This Report, which can be found here, explores how competition policy should evolve to continue to promote pro-consumer innovation in the digital age.

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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 convince users of the incumbent to coordinate their migration to its own services. Network effects could thus prevent a superior platform from displacing an established incumbent. The size of this “incumbency advantage” depends on a number of factors, including the possibility of multi-homing, data portability, and data interoperability. Finally, regarding the role of data, The evolution of technology has made it possible for companies to collect, store, and use large amounts of data. Data is not only one of the key ingredients of Artificial Intelligence but also a crucial input to many online services, production processes, and logistics. Therefore, the ability to use data to develop new, innovative services and products is a competitive parameter whose relevance will continue to increase.

A consequence of these characteristics is the presence of strong “economies of scope”, which favour the development of ecosystems and give incumbents a strong competitive advantage. Indeed, experience shows that large incumbent digital players are very difficult to dislodge, although there is little empirical evidence of the efficiency cost of this difficulty. From a competition policy point of view, there is also a reasonable concern that dominant digital firms have strong incentives to engage in anti-competitive behaviour.

Chapter 3 outlines the goals of EU competition law in the digital era and the methodologies it should use.

All these factors heavily influence the forms that competition takes in the digital economy; they require vigorous competition policy enforcement and justify adjustments to the way competition law is applied. Over the years, EU competition rules have provided a solid basis for protecting competition by evolving and reacting to various challenges and changing circumstances. The basic framework of competition law, as embedded in Articles 101 and 102 of the TFEU, continues to provide a sound and sufficiently flexible basis for protecting competition in the digital era. However, the specific characteristics of platforms, digital ecosystems, and the data economy require established concepts, doctrines and methodologies, as well as competition enforcement more generally, to be adapted and refined.

A first area of refinement concerns the application of the consumer welfare standard. There is a need to rethink both the timeframe and the standard of proof in the light of likely error costs in the digital sphere. What economists would call the “expected” impact on consumers will be too complicated to compute in many cases. Under-enforcement in the digital era is of particular concern because of the stickiness of market power caused by the factors discussed above. Therefore,  strategies  employed  by  dominant platforms aimed at reducing the competitive pressure they face should be forbidden in the absence of clearly documented consumer welfare gain even where consumer  harm  cannot  be  precisely  measured. A second area of work is market definition. In the digital world, market boundaries may change very quickly and might not be as clear as in the “old economy”. Furthermore, in the case of multi-sided platforms, the interdependence of the “sides” becomes a crucial part of the analysis whereas the traditional role of market definition has been to isolate problems. Therefore, in digital markets one should put less emphasis on analysis of market definition, and more emphasis on theories of harm and identification of anti-competitive strategies. Where digital firms’ lock-in strategies are successful, and consumers find it difficult to leave a digital ecosystem, ecosystem-specific aftermarkets may need to be defined. A third area of work concerns the assessment of market power The main insight here is that even in an apparently fragmented marketplace, there can be market power. This kind of market power is linked to the concept of “unavoidable trading partner” and has sometimes been called “intermediation power” in the area of platforms. Second, if data that is not available to market entrants provides a strong competitive advantage, its possession may lead to market dominance. Therefore, any discussion of market power should analyse, case by case, the access to data available to the presumed dominant firm but not to competitors, and the sustainability of any such differential access to data.

Ultimately, all these refinements speak to a need to change the error cost framework we use. The specific characteristics of many digital markets have arguably changed the balance of error cost and implementation costs, such that some modifications of the established tests, including allocation of the burden of proof and definition of the standard of proof, may be called for. In particular, in the context of highly concentrated markets characterised by strong network effects and high barriers to entry (i.e. not easily corrected by markets themselves), one may want to err on the side of disallowing potentially anti-competitive conducts, and impose on the incumbent the burden of proof for showing the pro-competitiveness of its conduct. This may be true especially where dominant platforms try to expand into neighbouring markets, thereby growing into digital ecosystems, which become ever more difficult for users to leave. In such cases, there may be, for example, a presumption in favour of a duty to ensure interoperability. Such a presumption may also be justified where dominant platforms control specific competitively relevant sets of user or aggregated data that competitors cannot reproduce.

Given the persistence of market power, an unavoidable question concerns whether regulation is called for. There is no general answer to the question of whether competition law or regulation is better placed to deal with the challenges arising from digitisation of the economy. Nonetheless, competition law enforcement and regulation are not necessarily substitutes, but complements that can reinforce each other. Ultimately, competition law – and in particular Article 102 TFEU – plays a useful role as a “background regime”. The type of analysis that is so characteristic for competition law – namely thorough analysis of markets and market failures – can help to re-define the legal framework for the digital economy and provide important guidance to firms, the legislator, and the public debate.

