Relaxing whilst doing Competition Law is not an Oxymoron

JECLAP Special Issue: The Digital Markets Act and beyond

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issue cover

As Joint General Editor (with Gianni De Stefano) of the Journal of European Competition Law & Practice, I am particularly proud to present this month’s number, which is devoted to the regulation of digital markets (The Digital Markets Act and beyond). The Special Issue can be accessed here.

The Issue includes a contribution by Filomena Chirico, a Member of Thierry Breton’s Cabinet and someone who has been following very closely the legislative development since the early days (on top of being an academically-minded official who worked at Tilburg and the College of Europe prior to joining the European Commission). Her piece is entitled Digital Markets Act: A Regulatory Perspective.

The rest of the Special Issue is made up of a number of submissions we received and which we thought provide high quality, valuable and diverse perspectives on the regulation of digital markets. They are the following:

Sector Regulation of Digital Platforms in Europe: Uno, Nessuno e Centomila, by Marco Botta (EUI and Max Planck Munich).

Digital Platforms and the New 19a Tool in the German Competition Act, by Jens-Uwe Franck and Martin Peitz (Mannheim).

The Proposed Digital Markets Act (DMA): A Legal and Policy Review, by Nicolas Petit (EUI and College of Europe).

The European Digital Markets Act: A Revolution Grounded on Traditions, by Pierre Larouche (Montreal) and Alexandre de Streel (Namur and College of Europe).

Why the Proposed DMA Might Be Illegal under Article 114 TFEU, and How to Fix It, by Alfonso and Nieves Bayón Fernández (Garrigues). Their original submission, discussed on the blog, may be accessed here.

The Draft Digital Markets Act: A Legal and Institutional Analysis, by yours truly. My original submission has been on ssrn for a while and can be downloaded here.

Enjoy the Special Issue! And do not hesitate to contact me if you think a piece of yours could fit in the journal.

Written by Pablo Ibanez Colomo

13 September 2021 at 12:40 pm

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Podcast with EU Law Live: a chat on the shaping of EU competition law with Daniel Sarmiento

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EU Law Live (@EulawLive) | Twitter

Daniel Sarmiento (Universidad Complutense and Uría, previously at the Court of Justice) needs no introduction in our community. He is an illustrious member of an endangered species: the EU law polymath. EU Law Live, of which he is the editor-in-chief, reflects well his broad range of interests. The website has become an inescapable reference for those who want to stay abreast of the case law and beyond. As all of you will know by now, it is an incredibly rich source of information.

As you can imagine, I was delighted when Daniel invited me to discuss, in a podcast, the issues I addressed in The Shaping of EU Competition Law. The podcast can be accessed here and it is about 30 minutes long.

When I wrote the book, I hoped that I would be able to convey to leading EU administrative lawyers like Daniel how many insights they could draw from EU competition law, which after all revolves primarily around an administrative authority entrusted with the power to investigate and decide on potential infringements (and rule on the compatibility of mergers with the internal market).

As I am a bit of a broken record, I have discussed the contents of this book before on the blog (see here for instance, where I cover my presentation with the Amicale des Référendaires). But hopefully Daniel’s great questions and perspectives will add something to ongoing debates. Enjoy the podcast (and the weekend too)!

Written by Pablo Ibanez Colomo

10 September 2021 at 3:48 pm

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Sustainability agreements and antitrust – three criteria to distinguish beneficial cooperation from greenwashing (by Maurits Dolmans)

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[Maurits Dolmans delivered one of the talks at our last Chillin’Competition conference, back in December 2019 (video available here). Maurits talked then about Sustainable Competition Policy. This subject has only continued to gain prominence, and today it is one of the hottest topics in contemporary competition policy. The guest post below could not be more timely]

This summer, the Commission adopted “Fit for 55” proposals to deliver the Green Deal, and the Council and Parliament adopted a Climate Law.  There have been calls for a reassessment of competition policy too.  Indeed, DG Comp is considering whether to adopt a more permissive approach to sustainability agreements, in the context of the review of the Guidelines on Horizontal Agreements.  Commissioner Vestager is about to decide.

When speaking early this year on this topic at the OECD Open Day on Sustainable Competition Policy, EC Chief Economist Pierre Regibeau put his finger on a sore spot.  He asked, I hope rhetorically: “Can we allow sustainability deals if that means taxing the people who buy, to benefit those who do not buy?”  

