Chillin'Competition

We are happy to feature the last instalment of the symposium of Nicolas Petit’s book on Big Tech & The Digital Economy. A grand finale with four wonderful contributions. Enjoy!

Moligopoly as the Coexistence of Structural Monopoly with Cognitive Oligopoly or An Inquiry into the Theory of the Apologetic Com(Petit)ion, by Oles Andriychuk

The Moligopoly Scenario as a research agenda, by Pierre Larouche

Protecting the competitive process, not a competitive structure, by Frédéric Marty

Beyond a bananas approach to antitrust: Understanding competition in tech, by Renato Nazzini

Thank you all for your enthusiasm about the 2020 Competition Memes Competition (if only you were so enthusiastic when we discuss hybrid settlements, selectivity, or the actual implementation of the AEC test…).

We have so far received an impressive number of great contributions (keep them coming!). For your own good, we will be rationing them on a weekly basis. Here is the second batch:

“Commission officials are here! They asked for your phone and your laptop!“

Competition lawyer after explaining the RPM concept to the client’s sales department.

If you thought nothing else bad could happen in 2020, well… you were wrong. We thought a bit of humor could do us all well, and if there is one good thing about the competition field, it is that it offers plenty of opportunities to laugh about ourselves.

So… following the success of our 2016 competition memes contest and of our 2018 classical memes competition, we are now launching the 2020 Competition Memes Competition. It will feature some of the worst jokes you have ever seen.

We have assembled a team of reputed specialized journalists with vast experience in bad jokes to serve on the Jury, namely Lewis Crofts (Mlex), Foo Yun Chee (Reuters), Javier Espinoza (Financial Times), Thibault Larger (Politico) and Aoife White (Bloomberg).

Candidate submissions can include memes, gifs, classical memes, captions, or pretty much any other blog-friendly format that you please. You can send your contributions to chillingcompetition@gmail.com

Over the coming weeks we will be sharing on the blog a selection of the best memes received. We will announce the winners by 17 December.

Below you can find the first batch, just to get the ball rolling:

Abuse of dominance in digital markets will feature prominently in this year’s OECD Global Forum on Competition Law, to take place between 7-10 December 2020 (see here for the programme).

I will be privileged to discuss the subject alongside Cristina Caffarra (CRA), Amelia Fletcher (UEA) and Lina Khan (Columbia Law School).

If you are intrigued by the topic, the OECD has had the great idea of releasing a wealth of materials ahead of the event, including an extensive Report.

They have also asked the speakers to prepare a short blog post and a video clip. You can find mine here and here. My presentation is also available, as a pdf, here.

The point I make will be familiar to those reading the blog. I argue that there is something distinctive about abuse cases in digital markets. Insofar as it is, I do not believe one can argue that they are business as usual.

To illustrate this idea, I show (as I have done in the past) that traditional competition law cases deal with how products are sold. In digital markets, competition authorities find themselves venturing into the ‘black box’ and interfering with how products are made.

Intervention of that kind is more controversial, demands more resources and is more prone to errors. It is not a surprise that competition law was deferential vis-a-vis product design and/or business model choices. Thus, it only rarely went opened the proverbial ‘black box’.

Two questions arise, against this background. From a legal perspective, the question is whether it is wise to depart from the legal tests that have so far limited the system’s exposure to proactive intervention. From a policy standpoint, the question is how often, and in what circumstances, competition authorities want to interfere with how products are made.

As most of you will have seen already, the Commission has sent Amazon a Statement of Objections concerning the use of third party sellers’ data. According to the press release, the authority has come to the preliminary conclusion that this practice amounts to a breach of Article 102 TFEU.

In addition, the Commission has decided to open an investigation concerning the conditions under which third-party retailers gain access to some advantages (namely the so-called ‘buy box’ and Amazon Prime customers).

The two cases are variations on the theme of self-preferencing. In the case of the former, Amazon’s own retail arm would have a competitive advantage. In the case of the latter, third parties using Amazon’s ancillary services would gain an edge over rivals.

