Chillin'Competition

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Archive for November 2015

Towards a ‘Law of the Platform’? A Regulatory Perspective

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Infographic E-Commerce Investment Study

Continuing the “inter-platform dialogue” on platforms started by my post last week, we are very pleased to post a guest contribution from Jakob Kucharczyk, Director of Public Policy at CCIA‘s Brussels office, that will also go up on the DisCo blog. I hope you the reader enjoy this exchange of views.

As a trade association representing many of the most popular online platforms, CCIA obviously has some strong views as regards the many elements of the debate on platforms, as well as its roots which Alfonso adequately described in his post. While Alfonso tackled the debate from a competition law perspective, I will look into this debate from a regulatory perspective. As an immediate reaction to Alfonso’s points I have to say that regulation should have one key commonality with competition law enforcement: it should be a fact- and evidence-intensive exercise. However, very often there is a difficulty in Brussels to frame the regulatory debate against actual market dynamics and facts. While regulation is somehow bound to be subject to greater political influence than competition law enforcement because of the legislative process, good regulation should at the minimum be based on the concrete identification of economic or societal problems that merit regulatory intervention.

As the initiator of legislative proposals at European level, the Commission has extraordinary responsibility to base proposals on solid evidence in tune with its recently announced better regulation package. I guess in competition law terms one can say that in light of the Commission’s quasi monopoly on legislative initiatives is carries a special responsibility.

So let me start this dialogue with some good news and insights into Europe’s digital economy which I think are worthwhile to keep in mind when discussing online platforms.

Investment into European E-Commerce Ventures is Booming

Alfonso mentioned how political frustration with competition law enforcement in digital markets led to increased regulatory pressure on platforms. The mythical ineffectiveness of competition law, however, is often accompanied by a political belief that European online players are unable to compete in a market ‘dominated’ by mostly American players. This might explain why European policymakers seem quite willing to explore the regulatory path since intervention would not primarily hit European interests. I will discuss this argument later but for now let’s shed some light on the market. At CCIA we wanted to have insights from investors, people who are detached from Brussels and who invest ‘real’ money into e-commerce ventures. What do they think about the chances of European e-commerce companies?

Well, here is the good news — they seem to be very optimistic. Investments into European e-commerce ventures are booming. Our friends from ‘The Analyst’, an independent equity research house based in London, found investments into their study’s sample group of 25 publicly traded, pure e-commerce companies have increased by 27 times over the last three years. Capital inflows into the sample group of 500 private e-commerce companies, many in the startup/early development phase, increased by 4.5 times in the same period. In aggregate numbers, since 2012 the group of 25 publicly listed e-commerce companies raised €12 billion and the group of 500 private companies raised over €5 billion. Yes, money is essentially pouring in and the report illustrates several success stories in fashion, real-estate, and food delivery, whose range shows how the e-commerce market is becoming more diverse. (You can see Mark Hiley, CEO of The Analyst, speaking about the report here).

While these findings are a snapshot of the e-commerce sector, they confirm the one of the main characteristics of digital markets: very low barriers to entry (see e.g. here for our previous discussion of this theme). European e-commerce ventures are vibrant and in the process of greater diversification. Investors continue to bet on this positive development. All of this is indicative of healthy market dynamics and should send a clear signal to policymakers. European businesses are competing and platform regulation as a tool of industrial policy would be misplaced. In fact, increasing regulatory barriers might go the other way and stifle this development because it benefits today’s ‘incumbents’. In all likelihood they will be able to deal with more regulation which will shield them from more agile competitors. Policymakers need to keep this potentially disproportionate impact of regulation in mind when weighing the pros and cons of intervention.

Definition of ‘Platform’ – The Never Ending Debate  

Let me give you examples of Europe’s e-commerce success stories: in only eight years, Germany’s Zalando became Europe’s largest mass-market fashion e-tailer. Rightmove has become the UK’s leading residential property portal, providing services to estate agents. Italian-Swiss Yoox/Net-a-Porter operates the leading online, luxury apparel portal in Europe and after only four years the online food ordering platform Delivery Hero operates in 34 markets across five continents.

