Chillin'Competition

This is the title of the last panel we will be hosting at our upcoming Chillin’Competition conference. The proposals floated to shift the burden of proof in relation to certain companies and practices were also the subject of a topical piece published yesterday in the Financial Times.

They were also the main issue I discussed in this recent piece for Competition Policy International: “Shortcuts and Courts in the Era of Digitization” (accessible to CPI subscribers; in a few days we will also make it freely available here). And it was also the topic on which I focused my intervention at a talk that Pablo and I had a couple of weeks ago with the great staff of the EFTA Surveillance Authority.

In spite of recent case law, talks like this one, books like this one, and papers like this one [note the relevant contributions from two brilliant young women in academia], there’s still a surprising amount of confusion as to what this burden entails, and as to when it falls upon the authority/plaintiff and on the defendants. These are questions we will address at our conference.

I say that the reigning confusion is surprising because most complex cases eventually hinge on this question. This is THE obstacle that authorities/plaintiffs need to satisfy in any given case. At times this has not seemed to be an issue, because enforcement has traditionally focused on clear-cut cases, and because in those cases we resort to presumptions that alleviate the burden (e.g. the “by object label”).

But the greater the complexity and the competitive ambiguity of the practice, the greater the importance of the burden of proof. Indeed, a number of decisions have been annulled with regard to more ambiguous practices (e.g. for failing to properly assess the relevant legal and economic context or the counterfactual or, in other words, for trying to shift the burden too soon).

It is certainly no coincidence that there are currently two opposite trends in our field, and that these changes are being suggested precisely at the time where EU Courts are placing greater emphasis on the Commission’s obligations in this regard (this was actually the lesson of Intel and Cartes Bancaires). And it is not surprising that many of the people suggesting these changes also advocate “Taking antitrust away from the Courts” (that is actually the name of the piece!).

And it is by no means an accident that the current proposals relate to practices that have ambivalent effects (my take on that is available here). This would not be necessary in situations (e.g. cartels) where a practice can only do harm. This is not about presuming harm in the light of clear lessons from economics and experience. It is about presuming harm absent those lessons, or against those lessons. It is about a dogma, believing in what we cannot see or prove. It may be somehow contradictory to argue that there is an abundance of obvious anticompetitive practices in the digital sector, but then recommend that their existence and anticompetitive potential be presumed, not shown on the basis of evidence. If a practice is truly anticompetitive, the evidence will be there.

But, of course, in the era of digitization we cannot bother with complexity, we have grown accustomed to immediate solutions and easy fixes that address our impulses.

The problem, however, is that the law doesn’t really work like that. As observed by President van der Woude in in this must-read JECLAP piece:

“[W]here the contested conduct of the public authorities is repressive in nature, it is hard to conceive, at least in free democratic societies, that citizens and firms can be condemned on the basis of estimates, approximations or guesses, even if they are informed ones. Uncertainty must then be balanced against the requirements of the presumption of innocence […]. [T]his balance is struck by relying on legal concepts, such as the burden of proof”.

Shifting the burden of proof in a quasi-criminal context is unheard of in jurisdictions subject to the rule of law and would set a first and dangerous precedent. Would the European Court of Human Rights, the EU Courts and Courts from Member States ever accept overturning the presumption of innocence? And, in the most unlikely scenario that they did, how could one confine ripple effects beyond digital platforms, and indeed beyond competition law?

Implementing these changes would certainly make enforcement much easier. No need to bother with foreclosure, effects, indispensability or causality. We could do away with those (and, in passing, with lawyers and judges too, as they also are annoying). I guess I have more trust in competition authorities: they don’t need this to bring up good cases.

Implementing these proposals would radically transform competition, but at a cost to basic legal principles that is just too high.

It’s time to start disclosing some details:

The Chillin’Competition conference marking our 10th anniversary will take place on 9 December 2019 at L’Arsenal (Chaussée de Wavre 950, 1040 Bruxelles, pictured above). Registrations will open up next Tuesday (5 November) at 10.am Brussels time via a link that will be made available on the blog.