These investigations signal the rise of common carrier antitrust. It is an approach to the enforcement of Article 102 TFEU (and EU competition law more generally) that represents, in several key respects, a break from past practice.

The distinctive features of common carrier antitrust are twofold.

• First, the idea that there is something improper, or inherently anticompetitive, in self-preferencing.
• Second, the setting of a low threshold of anticompetitive effects, which would be straightforward to establish in virtually every instance.

Is access to non-public data an expression of competition on the merits?

In its statement of objections, the Commission expresses its preliminary view that Amazon’s use of third-party sellers’ data amounts to an abuse of a dominant position.

The data, which is not publicly available, relates to issues such as ‘the number of ordered and shipped units of products, the sellers’ revenues on the marketplace, the number of visits to sellers’ offers, data relating to shipping, to sellers’ past performance, and other consumer claims on products, including the activated guarantees‘.

The essence of the Commission’s argument is that, by using this data, Amazon would be exploiting its dual role as (i) a marketplace providing services to third-party sellers and (ii) an online retailer.

In particular, the data would give its retail arm a competitive advantage that it would be able to use against rivals.

The press release is remarkable in that it suggests that there is something inherenly anticompetitive in this practice. From this perspective, the use of non-public data from rivals would be an ‘improper’ way of competing. More precisely, the Commission claims that the practice allows Amazon to ‘avoid the normal risks of retail competition‘.

This wording, which is (most intriguingly) vaguely inspired from the definition of concerted practice, signals a new approach to the enforcement of Article 102 TFEU for a number of reasons.

First (and most obviously) it is at least plausible that Amazon’s use of this data improves the conditions of competition (in the marketplace and/or on adjacent markets).

This is so, in particular, if Amazon uses this strategy to challenge the position of well-established players. Why would a practice that is capable of placing competitive pressure on incumbents be an ‘improper’ way of competing?

Second, it is unclear what would turn Amazon’s conduct into an ‘improper’ method. Finding business opportunities by replicating what others are doing well is as old as doing business. Absent a breach of intellectual property, it looks like a most natural expression of competition on the merits.

What is more, it is a commonplace practice in the retail sector (these are long-standing complaints against supermarkets, including the use of non-public data).

What is distinctive, or unique, about Amazon’s behaviour, against this background? Is it the scale? Is it the fact that Amazon is more effective in the gathering and use of third-party data? These questions seem key to making sense of the case.

Finally, one should not forget that all firms (not only Amazon) exploit their advantages. There is nothing inherently anticompetitive in doing so. On the contrary.

In fact, the whole purpose of competition law has never been to create a level playing field in which firms compete with the exact same forces and assets. The point of competition law is instead to ensure that firms retain the ability and incentive to make the most of what they have.

Against this background, the question that comes to mind is whether it is possible to distinguish, in a meaningful way, between competitive advantages that can and cannot be exploited or between competitive advantages that are proper and improper.

What about anticompetitive effects?

The press release suggests that the use of non-public data would allow Amazon to ‘leverage its dominance in the market for the provision of marketplace services‘.

Remarkably, however, the press release is not explicit about the markets that would be affected by the practice. Insofar as Amazon’s conduct is capable of improving the conditions of competition and of injecting rivalry, one would expect the issue of anticompetitive effects to feature prominently as the crucial inquiry in the case.

The wording of the press release raises the question of how the analysis of anticompetitive effects will be conducted by the Commission. A second, related one, is whether the analysis will be relaxed relative to the case law.

More precisely: will the Commission equate a competitive advantage with anticompetitive effects? The case law suggests that this tendency is not unusual in competition authorities. This same case law makes clear that an advantage does not amount, in and of itself, to an anticompetitive effect.

In addition: will the threshold be set at the level of plausibility (as opposed to likelihood)? If so, the analysis of effects would become a mere formality (potentially abusive conduct is most of the time a plausible source of anticompetitive effects).

My impression is that common carrier antitrust tends to lead to a relaxation of this assessment. Under this sui generis approach to Article 102 TFEU, any distortions of competition that come from self-preferencing are deemed problematic, even when they intensify rivalry.

