requires easier and faster transaction methods that pose additional barriers to entry which limit the presence of entrants and small and medium sellers. These SMEs may lack the funds, product variety, economies of scale, reputation, reliable payment systems and market positioning necessary for effective presence on mobile platforms; (iii) online marketplace bans have the potential to be cumulative, creating a feedback loop whereby reductions in intrabrand competition lead to less interbrand competition and so on; (iv) “with these effects and the magnitude of online sales in mind, it is perhaps of little surprise that broad scale online bans form a rational unilateral profit maximizing strategy”.
This all seems very plausible – but it also seems to require empirical verification, so if you do not share his suspicions this approach may well look like overkill. However, if the argument is plausible and establishing its veracity depends on an empirical assessment, the adoption of an effects based assessment may be appropriate. In this context, the application of a loose standard instead of a more finely tuned rule could well be justified.