by J Crémer · Cited by 1 — On EU competition policy – and cases – in “zero-price” markets, where the analysis focuses on quality, data, and attention, see the EU contribution to the
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LEGAL NOTICE The information and views set out in this report are those of the author(s) and do not necessarily reflect the official opinion of the Commission. The Commission does not guarantee the accuracy of the data included in this report . Neither the Commission no r any person acting on the Commission™s behalf may be held responsible for the use which may be made of the information contained therein. More information on the European Union is available on the Internet ( Luxembourg: Publications Office of the European Union, 201 9 Catalogue number: KD-04-19-345-EN-N ISBN 978-92-76-01946 -6 doi: 10.2763/407537 © European Union, 201 9 Reproduction is authorised provided the source is acknowledged. The reproduction of the artistic material contained therein is prohibited. Europe Direct is a service to help you find answers to your questions about the European Union. Freephone number (*) : 00 800 6 7 8 9 10 11 (*) The information given is free, as are most calls (though some operators, phone boxes or hotels may charge you).

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COMPETITION POLICY FOR THE DIGITAL ERA 3 Indeed, experience show s that large incumbent digital players are very difficult to dislodge , although there is little empirical evidence of the efficiency cost of this difficu lty. 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. 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. CHAPTER 3: GOALS AND METHODOLOGIES OF EU COMPETITION LAW IN THE DIGITAL ERA There is no need to rethink the fundamental goals of competition law in the light of the digital firevolutionfl. Vigorous competition policy enforcement is still a powerful tool to serve the interests of consumers and the economy as a whole. Over the last 60 years, EU competition rules have provided a solid basis for protecting competition in a broad variety of market settings . Competition law doctrine has evolved and reacted to vari ous challenges and changing circumstances case by case , based on solid empirical evidence. At the same time, the stable core pri nciples of EU competition rules ha ve ensured consistent enforcement . We are convinced that 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 adapt ed and ref ine d. a) The consumer welfare standard . The term ficonsumer welfarefl encompasses all fiusersfl in a broad sense . This is particularly relevant in the digital economy, where fibusiness usersfl are also affected by the practices of platforms. In a fast -changing world, we need to rethink both the timeframe and the standard of proof in the light of likely error costs . Also , what economists would call the fiexpectedfl 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 in Chap ter 2 . Therefore, we believe that even where consumer harm cannot be precisely measured, strategies employed by dominant platforms aimed at reducing the competitive pressure they face should be forbidden in the absence of clearly documented consumer welfar e gains . b) Market definition . In the digital world, market boundaries might not be as clear as in the fiold economyfl. They may change very quickly. 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, we argue that, in digital markets, we should put less emphasis on analysis of market definition , and more emphasis on theories of harm and identifica tion

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EXECUTIVE SUMMARY 4 of anti -competitive strategies . At the same time, even if in some consumer -facing markets Œ according to their own account Œ firms compete to draw consumers into more or less comprehensive ecosystems, markets for specific products or services will per sist from a consumer™s perspective, and should continue to be analysed separately, alongside competition on (possible) markets for digital ecosystems . Where the firms™ lock -in strategies are successful, and consumers find it difficult to leave a digital ec osystem, ecosystem -specific aftermarkets may need to be defined. c) Measuring market power . The assessment of market power has to be case -specific, and it must take into account insights drawn from behavioural economics about the strength of consumers’ biases towards default options and short -term gratification. The assessment should also factor in all the ways in which incumbents are protected (and can protect themselves) from competition. We stress two aspects in particular. First, even in an apparently frag mented marketplace, there can be market power. This kind of market power is linked to the concept of fiunavoidable trading partnerfl and has sometimes been called “intermediation power” in the area of platforms. Second, if data that is not available to marke t 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. d) The error cost framework . We propose that competition law should not try to work with the error cost framework on a case by case basis. Rather, competition law should try to translate general insights about error costs into legal tests. The specific characteristic s of many digital markets have arguably changed the balance of error cost and implementation costs, such that so me modifications of the established tests, including allocation of the burden of pro of and definition of the standard of proof, may be called for. In particular, in the context of highly concentrated markets characteri sed 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 conduct s, 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. e) Competition law and regulation . There is no general answer to the question o f whether competition law or regulation is better placed to deal with the challenges arising from digitisation of the economy. This question can only be sensibly answered with respect to specific issues (as we do in the following chapters). Two things are clear, though. First, competition law has been designed to react to ever -changing market s. Second, competition law enforcement and regulation are not necessarily substitutes, but

