Chillin'Competition

The European Commission had the great idea of inviting contributions to its conference on ‘Shaping competition policy in the era of digitisation’. I seized the opportunity and submitted mine.

If you are interested in them, the piece is available on ssrn (see here). As usual, I would welcome your comments.

What is the essence of my contribution? Well, I made four major points:

EU competition law is adequately equipped to deal with the challenges raised by digital platforms: The concerns identified by the Commission (leveraging, lock-in and so on) are not new, and are not exclusive to digital platforms. Past practice shows that the EU competition law system can deal effectively with them.

More crucially, I explain in the paper that there is no solid evidence suggesting that there is something specific about digital platforms that justifies a sectoral approach, or a carve-out. Similarly, there seems to be no reason to reinterpret existing competition law concepts. I fully understand the anxiety of some stakeholders, but it would not be a good idea to formulate policy on the basis of anxiety.

Some enforcement approaches pose significant risks, and more precisely:

• The abuse of the ‘by object’ approach: The ‘by object’ approach to enforcement should only be relied upon where justified (both under Articles 101 and 102 TFEU). Competition authorities should avoid using this approach for conduct with ambivalent effects on competition.
• The assessment of effects should be meaningful: one of my main concerns about enforcement in digital markets is that the assessment of effects becomes a formality, as opposed to a meaningful inquiry into the impact of a practice on firms’ ability and incentive to compete. As the case law shows, not every competitive disadvantage amounts to an anticompetitive effect, and not every practice that makes rivals’ life more difficult is necessarily in breach of competition rules.
• Ad hoc decision-making should be avoided: this is a point that could not be emphasised enough. We all know that the outcome of cases is often context-dependent. However, it should always be possible to infer principles from individual decisions, and to understand how these decisions fit in the system as a whole (how they relate to the precedents and with the horizontal principles of the case law). Ad hoc decisions that are relevant only in the specific circumstances of the case would make intervention impossible to anticipate. I do not believe this is an outcome anyone desires.

In a similar vein, I explain there is no basis for some popular ideas or principles:

• Vertical integration should not be seen, in  and of itself, with suspicion: It has become relatively commonplace to hear that vertical integration is a problem in itself – some go as far as to advocate the break-up of digital platforms. There is no basis for this idea, which contradicts the experience acquired over decades (as captured, for instance, in the Commission’s Non-Horizontal Merger Guidelines).
• Common carrier obligations should be seen as remedies, not principles: This idea goes back to the point I made in my post on the Amazon probe. Discrimination (such as favouring an affiliate) is not, and has never been, a problem in itself (there is no basis in the case law for this idea). What is more, it has sometimes allowed for the emergence of new products and benefitted citizens in the process. The fact that a platform operator treats more favourably its own service is not as such evidence that the competitive process is not working, or that intervention is necessary. Again, the Commission’s Non-Horizontal Merger Guidelines capture the essence of this idea well.
• There is no basis for favouring open vs closed systems, or vice versa (or to think that moving in one direction or the other is invariably good).
• Innovation considerations should not replace robust effects analysis: In its third panel of the conference, the Commission intends to discuss questions such as ‘copycat’ products and their impact on innovation.
  • My main concern (explained at length in this article) is that innovation considerations may be used as a substitute for a robust assessment of the impact of the practice on competition (what I call the direct introduction of innovation considerations). Such a move would not only be at odds with the case law, but would lack a basis in mainstream economics (to be clear: the analysis in cases like Dow/DuPont is entirely uncontroversial from my perspective, as I explained here).
  • My secondary concern relates to the consistency of EU competition policy. In other areas, the Commission has taken action to ensure that copycat products (which is another name for generic drugs) are able to enter the market quickly and effectively. Action relating to ‘copycats’ in digital markets should be consistent with this policy (it would not be obvious to see why ‘copycats’ are encouraged as pro-competitive in one sector and discouraged as anticompetitive in another sector).

Finally, I claim that action in digital makets should make use of the whole range of legal tests available:

It would be inappropriate to apply a case-by-case effects analysis to every practice. The case law provides filters and proxies, and it makes sense to use them. For instance, some practices are deemed prima facie lawful. Other practices are subject to what I call an ‘enhanced effects analysis’, under which action requires evidence of, at least, indispensability (think of Commercial Solvents or IMS Health).

These ideas are captured in the figure below:

When is it appropriate to consider that a practice is prima facie lawful? When it is objectively necessary to attain a pro-competitive aim and as such incapable of restricting competition. You will all remember these are the reasons why franchising agreements, for instance, fall outside the scope of Article 101(1) TFEU altogether.

Some practices in digital markets may be new, or not obviously comparable to those already deemed prima facie lawful. As a result, it is necessary to ensure that firms are able to advance arguments showing that, because the practice is objectively necessary, it is not capable of restricting competition. Since Intel, there is no doubt that the possibility exists under Article 102 TFEU – we have known since Murphy that the possibility existed under Article 101(1) TFEU.

When is it appropriate to apply the enhanced effects analysis? When remedial action in a case would require a firm to alter the design of its product and/or change its business model (as in Commercial Solvents or CBEM-Telemarketing, both of which required indispensability).