It will be fascinating to see whether this is indeed the path followed.

I very much look forward to your comments. If there was any doubt: I have nothing to disclose.

Because we tend to be absorbed by the latest news, we may forget that there are several pending cases of interest before the Court of Justice. One of these is Servizio Elettrico Nazionale, which is a preliminary reference lodged back in July of this year.

The interest of this reference, from the Italian Consiglio di Stato, is that it raises a number of fundamental issues about the interpretation of Article 102 TFEU.

While the case law seems to provide an answer to all the questions, a judgment addressing some core principles is likely to become a reference. The questions also provide an occasion to look back and reflect on the contributions made by the Court over the past decade.

I thought it would make sense to go over four of the five points raised in the submission and start a discussion from there. I very much look forward to your thoughts.

May conduct that constitutes an abuse of a dominant position be completely lawful in and of itself and be classified as ‘an abuse’ solely because of the (potentially) restrictive effect created in the reference market, or must that conduct also be characterised by a specific ‘unlawful’ component, represented by the use of ‘competitive methods (or means) that are different’ from those that are ‘normal’? In the latter case, what criteria should be used to establish the boundary between ‘normal’ and ‘distorted’ competition?

Thoughts: This is an important question of principle. It is arguably the most interesting in theory and perhaps the least crucial in practice. I have the impression that the divide between ‘proper’ and ‘improper’ forms of competition is relevant, but not in the sense suggested in the reference.

I understand the question to ask, in essence, whether there is something inherently bad, ‘improper’ or abnormal in conduct that qualifies as abusive under Article 102 TFEU.

As I understand the case law, it seems clear that conduct that is not inherently anticompetitive (and as such a valid expression of competition on the merits) can be found to be abusive if certain conditions are fulfilled.

There is nothing inherently anticompetitive, for instance, in a refusal to license an intellectual property right. The point of such rights is to reward inventive and creative efforts. And exploiting the fruits of one’s efforts as one sees fits is arguably the purest and least controversial expression of competition on the merits.

However, even a refusal to license can amount to an abuse in the exceptional circumstances defined in Magill and IMS Health.

As you can see, this example suggests an an affirmative answer to the question. It is certainly not the only one. A reading of the case law shows that other valid expressions of competition on the merits can be abusive where certain conditions are fulfilled.

For instance, the Court clearly held in Deutsche Telekom and TeliaSonera that a ‘margin squeeze’ is not, in and of itself, contrary to competition on the merits. Accordingly, it is only abusive where it is likely to have anticompetitive effects.

At its heart, the question raised by the Consiglio di Stato points to the divide that exists in the case law between practices that are inherently against competition on the merits (‘by object’ conduct) and those that are not inherently anticompetitive but that may be caught by Article 102 TFEU where some conditions are met (‘by effect’ conduct).

I wrote about ‘by object’ and ‘by effect’ abuses here. It is a divide at which the Court hinted in Generics (para 155). It would seem that the line between ‘proper’ and ‘improper’ conduct is relevant, but not in the sense suggested in the preliminary reference.

The divide between ‘proper’ and ‘improper’ conduct is useful not so much to define the boundaries of Article 102 TFEU but to identify the instances in which an analysis of effects is necessary.

Thus, only conduct that is inherently at odds with competition on the merits can be found to be abusive without conducting an evaluation of its likely impact.

For instance, pricing below average total costs but above average variable costs is abusive irrespective of its effects where it is part of an exclusionary strategy (AKZO, para 72).

Absent the element of impropriety, it would be necessary to examine the likely effects of the practice on competition (Post Danmark I, paras 38 and 39).

Is the purpose of the concept of abuse to maximise the well-being of consumers, with the court being responsible for determining whether that well-being has been (or could be) reduced, or does the concept of an infringement of competition law have the function of preserving in itself the competitive structure of the market, in order to avoid the creation of economic power groupings that are, in any case, considered harmful for the community?