Apart from being successful and growing businesses, what else do these companies have in common? Of course, they are all platforms. But is that true? Alfonso rightly suggested that the answer to this question may not be easy as we currently witness a lot of blind men trying to describe the elephant — hence definitions are quite subjective. Therefore, let’s have a look at the definition provided by the Commission in its consultation on platforms. Interestingly, it does make sense but it seems that the consultation is inconsistent in the application of that definition. The consultation states that an online platform is “an undertaking operating in two (or multi)-sided markets, which uses the Internet to enable interactions between two or more distinct but interdependent groups of users”. However, it is not clear why a company like Netflix, which is explicitly mentioned as an example, would fall under that definition because it essentially functions as a retailer for audiovisual content. While there might be network effects, there is no direct interaction between content rights owners and consumers. Netflix negotiates with rights owners, ‘stocks’ the content at own risk and offers it to its subscribers. Amazon as such, for example, does also not fit neatly under the definition. Amazon’s online retail business is a one-sided market while its open marketplace does indeed bring together two distinct but interdependent groups: sellers and consumers. Today Zalando operates an online retail business in a one-sided market. Should it change its business model and open its site to third party sellers, just like Amazon did, it would suddenly fall under the Commission’s definition of an online platform.

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Written by Alfonso Lamadrid

30 November 2015 at 7:09 pm

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The rule of law and legal certainty in EU competition fines (by Luis Ortiz Blanco)

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LOB

Last week we posted here Wouter Wil’s summary of the main procedural developments in recent times (it has already been downloaded quite a few hundred times…).

Today we are publishing the transcript (thanks to Carlos Bobillo) of Luis Ortiz Blanco’s intervention at the Chilling’Competition conference (pictured above).

I will do the same unnecessary introduction I did at the conference: Luis is a partner at Garrigues, a Visiting professor on competition procedure at the College of Europe, and the single reason why I decided to work in competition law (not sure that’s something he deserves credit for…)

His provoking intervention is available here: Chillin Competition Conference – Intervention by Luis Ortiz Blanco – 19.11.2015

Written by Alfonso Lamadrid

26 November 2015 at 9:02 pm

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Regulating platforms? A competition law perspective

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Platform

A few days ago I spoke at CEPS about the debate concerning online platform regulation that is attracting some interest these days as DG Connect’s and the House of Lords’ consultations are ongoing (my presentation and a video interview are available here). This is a most interesting issue although, admittedly, one that not so long ago I would not have expected to be an issue at all.

In the wake of this event we thought that perhaps it would be useful to contribute a bit more to the debate, so here you will find a summary of what I said at that conference. In order to complement it, we have decided to engage in an “inter-platform” dialogue with our friends at CCIA and their DisCo (Disruptive Competition) Project blog. This post will also be published there, and we will soon be posting a guest contribution from them. Any comments you might have will certainly enrich the debate.

Not being an expert in regulation, my views on the subject are eminently related to competition law and to its application to multi-sided markets which, as you know, is one of the fields in which I have recently done some work, advising platforms, non-platforms competing with platforms or simply reflecting on wider policy issues (e.g. here or here). The competition law perspective is a particularly useful one because competition law seems to be the elephant in the room, much at the root of these discussions.

Indeed, many of you will recall that ex ante “platform” regulation went from being a non-issue to being very much an issue when a number of Member States (notably Germany and France) expressed frustration at how competition law would not be enough to tackle some problems (not clear which) caused by “some” (apparently not all) platforms (some examples of such statements are available here, here and here). [This concern about the possible shortcomings of competition law coincidentally emerged at a time when some thought that the ongoing Google investigation would fail to establish a “neutrality” obligation incumbent upon Google’s search activities] And since competition law was seen as insufficient (read: did not lead to the outcome that some expected), some thought that it would be idea to either change competition law or to bypass it by adopting specific regulation.

What kind of animal is a platform?

In this context, the word “platform” seems to have been chosen to encompass those “some platforms” that people had in mind. However, as explained in previous posts written on the DisCo Project blog (here or here), it may not be the best term to identify a category of companies subject to specific regulation.

Some of you may have heard of the expression “The Law of the Horse”. This is a term coined by American judge and antitrust expert Frank Easterbrook in a now famous conference in the US. In this conference he explained that there is no “law of the internet” more than there is a “law of the horse”; that there are laws of contracts that apply when horses are sold, of animal husbandry that apply when they need care, of laws of gambling that regulate when they race, but there is no law of the horse. Nowadays some partisans of regulation are trying to create some sort of “Law of the horse platform”. But then of course we come back to the somehow relevant question of what a platform is…

I don’t know if you are familiar with the Indian story of “The Blind Men and the Elephant”. This is a story in which several blind men are asked to describe what an elephant looks like by touching different parts of its body. The one touching the leg says the elephant is like a pillar; the one touching the belly says it must be like a wall; the one feeling the trunk believes it must look like a tree branch; the one touching the ear is convinced an elephant resembles a hand fan, and so on.. This story illustrates the fallacy that one’s subjective experience can be true but at the same time it is inherently limited and cannot account for the totality of the truth.

