Chillin'Competition

[I also provided feedback on Monday on the Ex Ante Regulatory Instrument for online platforms (see here). The main point I make, as you will see below, is that, if this regulation is adopted, it should follow the model of the EU Regulatory Framework for electronic communications. It would be paradoxical if the regime applying to online platforms would be more rigid, less adaptable and less able to cope with economic and technological developments than the one conceived for copper wires back in 2002]

As an independent academic, I welcome the opportunity to provide feedback on the Ex Ante Regulatory Instrument (the ‘Instrument). In accordance with the ASCOLA declaration of ethics, I am happy to clarify that I have nothing to disclose.

There is a range of options considered in the Inception Impact Assessment (‘IIA’). Of these, I will focus on policy option 3, which is the adoption of an ex ante regulatory framework applying to online platforms.

It would be particularly important to draw the lessons from the EU Regulatory Framework for electronic communications (on which I teach and conduct research). The Commission was aware at the time (1999-2002) that telecommunications activities were subject to rapid change and that the regulatory regime had to be flexible enough to adapt to the economic and technological evolution of the industry. There would every reason to craft the Instrument in accordance with the same principles. Not only is change rapid and unpredictable in digital markets; the issues and concerns are much more diverse than in telecommunications.

Accordingly, option 3a (a ‘blacklist approach’) comes across as one that is not suited to digital markets. Any perceived benefits of the approach would be clearly outweighed by the known drawbacks.

The experience of the EU Regulatory Framework shows that it is virtually impossible to anticipate the needs of regulation in evolving industries. Accordingly, capturing, at the time of drafting the instrument, all necessary forms of intervention is unlikely. A more flexible menu of remedies, that allows the regulatory authority to tailor intervention to the demands of each market and to innovate where necessary (as some authorities did with functional separation in the telecommunications sector) is more appropriate.

One should also take into account that unwarranted intervention has major costs for society and as such goes against the public interest. The sort of obligations that are outlined in the IIA (such as a blanket prohibition on self-preferencing) are not neutral on firms’ incentives and can be expected to have an impact on stakeholders’ decisions. Accordingly, requiring such an obligation where negative effects are implausible or unlikely inflicts a net cost on society.

Finally, this regulatory approach makes legislative change more difficult. Once enshrined in an instrument, remedies imposed may prove difficult to amend, whether this is to expand the scope of intervention or to reduce it. A principles-based regime, which leaves the matter to a case-by-case assessment is more appropriate.

Option 3b (case-by-case intervention) is closer to the flexible model. Such a regime would follow the approach already taken in the EU Regulatory Framework for electronic communications:

First, it would be expressly biased against intervention. Remedial action would only be warranted where deemed justified to achieve the objectives of the regime. Similarly, it should not go beyond what is necessary. Particularly far-reaching remedies altering a business model or the structure of an industry would need to meet distinctly strict criteria.

Second, the regime, as already explained, should be flexible and adaptable.

Third, it should be neutral: the regime should not favour some business models over others, in the same way the telecommunications framework is technologically neutral.

Fourth, it should devise a legal test analogous to the three-criteria test in telecommunications. It would define, on a case-by-case basis whether regulatory intervention on a market adjacent to a platform is warranted to preserve competition and innovation. The question that should be asked is whether effective competition on a given market is likely to be preserved in the absence of regulatory obligations imposed at the level of the platform. Similarly, remedies should be rolled back when no longer needed.