Chillin'Competition

Yesterday I was invited to take part in a round table discussion by the UK’s Digital Competition Expert Panel. Philip Marsden – a beloved speaker at our Chillin’ events – was there in his capacity as member of the panel, together with Jason Furman and Derek McAuley.

Whenever I discuss digital issues, I tend to emphasise the importance of legal certainty and consistency, and yesterday was not an exception. These are arguably the most important factors in ensuring the best outcomes for competition and innovation.

And bearing their importance in mind is particularly crucial when anxiety – from stakeholders and from politicians – is on the rise. If policy-making is driven by anxiety, it tends to be more volatile – and thus less consistent and less predictable.

These were my musings when I read that the Bundeskartellamt has started an investigation into Amazon’s practices (see here). The press release suggests that there is a significant overlap with the European Commission’s investigation. The central concern appears to relate to Amazon’s dual role as a marketplace and as a competitor to the very merchants that use the marketplace – the famous ‘conflict of interest’.

The Bundeskartellamt’s press release is surprising. Not because it signals that common carrier antitrust is on the rise (remember this post?), but because it appears to be impossible to reconcile with the authority’s position in relation to other matters, in particular online marketplace bans.

Our readers are certainly familiar with the Bundeskartellamt’s position in relation to online marketplace bans. This position has even been made public by the authority in many ways, including in a paper published earlier this year. This paper advances a heterodox and narrow interpretation of the Coty judgment (on this, see here and here). According to the Bundeskartellamt, online marketplace bans are prima facie unlawful outside the specific factual confines of Coty (that is, luxury products).

The policy behind the Bundeskartellamt’s position seems clear: online retailers should have as many opportunities as possible to reach consumers, and these opportunities must include marketplaces.

The economic consequences are also clear: the authority’s strict stance against online marketplace bans amounts to subsidising online marketplaces, in particular Amazon and eBay. No wonder these two firms have been overtly championing the same stance.

With the new investigation comes the obvious question: why would a competition authority subsidise online marketplaces and simultaneously time take action against them?

I, for one, cannot make sense of the two together.

By subsidising online marketplaces, the Bundeskartellamt would be strengthening their position, thereby worsening the very concern raised in the investigation announced this week. One could accept that, potentially, one of the positions advanced by the authority could make sense if considered in isolation. But I do not see how it is possible to make sense of the two together.

I would say more. None of the two concerns raised by the Bundeskartellamt is warranted, and the fact that the two are examined together is evidence of it. If there is something that Coty and similar cases (including those investigated in Germany) reveal, it is that online marketplaces are not in any way indispensable to reach end-users (and certainly not indispensable within the meaning of Bronner/IMS Health).

It is so clear that online marketplaces are not indispensable that many manufacturers, in many industries, take active steps to ensure that their products are not sold through them.

And if online marketplaces are not indispensable, what is exactly the problem with Amazon’s conflict of interest? What would justify imposing common carrier obligations to a service that is not comparable to a telecommunications or an electricity network?

These are the questions that I hope will be discussed explicitly and extensively in the coming months.

In the meantime, I will try to make sense of the factors that may drive the Bundeskartellamt’s behaviour, which amounts to pursuing two mutually contradictory policies. For the time being, I can think of the following explanations:

• Missing the forest for the trees: the Bundeskartellamt’s (commendable) mantra has always been to keep markets open. If, however, the rationale behind certain policies is not acknowledged, and if the inherent trade-offs of intervention are not considered, there is a risk that inconsistent policies are pursued when action aimed at opening markets is taken. These policies may make sense when examined in isolation, but not when one looks at the broader picture.
• Online retailers favoured at everyone else’s expense?: There is a clear set of winners from the Bundeskartellamt’s policy stances: online retailers. These would benefit from guaranteed access to online marketplaces; in addition, online marketplaces would be regulated to their advantage.
  Perhaps the German authority’s implicit goal is to favour this category of operators (some of which will be SMEs). If so, this goal appears to go against the German competition law tradition. German competition law, as I understand it, has always (rightly) sought to protect competition as a process and has always (equally rightly) avoided micro-managing markets and picking winners. In this sense, formulating policy to favour a particular category of stakeholders seems to be against this tradition.
• Two problems are better than none: There is an advantage in pursuing mutually contradictory policies. It keeps an authority busy. As described by Wouter Wils in one of his many great pieces, the desire to show a high level of enforcement activity may sometimes explain the behaviour of officials (and an organisation at large).