Chillin'Competition

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Amazon’s Antitrust Paradox (the real one): The Strange Case of the Bundeskartellamt (by Pablo)

with 10 comments

the strange case

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).

Written by Pablo Ibanez Colomo

30 November 2018 at 5:33 pm

Posted in Uncategorized

10 Responses

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  1. Dear Pablo,
    I don’t see the problem or paradox. The BKartA subsidises (if you want to use that concept) online marketplaces. We could say that is a genus. If there are species, say dominant online marketplaces, within that genus that may cause competition problems, the competition authority intervenes. Seems perfectly sensible.

    Hans

    3 December 2018 at 10:06 am

    • Thanks very much as usual, Hans!

      You seem to argue that it is sensible to stop a fire. I agree. My point is that there is something paradoxical in an authority expressing concerns about a fire that its very activity has started (or fuelled). Is it not better to avoid starting (or fuelling) the fire in the first place?

      To make it even more interesting, it is not even clear that there is a fire to begin with!

      Pablo Ibanez Colomo

      3 December 2018 at 4:15 pm

  2. 1) I also don’t see a paradox: market places can behave illegally in some aspects of their business but can be the victims of illegal behaviour from others in other aspects. The BKartA investigates those illegal practices; it does not pick parties to subsidise.

    2) I agree that the case could become difficult if the BKartA tries to use the essential facility doctrine. Yet consider that while Amazon may not be indispensible to all producers (especially not the luxury producers that used the marketplace bans), it may be indispensible to many other traders. German competition law has a special abuse prohibition for this situation in § 20 GWB. This clause has different standards than Art. 102 TFEU.

    Max

    3 December 2018 at 5:34 pm

    • Thanks very much for your insights, Max! I am aware of the ‘relative market power’ provision in German law. It does not change any of the issues I raise in the post.

      The fundamental point, ie that the Bundeskartellamt’s policy on online marketplace bans strengthens Amazon’s and eBay and thus the dependence of merchants vis-a-vis online marketplaces, remains unaltered.

      The same is true about the fact that these policies, taken together, favour online merchants (some of which will be SMEs) at everyone else’s expense.

      For the rest, I guess we will have to wait and see!

      Pablo Ibanez Colomo

      4 December 2018 at 7:15 pm

  3. Hi Pablo,

    I’m not sure about the analogy, but I’ll go along since it appeals to me. As a a fairly avid logger and fan of wood burning stoves, I’d say that it is not always sensible to want to stop fires. In fact, I’m about to light the stove and would really like it to keep burning until I go to bed. I would add that it is very sensible to collect as much wood as possible. If some of that wood burns in an uncontrolled fashion, I’d definitely try to extinguish that particular fire. That I harvest trees and thus stock fuel is not paradoxical with trying to stop unwanted fires and actually lighting some others.

    As to whether there’s a fire in the first place, I’m not sure about Amazon’s position in the market and whether that triggers 102 TFEU. As Max points out, the GWB provision on relative market power could be a different story, however.
    all the best,
    hans

    Hans

    4 December 2018 at 6:31 pm

    • Ha! That is definitely an elaborate analogy, but I am not sure it captures the point I was trying to make. Thanks again for reading us!

      Pablo Ibanez Colomo

      4 December 2018 at 7:18 pm

  4. At the – excellent – CRA event in Brussels, Andreas Mundt argued that he preferred remedies which fix the problem to high fines. This goes very well with your point that the FCO is behaving more like a regulator than like an enforcer of (ideally) clear-cut rules which are intended to guide behaviour ex ante.

    As an example of the practices which the FCO may regard as objectionable, he mentioned that, under Amazon’s T&Cs, the courts of Luxembourg have jurisdiction for claims against Amazon. I for one don’t really see the problem – there is no reason to presume that Luxembourg courts will automatically be biased against German claimants (moreover, they even hear cases in German). But the fact that you have to get into these kinds of arguments shows that there is something wrong with the question.

    HK47

    7 December 2018 at 12:37 pm

  5. Hi and thanks for an interesting article. I am wondering how the BKA’s relatively restrictive treatment of Online Travel Agents’ (such as Booking.com and HRS) parity clauses squares with “subsidising online market places”?

    David

    10 December 2018 at 2:33 pm

    • What a great question, David, thank you! I believe we can reason by analogy to make sense of the case you mention.

      As you see in my post, the Bundeskartellamt seems to be applying two types of measures: some measures that secure access to online marketplaces (and online platforms at large?) and some measures aimed at regulating the conditions of access to online marketplaces by its users.

      The former subsidise online marketplaces, the latter regulate them. The case you mention falls, clearly in my view, under the second category.

      Thanks again! I look forward to your thoughts

      Pablo Ibanez Colomo

      10 December 2018 at 5:20 pm

      • Thanks Pablo. Your analogy makes perfect sense. But it makes me wonder (as some other have also commented on), if there is a paradox in BKA’s behaviour? Thinking about the Amazon, Asics, and HRS cases, one might argue that it is the specific conduct and market context that (rightly?) warrants scrutiny by the BKA. For example, in Asics it is the manufacturer imposing restrictions, in HRS the distributor/platform, and in Amazon the vertically integrated distributor/platform+manufacturer. Thus the likely effects on competition may be rather different in each case.

        David

        11 December 2018 at 10:48 am


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