That question is of course exactly the wrong way around.  Producers and consumers impose costs on society – including climate change, large scale pollution, and loss of biodiversity – that are not included in the monetary price consumers pay.  This leads to overconsumption and a “tragedy of the commons”, the degrading of our environment, due to overuse.  These supply- and demand-side market failures are hard to resolve – why should a supplier produce cleanly if that means higher costs and rivals taking market share; why should a consumer buy green at a higher price if the neighbours keep buying polluting goods?  Eminent economist Sir Nicholas Stern said in 2007 that “climate change is a result of the greatest market failure the world has seen”. We all suffer from this collective action problem, including the consumers themselves. 

The Chief Economist should have asked “Why should we allow producers and consumers to impose costs on those who do not consume?”  Or “why should we prohibit agreements that could help reduce the social costs of climate change and pollution, if they may make the polluters pay for the damage they cause?” 

Article 191(2) TFEU leaves the Commission no choice in how to answer that question:  EU policy, including competition policy, “shall be based on the … principles … that environmental damage should as a priority be rectified at source and that the polluter should pay.”  See also here.  Article 11 TFEU demands that “environmental protection requirements must be integrated into the definition and implementation of the Union’s policies and activities, in particular with a view to promoting sustainable development.”  And for the avoidance of doubt, Article 7 TFEU requires the Commission to “ensure consistency between its policies and activities”. 

I could go on citing additional Treaty provisions saying the same (like Articles 3(3) and 3(5) TEU), but the message is clear enough: we should allow agreements that efficiently prevent or reduce greenhouse gas emissions or pollution at source, or that make producers pay for removing past emissions and repair of the environment. 

Some argue that carbon taxation and an adequate emissions trading price are a better answer (although interesting critiques appeared here and here), or prefer regulation.  But regulation is slow, and often ineffective, and carbon taxes especially are deeply unpopular. Carbon trading rights in the EU have gone up from € 25 to more than € 60 recently, but even that level is not enough to compensate for the real (and ever-increasing) social cost of climate change.  More important, carbon trading rights don’t cover all greenhouse gases, including several that are much more potent than CO2, and cover only a fraction of the world’s economy. The revenues are not dedicated to solving the climate crisis, either.  It is counterproductive to prohibit sustainability agreements on the ground that, in theory, taxation or regulation is a better tool, when that regulation is too little, too late.  We have to use all available tools to reduce emissions, remove excess greenhouse gases, and repair the environment.

Is the threat of private liability part of the solution?  The Dutch “climate tort” judgment recently required Shell to reduce emissions by 45% by 2030 compared to 2019.  But Shell is appealing, arguing it should not be held to a standard that does not apply to its competitors.  A perfect illustration of the collective action problem.  Do we let burglars off the hook because many of their colleagues are not caught and convicted?  If everyone reasoned that way, we would never get anywhere. Would it not be better to solve the problem by allowing oil and gas companies to agree that they will all comply with at least the same standard as Shell?  A “compliance with law” agreement – of course with the right do better than the minimum required by the Paris Agreement?  (Yes, I know that may be wishful thinking, but wouldn’t it be enlightened and set a great example if they did…)  But in the meantime, resolving the Shell litigation and pursuing others will take years.

The Commission is tempted to focus on competition as the solution:  more competition means more innovation, and innovation is the answer to everything.  But as Stiglitz explains, innovation has been suboptimal, and we can’t be sure that some innovator will emerge as deus ex machina to save the world.  And competition is exactly the force that drives firms to use up natural resources and emit greenhouse gases as if there is no tomorrow.  The costs will be borne by our children and our grandchildren.

Competition is the answer only in markets where firms know that enough consumers are willing to pay to eliminate all greenhouse gas emissions (and even then, we still have to repair the damage already done).  In those markets, firms have an incentive to compete not just to be the cheapest and best, but also the cleanest and greenest supplier.  Unfortunately, in many markets, consumers do not have the willingness or the ability to pay.  That’s when cooperation should be allowed, as a complementary tool, to spread the costs, reduce the risks, and speed up reduction of greenhouse gas emissions.