Thoughts: Again, it seems to me that the answer to this question should not be controversial. The Court has repeatedly held that a finding of abuse is not contingent on harm to consumer welfare. Article 102 TFEU is concerned with the protection of the competitive process (or ‘competition as such’).

More precisely (and as consistently held by the Court over the past decade), the law of abuses is concerned, at least as a matter of principle, with equally efficient rivals.

The only exception of which I can think is the Magill/IMS Health doctrine, where the Court required evidence of consumer harm (i.e. the new product condition). For the rest, one cannot credibly argue that such evidence is a precondition to establish an abuse.

In the case of an abuse of a dominant position represented by an attempt to prevent the continuation or development of the existing level of competition, is the dominant undertaking in any case permitted to prove that the conduct did not cause any actual harm, despite its abstract ability to generate a restrictive effect? If the answer to that question is in the affirmative, for the purposes of assessing whether an atypical exclusionary abuse has occurred, must Article 102 TFEU be interpreted as meaning that the Authority has an obligation to examine specifically the economic analyses produced by the party concerning the actual ability of the conduct examined to exclude its competitors from the market?

Thoughts: Again, we seem to be on well-trodden ground here. On the one hand, the Court has clarified (in Post Danmark II, para 65) that the effects on competition must not be ‘purely hypothetical’. The analysis of actual or potential effects must always consider the relevant economic and legal context of which the practice is a part.

On the other hand, the Court has also clarified that the effects need not be actual. Potential effects on competition are sufficient to establish an abuse.

It may be difficult to distinguish between these concepts (actual vs potential effects; and potential effects vs the threshold of effects – capability likelihood and so on). This is something I acknowledged and discussed in this paper on anticompetitive effects.

Must an abuse of a dominant position be assessed solely in terms of its effects on the market (including merely potential effects), without regard to the subjective motive of the agent, or does a demonstration of restrictive intent constitute a parameter that may be used (even exclusively) to assess the abusive nature of the dominant undertaking’s conduct? Does such a demonstration of the subjective component serve only to shift the burden of proof to the dominant undertaking (which would have the burden, at this stage, of providing evidence that the exclusionary effect is absent)?

Thoughts: I do not believe one can argue any longer that the subjective intent of a firm is either necessary or sufficient to establish an abuse. Subjective intent is not necessary in the sense that, ever since Hoffmann-La Roche, the Court has ruled that the notion of abuse is an objective one. However, a firm’s motives may complete the picture (AKZO on predatory pricing, mentioned above, is an excellent example).

On the other hand, subjective intent, alone, is not sufficient to establish an abuse. In this regard, Generics was particularly explicit and helpful. The Court held that the application of Article 102 TFEU ‘presupposes that that conduct was capable of restricting competition and, in particular, producing the alleged exclusionary effects’ (para 154).

It is therefore clear after Generics it is clear that a practice is not abusive if it is incapable of having anticompetitive effects. Such effects are sometimes presumed, and thus need not be established by an authority or claimant (this is so in relation to ‘by object’ conduct).

The above said, a dominant firm can always provide evidence showing that the practice, in its economic and legal context, is incapable of having effects (which is the fundamental contribution made by the Court in Intel).

I have just uploaded on ssrn a paper (see here) on some of the reforms of the competition law system that were proposed in the reports that dominated the discussion a while ago (including the Special Advisers’ Report for DG Comp and the so-called Stigler and Furman Reports).

While the momentum has slightly moved away from these reports as we wait for concrete proposals for a platform-specific regulatory regime, it makes sense to take a look at the vision and solutions contained in them. The exercise is particularly important when it is not unusual to hear that competition law could do much more in digital markets if we so wished.

As I explain in the paper, the essence of the proposals advanced in the abovementioned reports is relatively simple: make it easier and faster to establish infringements (chiefly by reversing the burden of proof) and, in some cases, reduce the constraints on the authority (in paticular by relaxing the scope and intensity of judicial review).

These ideas, if implemented in one way or the other, would entail a shift in the competition law system: from a system driven by law and centred around the courts, we would move to one that maximises agencies’ discretion, insofar as they would have much greater leeway to achieve the outcomes desired from a policy-making perspective.