Chapter 4 discusses the application of competition rules to platforms.

Digital markets are often concentrated, and there are economic reasons to think this may be a natural outcome. The consequences for competition policy are twofold. First, it is essential to protect competition “for” the market so that businesses have incentives to supply goods and services on reasonable conditions and to innovate. Second, it is equally important to protect competition on a dominant platform. Platforms play a form of regulatory role as they determine the rules according to which their users, including consumers, business users and providers of complementary services, interact, and, when they are dominant, have a responsibility to ensure that competition on their platforms is fair, unbiased, and pro-users. In many cases, this might be the same as protecting competition “in” the market. This chapter looks at these consequences for competition policy In turn.

Regarding competition for the market, the success of any attempt to challenge an incumbent will depend on the ability of a potential rival to attract a critical mass of users and thereby generate its own positive network effects. Actions by a dominant platform that hinder rivals in doing so, or raise their costs, without constituting “competition on the merits”, should be suspect under competition law as being potentially exclusionary. The report looks at four types of such conduct that have been commonly identified in digital markets: (i) Most Favoured Nation (MFN) or best price clauses ; (ii) measures to prevent multi-homing; (iii) measures to make switching more difficult; (iv) and measures to prevent the successful provision of complementary services. Data regulation can also play an important role to foster multi-homing, the offering of complementary services, and therefore competition. This concerns, specifically, two aspects : (i) data portability, i.e. the ability of users to transfer elsewhere the data that a  platform  has  collected  about  them;  and  (ii)  interoperability  (in  its  various  specifications,  namely  protocol  interoperability,  data  interoperability,  full  protocol  interoperability).

Regarding promoting competition on the platform, many platforms, in particular marketplaces, act as regulators, setting up the rules and institutions through which their users interact. Competition between different business models and different platform architectures can encourage innovation in that space and are thus welcome. However, some practices can be anticompetitive. For instance, a dominant platform could have incentives to sell “monopoly positions” to their business users (e.g. in terms of the ranking of results displayed to consumers on a platform). Alternatively, as seen above, a dominant platform could design the rules (or apply them) in a way which allows it to engage in abusive self-preferencing. To deal with these types of problem, dominant platforms have a responsibility to ensure that their rules do not impede free, undistorted, and vigorous competition without objective justification. On the other hand, imposing far-reaching conduct rules on all platforms, irrespective of market power, could not be justified, given that many types of conduct – including potentially self-preferencing – may have pro-competitive effects. Furthermore, Article 102 TFEU does not impose a general prohibition on self-preferencing by dominant firms. In other words, self-preferencing is not abusive per se, but subject to an effects test. However, self-preferencing by a vertically integrated dominant digital platform can be abusive not only under the preconditions set out by the “essential facility” doctrine, but also wherever it is likely to result in a leveraging of market power and is not justified by a pro-competitive rationale. In effect, the report argues that dominant company should bear the burden of proving that self-preferencing has no long-run exclusionary effects on product markets, and that where self-preferencing has significantly benefitted a platform’s subsidiary by improving its market position vis-à-vis competitors, remedies might need to include a restorative element.

Chapter 5 discusses the application of competition law to data.

Data is often an important input for online service, production processes, logistics, smart products, and AI. The competitiveness of firms thus increasingly depend on timely access to relevant data. This means that it might efficient for data to be widely disseminated, even if this must be balanced with preserving incentives for companies to gather and process data, protecting personal data and preventing collusive behaviours. This means that the significance of data and data access for competition depends on an analysis of the specificities of a given market, the type of data, and data usage in a given case. Given this, the report focuses on four matters.

The first concerns data portability. The GDPR (the European Data Protection Regulation) can facilitate the switching between data-driven services, through data portability. However, this will also depend on how the right to data portability is interpreted and implemented. It may be justified to impose a more stringent data portability regime on a dominant firm in order to overcome particularly pronounced lock-in effects. Moreover, data portability in the GDPR has not been designed as a right to continuous data access or to request data interoperability between two or more services employed by the data subject. More  demanding  regimes  of  data  access,  including  data  interoperability, can be imposed (i) by way of sector-specific regulation(as in the context of the Payment Services Directive 2015/2366/EU) – in particular where data access is meant to open up secondary markets for complementary services; or (ii) under Article 102 TFEU – but then confined of course to dominant firms.

