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Archive for August 21st, 2020

Apple’s App Store: a microcosm capturing what digital cases are all about

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Developers using Apple’s App Store have been voicing their grievances for a while. These complaints reached a whole new level last week, when a high-profile developer (or so the younger generations say) very publicly defied Apple’s rules. As expected, the firm – Epic – was expelled from the app store and the confrontation made the headlines (see here).

Reading about this sensational story made me realise it captures effectively what is new and distinctive about disputes in digital markets. There are some patterns that cut across pretty much every case against Big Tech. The point underpinning the complaints – what these seek to achieve – is identical.

The rise of the powerful complainant

Epic is a large and successful firm that offers the most popular videogame these days. It shows. The video accompanying its confrontation with Apple deserves to be watched (here, via, ahem, another platform). It is a play on Apple’s iconic 1984 ad and an astute way of pitching Epic as the outsider siding with ordinary folks against the (fruit-shaped) establishment.

Epic exemplifies the rise of the powerful complainant. This development is perhaps the single most relevant change in the competition law ecosystem over the past decade. Until relatively recently, firms – in particular large and successful ones – were wary of proactive, far-reaching competition law intervention. They all sang to the same cautious tune.

Not anymore. In fact, a few large multinationals keep urging authorities to take risks and, if necessary, depart from the case law and/or introduce new ad hoc rules. ‘Act fast, deal with the unintended consequences later’ is the mantra on the rise. Just like Epic, these players seek to persuade the wider public that these changes do not just suit their agenda but are good for society at large.

The above can hardly be criticised. It would be surprising if firms did not attempt to advance their interests on all fronts, including the legal one. The point is that the changing ecosystem introduces new, fascinating and to some extent unprecedented dynamics [note: if you happen to be a political scientist reading this post, drop me a line!).

It is all about access and rents: the fight for a larger slice of the pie

If one looks at the past and ongoing investigations involving large online platforms, it becomes apparent that there is an overarching theme cutting across all cases. In essence, complainants seek to secure access on improved terms and conditions. More precisely, they intend to capture a larger share of the rents generated by the platform.

This conclusion is obvious to draw from disputes around the App Store. Complainants in these investigations have been candid about the thrust of their claim: they consider that the 30% commission charged is excessive and thus should be entitled to a larger slice of the (apple) pie.

The rest of cases are no different, whether they are said to concern exploitative or exclusionary behaviour.

The interim measures adopted by the French competition authority – and concerning press publishers – are an obvious example (see here). The struggle for ‘equal treatment’ in Google Shopping was in essence a struggle for the traffic (and thus the rents) generated via the search engine.

Even investigations on Amazon’s marketplace are, at their heart, about rents: the data shared by retailers using the marketplace is just part of the price they pay to access the platform. It is, in other words, a fraction of the commission charged by Amazon (and should be analysed as such).

How these cases may change competition law

EU competition law occasionally ventures into the allocation of rents within a value chain. It has never been disputed that Article 102 TFEU applies to exploitative conduct by dominant firms. It is not a secret, on the other hand, that the Commission has always been careful about opening exploitation cases, for very good reasons.

It will never be never easy to determine the appropriate remuneration for a firm developing an input or infrastructure, let alone the optimal allocation of rents across the value chain. The unintended consequences of intervention along these lines are also well known.

These questions – this is not a secret either – are considerably harder when it comes to online platforms. This is so for two reasons. One relates to the dynamic and fast-moving nature of digital markets, which makes the task more prone to errors than, say, getting the access price to the telecoms network right.

The second reason is not always acknowledged. Re-allocating rents across digital markets typically goes much further than tweaking the the price of a medicine or the tariffs of a copyright collecting society. It often involves changing a firm’s product, business models and/or degree of integration.

Just think of the aftermath of Google Shopping (the design of the search engine was modified) and Android (the business model was altered) or of the implications of ruling that Apple may not impose an in-app purchase system (intervention would add an additional layer of modularity).

As already explained (see here), EU competition law is even more careful about imposing remedies leading to such outcomes (which, in turn, is the reason the indispensability condition has traditionally acted as a legal filter to limit the instances in which the system is exposed to them).

As the ‘act fast, deal with the unintended consequences later’ mantra gains traction, the exception comes closer to becoming the rule, and the system closer to dealing, on a routine basis, with the very issues it has avoided for decades. Fascinating times indeed.

Written by Pablo Ibanez Colomo

21 August 2020 at 3:34 pm

Posted in Uncategorized