We are thrilled that the conference will feature keynote interventions by Commissioner Vestager and General Court President Marc van der Woude. We are  also very grateful to all speakers for accepting our invitation to focus on what we believe are the current key themes in competition law,  and to our soon-to-be disclosed sponsors (anyone interested can still drop us a line).

And this is this the program:

THE CHILLIN’COMPETITION CONFERENCE 2019

9.00-9.30: Registration

9.30-9.45: The 10-Year Challenge

Alfonso Lamadrid (Garrigues)

9.45-10.30: Keynote by GC President Marc van der Woude

10.30-11.30 TED@Chillin’Competition  

Philip Marsden (Bank of England, College of Europe, CRA)

Frank Montag (Freshfields)

Jorge Padilla (Compass Lexecon)

Maurits Dolmans (Cleary Gottlieb)

11.30-12.15: Keynote by Commissioner Margrethe Vestager

12.15-13.30: 10 Years of Enforcement by the European Commission 

Kim Dietzel (Herbert Smith Freehills)

Lars Kjolbye (Latham & Watkins)

Kai-Uwe Kühn (University of East Anglia and The Brattle Group)

Nicolas Petit (University of Liège)

Vanessa Turner

Chair: Lewis Crofts (MLex)

13.30-15: Lunch

15.00-16.00: A New Competition Law for a New Decade? Chillin’ with:

Renata Hesse (Sullivan & Cromwell)

Heike Schweitzer (Humboldt University Berlin, Special Adviser to Commissioner Vestager)

John Sutton (LSE)

16.00-17.15: Articulating the Effects-Based Approach

Christian Ahlborn (Linklaters)

Svend Albaek (European Commission)

Avantika Chowdhury (Oxera)

James Killick (White & Case)

Christian Riis-Madsen (GibsonDunn)

Chair: Pablo Ibáñez Colomo (LSE and College of Europe)

17.15-17.45: Coffee Break

17.45-19:  Meeting or Shifting- The Burden of Proof

Eric Barbier de la Serre (Jones Day)

Kevin Coates (Covington & Burling)

Leigh Hancher (Baker Botts)

Kristina Nordlander (Sidley)

Nigel Parr (Ashurst)

Chair: Alfonso Lamadrid (Garrigues)

19-21.00 Drinks

I received wonderfully interesting comments to my first post on market definition in Android . That was really the blog at its best. I am really grateful

I felt I would not do full justice to the involvement of these readers if I just added a comment of mine to the pile. The insights are so powerful that it makes sense to give them more exposure (and hopefully lead to yet more comments).

Would a merger between Apple’s and Android’s app stores be unproblematic?

Chris was the commentator to break the ice. The inevitable consequence of the definition of a separate market for Android’s app stores emerged from our exchange. Taken to its logical consequences, Chris explained, the Commission’s approach implies that a merger between Apple’s and Android’s app stores would be unproblematic.

This is a counterintuitive outcome. The fact that it is counterintuitive, however, does not mean anything. Rigorous economic analysis often surprises us with outcomes that contradict our instincts. However, this conclusion could also mean that there is something funny going on.

Any thoughts in this regard would be most welcome. If there is indeed something funny going on, what is it? One possibility is that the assessment of competitive constraints cannot focus on switching alone. A second possibility is that there is scope for refining the assessment of switching (which is what Nicolas was suggesting in his comment). I will focus on the first point.

Competitive constraints: is it all about switching?

The idea that Apple’s app store does not exercise a sufficient constraint on Android’s app store (paras 652-673) relies, by and large, on switching (switching from the end-users’ perspective and the app developers’ perspective).

My immediate question here is: is there something beyond switching opportunities that we may need to consider when assessing competitive constraints? Another commentator, Andrew, gave an excellent example on supermarkets that comes across as a wonderful starting point for this discussion.