A second scenario concerns data sharing or pooling. Data sharing and data pooling arrangements will frequently be pro-competitive. However, such arrangements can become anti-competitive in some situations. For example: (i) competitors who are denied access (or granted access only on less favourable  terms)  might  be  foreclosed  from  the  market;  (ii)  the  data  sharing  arrangement may amount to an anti-competitive information exchange where it includes competitively sensitive information; (iii) the sharing or pooling of data can discourage competitors from differentiating and improving their own data collection and analytics pipelines; (iv) finally, there may be cases where the granting of access to data on non-FRAND terms may result in an exploitative abuse. A scoping exercise of the different types of data pooling and subsequent analysis of their pro- and anti-competitive aspects is therefore necessary to provide more guidance.

A third scenario concerns whether there might a duty on dominant companies to grant access to data under competition law. Where competitors request access to data from a dominant firm, a thorough analysis will be required as to whether such access is truly indispensable. Competition authorities should be careful here – in a number of settings, data access will not be indispensable to compete, and public authorities should then refrain from intervention. Moreover, Article 102 TFEU is not the best tool to deal with data requests by claimants who pursue business purposes that are essentially unrelated to the market served by the dominant firm (i.e. access to data for the purpose of training AI algorithms for unrelated purposes); in such cases, the emergence of market-based solutions or the adoption of a regulatory regime would seem preferable. On the other hand, there are other settings, however, where duties to ensure data access – and possibly data interoperability – may need to be imposed. This would  be  the  case,  in  particular,  of  data  requests  for the  purpose  of  serving  complementary markets or aftermarkets. A particular challenge here will be setting the conditions of access to data. This, and the concomitant necessity to monitor, may be feasible where access requests are relatively standard and where the conditions of access are relatively stable. Where this is not the case, in particular where a dominant firm is required to grant access to continuous data (i.e. to ensure data interoperability), there may be a need for regulation.

A fourth scenario concerns aftermarkets. Where machine producers do not let users have access to the data by the machines, fears have been expressed that this could amount to foreclosure of secondary market. Competition law may need to be updated to reflect the specificities of data for this matter.

Chapter 6 discusses whether European merger control needs to be updated.

The report focuses on whether the current regime of EU merger control needs to be adjusted to better address concerns relating, inter alia, to the early elimination of potential rivals through acquisitions by dominant platforms of small start-ups with a quickly growing user base and significant competitive potential. A first question concerns jurisdictional thresholds: in particular, whether many of these acquisitions may escape the Commission’s jurisdiction because they take place when the start-ups do not yet generate sufficient turnover to meet the thresholds set out in the EU merger regulation. The report concludes that it is too early to change the EUMR’s jurisdictional thresholds; it is better for the time being to monitor the performance of the transaction value-based thresholds recently introduced by certain Member States, as well as the functioning of the referral system. A second question concerns the substantive analysis. While the “significant impediment to effective competition” test remains a sound basis for assessing mergers in the digital economy, there is a need to revisit the substantive theories of harm to properly assess certain specific cases. This concerns specifically cases where a dominant platform and/or ecosystem which benefits from strong positive network effects and data access, which act as a significant barrier to entry, acquires a target with a currently low turnover but a large and/or fast-growing user base and a high future market potential. In such cases, competition law should be particularly concerned about protecting the ability of competitors to enter markets. Such an approach would imply a heightened degree of control of acquisitions of small start-ups by dominant platforms and/or ecosystems, to be analysed as a possible strategy against partial user defection from the ecosystem. Where an acquisition is plausibly part of such a strategy, the notifying parties should bear the burden of showing that the adverse effects on competition are offset by merger-specific efficiencies.

Chapter 7 concludes.

The report is aware of the complementarity that exists between competition law and other legal regimes. With digitisation, new needs for coordination between these regimes emerge, and adjustments and/or re-interpretation of contract law, consumer protection law, or unfair trading law will be part of the shaping of the legal order in reaction to a different economic reality. Some of these rules may lessen the likelihood of specific types of conflicts arising in the future, or may dampen the incentives to strategically abuse new positions of power. In some respects, competition law would then return to its original role: to function as a background regime of an otherwise well-ordered marketplace based on the general rules of both private and public law that addresses the specific tensions that arise in the light of economic power. In some areas, a regulatory regime may be needed in the longer run. In particular,  competition  law  enforcement  may  be  overburdened  to  deal  with  the  implementation and oversight of interoperability mandates imposed on dominant players. However, the adoption of a new type of “public utility regulation” for the digital economy is not recommended. The risks associated with such a regime –rigidity, lack of flexibility, and risk of capture – are too high. At the same time, competition agencies can contribute to the better functioning of the digital economy by providing more guidance. For instance, guidance may be needed on the definition of dominance in the digital environment, or on the duties of conduct for dominant platforms.

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