My paper (nothing to disclose, as usual) makes the following points:

Finding an infringement is not the end, it is the end of the beginning

Many discussions on digital markets seem to be premised on the idea that, if finding an infringement were made easier, enforcement in digital markets would be more effective. This premise explains the proposals to shift the burden of proof or to introduce the black and grey lists that promise to take us back to the days of the pre-modern block exemption regulations.

The truth is that finding an infringement is nowhere near the end of the inquiry in digital markets. As I graphically put it in a recent conference, it is just the end of the beginning (and certainly not a guarantee of successful enforcement).

The typical case in digital markets is far more ambitious that the usual, run-of-the-mill competition law case. This is so because it often demands the administration of proactive remedies that amount to redesigning a product or altering the core of a firm’s business models.

Proactive remedies of this kind are known from experience to be difficult to design, implement and monitor. The problems that come with them are not a one-off issue, but one that is likely to be emerge almost inevitably every time a competition authority chooses to venture down the proactive road.

I do not believe the challenge that comes with proactive remedies (including in terms of resources for authorities) can and should be wished away. Reversing the burden of proof will not have an impact on this challenge. If anything, it will exacerbate it by exposing competition authorities more frequently to it.

There is a tension between some proposals (on the burden of proof, on interim measures) and the case law

There tends to be friction between legal innovations and the law as it stands at the time of their introduction. It is therefore not surprising that some of the proposals advanced in the reports are not immediately obvious to square with the case law.

In particular, there appears to be some friction between the idea of reversing the burden of proof in digital markets, for instance, and the principles of the case law as enshrined in Budapest Bank and other recent cases.

In Budapest Bank, the Court held that it would not be appropriate to prohibit a practice irrespective of its effects (that is, ‘by object’) when there is insufficient experience about it and/or where a practice is capable of having both pro- and anticompetitive effects.

Alas, and as explained by the Special Advisers in their Report, there is much that is not yet well understood about the efficiencies of some practices in digital markets.

As far as interim measures are concerned, the President of the General Court, in IMS Health appeared to introduce two limits to intervention. First, they are not the appropriate forum for interpretations of Articles 101 and 102 TFEU that depart from, or expand the scope of, the relevant case law.

Second, the point of interim measures is to preserve the status quo (they are known as mesures conservatoires for a reason) not to alter market structures.

The case law is relevant at two levels. It is relevant if any of the proposals to reform the system is based, at least in part, on the Treaty provisions on competition. Even if it is not, one should not forget that there is a great deal of wisdom in the case law in the sense that it encapsulates decades of learning.

Judicial review is first and foremost about the general interest

Arguably, some of the most controversial proposals relate to judicial review. Where others (for instance, the German Competition 2.0 Report) rejected the idea outright, the Furman Report toyed with the possibility of relaxing the scope and/or intensity of courts’ scrutiny of administrative action.

The Furman Report claimed that the threat of judicial review can deter aggressive agency intervention and argued that a balance needs to be struck between the protection of a firm’s rights and those who would suffer the consequences of under-enforcement.

I do not believe such a characterisation of judicial review is one with which many will agree. Judicial review is first and foremost about protecting the general interest, not the interests of particular firms.

In the continental tradition, moreover, agencies do not enjoy any leeway (à la Chevron) when defining the substantive scope of legal provisions. In this regard, some might add that the current context provides the best illustration of why full review on all issues of law and fact is so necessary.

Bonus: read Hovenkamp’s ‘Antitrust and Platform Monopoly’

Among the mass of papers that have been produced on the topic, I strongly recommend this inspiring paper by the venerable Herb Hovenkamp. It is coming out in the Yale Law Journal and it is entitled ‘Antitrust and Platform Monopoly’. It addresses meaningful remedial approaches to some issues, in particular the rise of winner-takes-all markets and killer acquisitions.

Herb Hovenkamp, inter alia, emphasises a key point I also make in my paper. Competition law cannot change the features of markets. If a market is a natural monopoly, intervention will not alter this tendency, irrespective of how hard we believe in it.