Suppose there are two supermarkets that do not compete at the retail level: each one operates in a different geographic area. However, they compete on the upstream market where they buy inputs from providers. Suppose, further, that they are the only buyers on the upstream markets, so suppliers have nowhere else to go, and cannot give up either.

Would a merger-to-monopsony between the two supermarkets of the example be unproblematic? My instinct tells me that, in all likelihood, such a merger would be blocked absent appropriate remedies (and Gianni, in his comment, makes it clear that of course it would be blocked). As a telecoms nerd, the Liberty Global/Ziggo merger, the underlying facts of which are not fundamentally different from those sketched by Andrew, came to mind.

Liberty Global/Ziggo appears to confirm that it is not all about switching (it does not seem to be framed in terms of switching anyway). The Commission identified a series of potential negative effects that would arise even when the suppliers lack the ability to switch from one to the other (or have no choice but to deal with the two buyers). The question was whether the transaction would increase the buyers’ bargaining power.

If a merger-to-monopsony could be problematic even absent switching opportunities for suppliers, perhaps competitive constraints faced by powerful buyers are indeed manifested in other ways (that is, it is not all about switching).

If this is the case, my question is: what are these other ways? Is it, for instance, buyers’ ability to refuse to carry certain products from certain providers? Why would a merger-to-monopsony reduce competitive constraints if suppliers lacked switching opportunities prior to the transaction?

Thanks a lot in advance for sharing your thoughts.

And please feel free to comment on Nicolas’ points. I understand his comments as suggesting that it may be tricky to define markets involving goods such as smartphones, which are not acquired everyday.

It could be interesting to compare the analysis in Android with the analysis of retail markets in the network industries (after all, end-users do not change providers every day, and may be faithful to some providers, in particular incumbent ones).

If you have found an embarrassing number of typos, at least you should know why by now.

Now that we are firmly in Autumn time, dates for major events start to pile up. We thought it would be a good idea to remind you of some of the major ones ahead of us. Time to plan, as they say.

Under the leadership of the wonderful Michal Gal, ASCOLA goes from strength to strength. All competition law scholars are grateful to her. The 2020 edition of the ASCOLA conference will take place in beautiful Porto. Academics: you have until late January to submit your papers or extended abstracts. More info can be found here.

Denis Waelbroeck and Jean-Francois Bellis run the venerable Mardis de la concurrence. I am proud to have presented on selective distribution last year. This year’s programme of events is truly outsdanding (see here). It features, inter alia, Carles Esteva, Pierre Regibeau, Marc van der Woude, Fernando Castillo, as well as a lawyer that goes by the name of Alfonso Lamadrid. Not to be missed if in Brussels!

A more recent venture, undertaken by UCL and White & Case, promises to become another classic in the Brussels scene. This year it is organised by Deni Mantzari and Makis Komninos and will take place on 21 November. You can find the programme here.

And last, but not least (albeit perhaps more urgent): the College of Europe alumni in competition law organises tomorrow an event on digital competition (see here). The event will be moderated by Aleksandra Boutin and will have Thomas Graf, Silke Heinz and Thomas Kramler as its speakers. You can still make it!

I do not believe it is news to anybody reading the blog that Abhijit Banerjee, Esther Duflo and Michael Kremer have been awarded this year’s Nobel Prize in Economics. In their case, the only question was when they would get the award, not whether they would.

I thought I would write a short post to offer an appreciation of their work. As an academic, I have always regarded them as inspiring figures. In particular, Esther Duflo (just like Jean Tirole) is the sort of academic all scholars should aspire to be. If you want to be inspired too, just take a look at her superb (passionate, thoughtful, articulate) TED talk on the matters that keep her busy.

It has become fashionable in some competition law circles to be dismissive of economics: too ideological, too theoretical, impractical, not real world at all. Typically, these cliches come from people with only the most superficial understanding of the discipline.

Perhaps worse, criticism of this kind is unfair to people like Esther Duflo, who devote their professional lives to the understanding of complex problems and, by doing so, to improving the lives of millions.

