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Archive for November 24th, 2015

Regulating platforms? A competition law perspective

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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.

Read the rest of this entry »

Written by Alfonso Lamadrid

24 November 2015 at 6:55 pm

Posted in Uncategorized