Chillin'Competition

Relaxing whilst doing Competition Law is not an Oxymoron

NEW PAPER | What can competition law achieve in digital markets? An analysis of the reforms proposed

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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.

Written by Pablo Ibanez Colomo

2 November 2020 at 11:54 am

Posted in Uncategorized

One Response

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  1. Thank you. As always, illuminating.
    A short comment on the last point that “competition law can’t change the features of the markets [particularly when we talk about such systemic features of digital markets as ‘winner-takes-all’]”. Agree, competition law sensu stricto cannot (or can, but only indirectly, concomitantly and rather as a matter of contingency or butterfly effect). But a well-calibrated competition law sensu lato (targeted ex ante sectoral regulation) can. For better or for worse, but can. Not always, but can. Seldom, but can. Perhaps the most obvious example is liberalisation policy. Or another example, which keeps surprising me: net neutrality, aka an example of how content industry (by using catchy rhetoric of dial-up age about universal access and information as fundamental right) has eliminated from the digital markets – eliminated categorically, unequivocally and radically (though probably tacitly) – one of the central elements of inter-platform competition, the element, which could in fact change the very dynamics and the very composition of these markets paradigmatically: competition on speed with which the content is delivered to end users. Net Neutrality rules is an instance of competition law sensu lato (shaped in very appealing, normative language of fairness, architecture of the Internet and you name it…), which has changed the very structure of digital markets. We’ve cannibalised an important element of competition, caricaturing it, equating the speed to electricity saying ‘speed doesn’t matter. compete only on quality’. It’s akin to prohibiting certain materials in fashion industry, saying fabric doesn’t matter. compete only on design.
    NCT as a hybrid tool featuring elements of both competition law sensu stricto and sensu lato indeed has a very limited ability to change the situation meaningfully. But it’s a part of the game, the game at which enforcers are mice trying to catch gatekeepers-tigers. Giving the underdogs some (procedurally dubious) advantages in the game is unlikely to change the long-term outcomes but allow them winning more individual matches perhaps. Yes, legally questionable, but yes, politically understandable (and necessary).

    Oles

    6 November 2020 at 5:35 am


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