I have often told my friends that, if they want to make an effort and go beyond the surface to get an idea of what economics is really about (how it addresses problems, how it improves incrementally and how it is relevant for the real world), they should take a look at Poor Economics, the book for non-specialist audiences she wrote with Abhijit Banerjee.

I guess this eventful day is as good as any other to recommend it to everyone following the blog!

The Competition Law course founded by Luis Ortiz Blanco (and which I have helped co-direct for a few years now) is turning 23.  The course takes place in between January and March at the IEB (around the corner of the buildings above) in Madrid, generally from 16 pm onwards.

We’re very satisfied of what this course has achieved so far, gathering top competition lawyers (judges, officials, practicioners, academics) and economists from all over Europe, and attracting students from competition authorities, companies, law firms and universities, also from Latin America.

The course has always remained affordable for students. This is to a great extent due to Luis’ efforts and to the great contribution from the sponsoring firms and economic consultancies, which include Garrigues, Uria Menéndez, Cuatrecasas, Gómez Acebo y Pombo, MLAB, Latham&Watkins, Clifford Chance, Araoz&Rueda, NERA, Compass Lexecon and KPMG.

While we work on the beautified flyer, the general program is the following:

Introductory session (17 January 2010), by Pablo Ibañez Colomo (LSE, College of Europe)

Module I: Cartels and procedure (20-22 January)

Module II: Other agreements and restrictive practices; horizontal and vertical agreements (27-29 January)

Practical Workshop: Inspections (31 January 2020)

Seminar 1: Recent Developments in EU Competition law (31 January 2020)

Module III: Abuse of Dominance (10-12 February 2020)

Module IV: Merger Control (24-26 February 2020)

Practical Workshop 2: Merger control in practice (6 March 2020)

Seminar 2: Competition Law in Hi-Tech Markets (6 March 2020)

Module V: Sector Regulation and Competition Law (16-18 March 2020)

Module VI: Public Competition Rules and State aid (23-25 March 2020)

Practical Workshop 3: Vertical Distribution Contracts (27 March 2020)

Seminar 3: Private Application of the Competition Rules: Procedural Aspects (27 March 2020)

***

For any practical question and information about registrations, please send an email to competencia@ieb.es or drop me a line.

Like many others, I guess, I jumped on the Android decision as soon as it became available (see here). If you have not done so, you should definitely read it. It provides abundant food for thought. It is not an exaggeration to say that a whole competition law course could be taught around it. Pretty much all the (unresolved) issues are there, in a fascinating factual setting with plenty of intriguing ingredients.

It would be great if the decision were widely discussed. The general interest is not served when only those with an interest in a case talk and write about it. When there is so much at stake, the atmosphere tends to get ugly and aggressive (footballised, if you want). The youngest among you should not feel discouraged: you can change the tone of debates by asking questions and/or sharing your views.

I thought I would kick off (no pun intended) with the issue of market definition and dominance, which has attracted a great deal of interest. One of the most intriguing aspects of the original press release was the suggestion that the Apple and Android ecosystems do not constrain each other. The detailed rationale behind this conclusion is now there for all to see.

Since the definition of the market and the assessment of dominance are essentially economic exercises, the right way to go about it is to raise some questions to specialists. It would be wonderful if you could share your thoughts on the comments section.

I will not discuss all aspects of these two questions, just the two that I find to be particularly interesting. Some people may react by saying that these two questions are not even decisive. To which I reply: perhaps, but I am not, and have never been, interested in the outcome of individual cases. Plus, there are more posts for discussion coming up.

One of them relates to the app store. According to the decision, there is a separate market for Android app stores. The most salient implication is that Apple’s app store would be on a separate market. In the same vein, the constraint placed by Apple’s app store would not be sufficient to rule out a finding of dominance.

The second concerns the market for operating systems. The Commission concludes in the decision that there is a separate market for the licensing of smart mobile OS. Again, non-licensable smart mobile OS (read: Apple iOS) are found not to be on the same market. What is more, the constraint coming from Apple iOS is not deemed strong enough to exclude a finding of dominance.