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COMPETITION POLICY FOR THE DIGITAL ERA 5 most often complement s and can reinforce each other. Ultimately, competition law Œ and in particular Article 102 TFEU Œ plays a useful role as a fibackground regimefl. The type of analysis that is so characteristic for competition law Œ namely thorough analysis of markets and market failures Œ 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: PLATFORMS In markets where network externalities and returns to scale are strong, and especially in the absence of multi -homing, protocol and data interoperability , or differentiation, there might be room in the market for only a limited number of platforms. The consequences for competition policy are twofold. First, to provide incentives to supply goods an d services on reasonable conditions and to innovate, it is essential to protect competition “for” the market . In this chapter, we therefore discuss the type of strategies that dominant platforms might use to limit the threat of market entry , or expand thei r market power into neighbouring markets , and how competition authorities should respond to them. Second, it is equally important to protect competition on a dominant platform (which in many cases might be the same as protecting competition “in” the market ). In this respect, we argue that 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 . Promoting competition for the market In essence, the success of any attempt to challenge an incumbent will depend on the ability of a potential rival to attra ct a critical mass of users and thereby generate its own positive network effects. While a case -by-case analysis is always required, we believe that actions by a dominant platform that hinder rivals in doing so, or raise their costs, without constituting fi competition on the meritsfl, should be suspect under competition law. Such actions may take many different forms. We have focused our analysis on the action s that have been more frequent (or detectable) so far. a) Most Favoured Nation (MFN) or best price clau ses . In the case of platforms, the suppliers of goods or services often fix the price. Hence, to protect their investment, platforms impose a requirement that goods cannot be sold through other channels at lower prices. These clauses may have both pro – and anti -competitive consequences and their effects depend on the particular characteristics of the markets. A case -by-case analysis is therefore necessary. However, because of very strong network externalities (especially in multi -sided platforms), incumbency advantage is important and strict scrutiny is appropriate . We believe that any practice aimed at protecting the investment of a dominant platform should be minimal and well targeted . If competition between platforms is sufficiently vigorous, it could be sufficient to forbid clauses that prevent sellers on a platform from price differentiating between platforms (i.e. a ban of fi wide fl MFNs) while still allowing clauses preventing the seller from offering lower prices on its own website (finarrowfl MFN s). If competition between platforms is weak, then pressure on the dominant platforms can only come

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EXECUTIVE SUMMARY 6 from other sales channel s (e.g. in the case of hotel booking platforms, direct sales by hotel s on their own website s) and it would be appropriate to also prevent “narrow ” MFNs. b) Multihoming , switching , and complementary services . In order to encourage exploration by consumers and to allow entrant platforms to attract them through the offer of targeted services, it is key to ensure that multihoming and switchin g are possible and dominant platforms do not impede it . There are many ways to restrict multihoming or ma ke it less attractive Œ once again, case by case analysis is primordial. However, we believe that any measure by which a dominant firm restricts multi -homing should be suspect and such firm should bear the burden of providing a solid efficiency defence . At the same time, data regulation can also play an important role to foster multihoming , the offering of complementary services, and therefore competitio n. This concern s, specifically, two aspects (both discussed more in detail in the relevant data chapter): (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). Promoting competition on the platform Œ platforms as regulators As the recent economic literature has stressed, m any platforms, in pa rticular marketplaces , act as regulators, setting up the rules and institutions through which their users interact. The fact that platforms choose rules is not a problem per se ; we should welcome competition between different business models and different platform architectures and encourage innovation in that space Š indeed, these types of innovation have allowed platforms to generate large efficiencies by enabling transactions that were not previously possible. Moreover, we would expect that, in many cas es, platforms have incentives to write good rules to make the ir platform more valuable to users. However, this might not always be the case. For instance, a dominant platform could have incentives to sell fimonopoly positionsfl 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 o f problem, we believe that Œ because of their function as regulators Œ dominant platforms have a responsibility to ensure that the ir rules do not impede free, undistorted , and vigorous competition without objective justification . A dominant platform that s ets up a marketplace must ensure a level playing field on this marketplace and must not use its rule -setting power to determine the outcome of the competition. Non -dominant platforms also play a regulatory role. However, to the extent that they are discip lined by competition, no f ar-reaching general rules would be needed. We feel that imposing far -reaching conduct rules on all platforms, irrespective of market power, could not be justified , given that many types of conduct Œ including potentially self -pref erencing Œ may have pro -competitive effects.

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