We see something similar regarding “platforms”: some appear to extrapolate certain features or problems from a limited number of companies to a whole business model, but those problems are neither exclusive nor common to “platforms” (as defined in the Commission’s consultation). Before doing such a thing, one should perhaps understand how markets work and why companies do what they do.

Having this complete view would certainly be necessary, for, as stated by Easterbrook in his talk The Law of the Horse, “the blind do not make good trailblazers”.

The wrong question

As already noted, the question many are asking is whether competition law is sufficient to address the challenges raised by platforms or whether we need a new framework; does competition law need to adapt?

In my view, and whereas enforcement may need some refinements (e.g. merger notification thresholds may not be well suited for some mergers—see here—and we do not have good economic tools to assess demand-side efficiencies–see here), there is no other branch of law that, over more than a hundred years, has proved similarly flexible, adaptable and accommodating of the evolution of markets and economic thinking than competition law.

In my view, the questions that are being posed now are the wrong ones, so I would suggest that instead of looking at supposed flaws in competition law, perhaps we should look to competition law to extract some lessons.

The above includes understanding why competition authorities are sometimes reluctant to intervene, or why issues that are perceived to be problematic by the lay public are not understood as such by experts in the field. Also, it would be worth reflecting on whether there may be a possibility that if competition law has not done more regarding “platforms” it might be due to the fact that there may indeed be very good reasons for it not to do more.

Why competition law can teach us?

Some may wonder whether competition law can really teach us something about platforms and about how to deal with them. If you ask me, it sure can.

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Written by Alfonso Lamadrid

24 November 2015 at 6:55 pm

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Procedural developments (by Wouter Wils)

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2015526-20248709-3069-procedure

Many of you have been asking for the document used by Wouter Wils yesterday during his presentation at the Chillin’Competition conference (we’ll tell you more about how it went soon; we also have plenty of photos).

In the coming days we hope to be posting other materials (and even guest posts from speakers who may be interested); for the time being we leave you with Wouter’s paper, which will come in handy to many (including myself, given that it greatly facilitates the updates for the courses I teach on procedure…).

Here it is: antitrust procedure developments November 2015 final

Written by Alfonso Lamadrid

20 November 2015 at 11:50 am

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Chillin’Competition in Politico

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We have just been made aware that the following text was published in todays’s Playbook by Politico. We are very grateful, but sexy?? 😉 

Only one clarification: it’s Nicolas, not me, who deserves credit for founding the blog!

BRINGING SEXY TO COMPETITION POLICY: The Who’s Who of Brussels’ competition world will congregate today at a conference organized by the blog Chillin’Competition. In a barren landscape dotted by multiple dry competition law journals, Chillin’Competition has attracted a fervent readership with its sometimes irreverent, sometimes serious look at European antitrust.
The blog was founded by Alfonso Lamadrid, an associate at law firm Garrigues, and Nicolas Petit, a law professor at Liège University, in 2009. It is now run by Lamadrid and Pablo Ibáñez Colomo, an associate professor at the LSE. Its long-running “The Friday Slot” puts a series of offbeat personal and professional questions to eminent practitioners, judges and officials, including competition commissioner Margrethe Vestager, Google outside counsel Maurits Dolmans and General Court Judge Ian Forrester.

Written by Alfonso Lamadrid

19 November 2015 at 2:45 pm

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Chillin’Competition Conference- Thank you!

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Sponsors

As we are getting ready for the Chillin’Competition conference tomorrow we feel we should express our gratitude once again.

Thanks to you for following the blog and for the  interest in this event, which has exceeded our expectations and flooded my email , and apologies once again to the more than 200 people in the waiting list (we owe you one!)

We will report on how the conference goes, but for the time being we would also like to thank the conference sponsors and speakers; they have made it possible (and free) and they have our gratitude.

We are very much looking forward to it

 

 

Written by Alfonso Lamadrid

18 November 2015 at 8:33 pm

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What is a platform and should they be regulated?

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What kind of animal

I spoke yesterday in Brussels at an event organized by CEPS (Centre for European Policy Studies) under the title “What is a platform and should they be regulated?”.

I will not develop my views here now because (i) I don’t have the time, and, most importantly, (ii) we will very soon be engaging in an “inter-platform dialogue” on this subject with the blog run by our friends (and conference sponsors) at CCIA.

In the meantime, and as a teaser, my presentation is available here: CEPS_Regulating Platforms_Lamadrid , and a short video interview is available here [Youtube, as an “evil platform” seems to have altered the content of the video, as I’m clearly way better looking live 😉  ]

Written by Alfonso Lamadrid

18 November 2015 at 6:17 pm

Posted in Uncategorized