A few economists, such as Prof Maarten Pieter Schinkel, argue that if we give competitors a finger, they will take the whole arm, and try to avoid having to pay for emissions reduction.  They back this up with elegant economic models.  But if competition practitioners know anything about economic models, it is that you have to check the assumptions.   They may not apply universally in the real world.  For instance (and see also here):

  • Consumers are assumed to be willing to pay as much as is needed to avoid climate damage, and it is always profitable for firms to meet that demand – whereas in reality, the ICPP warns of tipping points with dramatic effect, as well as extreme weather events, meaning climate damage increases in a non-linear way. Cutting half the emissions does not cut half the climate risk, and many people do not realize the dramatic impact of climate change until it happens to them.  Because of this information asymmetry and other demand-side market failures, many consumers are not willing to pay (or pay enough) for greenhouse-gas-neutral products, and firms may lose more than they gain if they go green individually;
  • Regulation is assumed to offer a fully effective solution – which flies in the face of our experience of “regulatory failure” or “political failure” of the last decades;
  • Firms are assumed to benefit only from (and to seek only) short-term profit maximization, and always collude to minimise green investment or greenwash if they can get away with it, without regard to the long-term impact on them; and
  • It is assumed that consumers must be fully compensated for any price increase.  Out-of-market benefits or improved access to non-market goods (say, clean air or a safe environment) supposedly do not count as compensation. 

Let’s have a closer look at the last two assumptions:

Read the rest of this entry »

Written by Alfonso Lamadrid

9 September 2021 at 6:34 pm

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The DMA and private enforcement – Yes but with moderation! (by Makis Komninos)

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[Chillin’Competition is publishing a series of posts featuring the views of various experts and stakeholders in relation to the European Commission’s proposal for a Digital Markets Act. We have received several contributions and will also be inviting some experts to ensure a plurality of informed views from a variety of perspectives. For our previous posts on the DMA see here (by Pablo), here (by me), here (by Cani Fernández, originally published in JECLAP), here (by Tim Lamb, Facebook) and here by Agustín Reyna (BEUC). Today we are happy to publish the thoughts of our friend Makis Komninos (White & Case).

I am grateful to my friends Alfonso and Pablo for giving me the space to address a topic that has not received much attention in the discussion around the Digital Markets Act (DMA) Proposal. Is there space for private enforcement? And if yes, is this a good or a bad thing? And what would be the optimal solution that safeguards the consistency and effectiveness of the DMA enforcement system? I have just finished a paper on these questions, which will appear in the Liber Amicorum of one of my long-time friends and mentors, Professor Eleanor Fox, to be published by Concurrences.  

In my view there is no doubt that the DMA will give rise to private enforcement. The fact that it says nothing about private enforcement and the role of national courts is not material. It will take the form of a Regulation and Regulations are directly applicable. Of course, its provisions must be sufficiently precise and unconditionalto create rights for individuals (and thus have horizontal direct effect). The provisions of Articles 5 and 6 will satisfy that test. As I explain in my paper, there is no difference between Article 5 and Article 6. The “specification” process for Article 6 does not affect the nature of its rules but only relates to effective compliance measures that are necessary. In other words, the rules of Article 6 are complete and apply, irrespective of a possible “regulatory dialogue” between the Commission and the gatekeeper and a possible “specification” decision.

So, as the DMA Proposal currently stands, private enforcement will be a reality. Apart from adjudicating on claims for damages or other types of relief, national courts would also be competent to grant permanent or interim injunctions and order the gatekeepers to take specific measures of a negative or positive nature. The problem is, however, that such national decisions will inevitably result in a considerable degree of fragmentation within the Union. There will be full decentralisation to the level of countless national courts of a generalist nature, which will be deciding on countless cases, leading to countless “mini-regulations” (with inter partes effects) within the EU. I am not sure people have actually realised that. Such disintegration and fragmentation within the internal market will be distractive and will entail increased compliance costs, since, instead of interacting with 1 centralised enforcer (or even with 1 + 27 enforcers, if national authorities were to be given certain competencies), gatekeepers will need to defend their business practices before an infinite number of courts. The DMA Proposal and its Impact Assessment Report spent pages to highlight the risks that a fully decentralised (to the NCAs) system of enforcement would bring and defended the choice of centralisation at the EU level. Yet, if a risk of fragmentation exists with 27 specialist administrative authorities, surely the risk is much higher with potentially thousands of generalist courts having full decisional powers on Articles 5 and 6.