App stores as two-sided markets? What are the implications?

The first set of questions is for economists in general and for Lapo Filistrucchi in particular. As most of you know, Lapo – together with his co-authors – has written influential work on two-sided markets. In part, his research seeks to tame people’s enthusiastic tendencies to see two-sided markets everywhere. So whenever I notice a setting that might be a two-sided market, I ask myself what he would say.

My (cautious) impression is that the app store is a two-sided market. Would that be correct? Using Lapo’s helpful categorisation, I am inclined to conclude that it is a transaction market (in an app store, there is a transaction between the two sides of the market). Hopefully full points so far.

If I understand the scholarship on two-sided platforms correctly, it would follow that there is a single market encompassing both sides. Even more interesting is the analysis of the competitive constraints. My question here I guess is: how are the constraints evaluated in practice?

In this regard, the decision provides a fascinating case study. If you read the decision (paras 652-673), you will see that the Commission focuses, by and large, on Android end-users’ inability and/or unwillingness to switch OS (and thus phones). I guess my question here is: is this factor decisive?

According to the Horizontal Merger Guidelines, the absence of switching opportunities does not rule out a horizontal overlap (that is, a competitive constraint). I would say that, in a two-sided market, the fact that one side of the market cannot (or would not) switch is even less decisive. I would welcome thoughts and clarifications in this sense.

How about the other side of the market? Less importance is given to app developers in paras 652-673. But it is worth reading para 668, where the Commission states (uncontroversially, I would say) that app developers would not switch away from Android because they could not afford to do so.

My question here is: does it follow from that – uncontroversial – finding that Android’s and Apple’s app store do not constrain each other? As I read para 668, I thought of an Australian-like country with two very large supermarket chains (I visited Australia in 2013 and what I paid for groceries still haunts me). Many suppliers would not be able to give up either supermarket chain in such a scenario. Would it follow that the two chains do not constrain each other?

Android as a franchise and the analysis of indirect constraints

When I first wrote about Android, I suggested that the underlying business model is best understood as a form of franchising. I am still of this opinion after reading the decision. Just like McDonald’s, Google licenses its formula so that third-party OEMs can sell their products alongside vertically-integrated manufacturers (euphemism for Apple).

Seen from this perspective, the Android decision claims that the licensing of the formula by the franchisor is a separate product market. Even more interesting is the finding that the franchisor is not constrained by Apple. As I see it, it would be tantamount to suggesting that McDonald’s would not be constrained by vertically-integrated fast-food hamburger restaurants.

It may be a counterintuitive claim, but it is extensively supported by two sets of arguments. First (paras 483-496), I understand the decision as suggesting that the OS is one of many features found in a smartphone, which would allow McDonald’s (I mean, Google) to decrease the quality of its operating system without suffering the consequences. In other words, the Commission conducted an SSNDQ analysis. I find it great that we will be get some guidance about the robustness of this exercise (question: has the GC ever reviewed an SSNDQ assessment?).

Second (paras 497-559), the same arguments discussed above (including the fact that app developers would not be able to afford abandoning Android and Android users’ inability and/or unwillingness to switch OS and devices) are also advanced to rule out that vertically-integrated systems constrain non-integrated ones. So the same questions I raised above would be relevant here too.

In addition, the Commission emphasises the price differences between Apple and Android phones. Again, here my main question for economists would be: how decisive are these price differences? Similarly, I would also ask about the implications. How about high-end Android devices? Would it follow that further segmentation of the market is warranted?

As said above, I very much look forward to your reactions.

In case you were wondering (which I would understand): Alfonso and I generally comment on each other’s posts prior to publication. Not this time. I have not shared or discussed this post with him (nor will I share or discuss any of the subsequent posts in this series). So now you know the answer to the question ‘why are there even more typos than usual in Pablo’s post?’.