For these reasons, I believe that the EU legislator should introduce certain proportionate limitations on private enforcement of the DMA rules or a “rule of precedence” for public enforcement. Private enforcement should only be allowed in its “follow-on” form. But public enforcement should have precedence and private enforcement should not be allowed in its “stand-alone” form, i.e. before the Commission has had the chance to declare the infringement of a DMA rule by a gatekeeper and has also possibly ordered specific remedies. Such a rule could be re-examined by the legislator at an appropriate time, e.g. in 10 years’ time, after the Commission and the EU Courts have had a chance to build up a body of precedent. In fact, EU competition law can offer some guidance: although direct effect was recognised in 1974, it took 40 years of case law (1962-2004) for the EU legislator to opt for a full decentralisation of the application of the rules (of Article 101(3) TFEU), with the introduction of Regulation 1/2003. It also took 10 more years for the EU legislator to introduce specific measures aimed at enhancing private antitrust enforcement in Europe, with the Damages Directive. If that was the case with EU competition law, a fortiori a degree of prudence is called for in the case of the novel regime of the DMA.

Can such a limitation would be possible and defendable from an EU law point of view? Yes. Τhe DMA is not primary law. Since it is the product of secondary EU legislation (a Regulation), it is open to EU legislation to introduce limitations on competence and on the direct effect of the legal rules it contains. I explain this further in my paper.

For the avoidance of doubt, I have always been a strong proponent of private enforcement and my 2008 monograph is proof of that. I was also the first commentator who argued 20 years ago that the Courage v Crehan ruling of the Court of Justice was something new – not many EU lawyers back then were ready to acknowledge the EU law basis of the right to damages. So my proposal is not due to any dislike of private enforcement. All I am saying is: let’s make sure that public enforcement of the DMA takes precedence for as long as the DMA is in its infancy and that private enforcement is possible only after the Commission has had the chance to take a decision. From the point of view of EU law, such a solution would be fully appropriate and proportionate. It would ensure the effective and consistent enforcement of the DMA in the Union, while avoiding fragmentation, and would also further the undertakings’ legal certainty.

Written by Alfonso Lamadrid

2 September 2021 at 10:45 am

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LIDC Congress 2021 (22-24 September 2021, Brussels and online)

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The Ligue internationale du droit de la concurrence – International League of Competition Law is one of the most venerable institutions in the EU competition law landscape. Its congress, in turn, has long been a classic (and one that brings wonderful personal memories: 10 years ago, time flies, I was awarded the Jacques Lassier Prize for my PhD during their Oxford congress).

This year’s Congress will be organised in hybrid format, the physical bit taking place in Brussels on 22-24 September 2021. All the info on registration and others can be found here:

You will not fail to notice the most impressive programme that the organisers have been able to put together, with many leading lights from the judiciary, the enforcement agencies and practice. I feel honoured to be taking part in one of the panels on 23 September alongside Lewis Crofts, Eliana Garces, Helen Jenkins, Thomas Kramler and Alex de Streel.

I look forward to seeing many of you there (virtually, alas, in my case). And all the best for the rentrée!

Written by Pablo Ibanez Colomo

1 September 2021 at 7:28 pm

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NEW PAPER | What is an Abuse of a Dominant Position? Deconstructing the Prohibition and Categorizing Practices

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I have uploaded on SSRN a new paper on the notion of abuse from a comparative perspective (see here). It will be published in the Research Handbook on Abuse of Dominance and Monopolization, jointly edited by Pinar Akman, Or Brook and Konstantinos Stylianou (all based at the University of Leeds) and forthcoming with Elgar next year. I am really grateful to them for the invitation to take part in the project.

The paper seeks to provide an overview of the notion of abuse (broadly conceived) from a comparative perspective. It focuses, in particular, on the EU and US case law and administrative practice.

The first point I make is that the notion of ‘competition on the merits’ is not particularly helpful. Not all potentially abusive strategies are inherently anticompetitive or inherently pro-competitive; most conduct may or may not be caught by the prohibition depending on the specific circumstances of each case. It is not a surprise, against this background, that the evaluation of the economic and legal context has acquired an increasingly relevant role in the case law.

Second, the paper seeks to tease out, systematically, the constituent elements of the notion of abuse. The paper differentiates between practices based, inter alia, on whether they are price-based or not; whether they involve the leveraging or the strengthening of a dominant position; and, as far as leveraging strategies are concerned, whether the relevant markets are horizontally or vertically related.

On the basis of this exercise it is possible to understand the controversies and frictions that have become so frequent in this field. Like practices are not always treated alike by courts and/or authorities. There are also ‘grey areas’ in between the most common categories, as Slovak Telekom has recently shown.

Finally, the piece touches upon potentially abusive practices in digital markets. Intervention against online platforms is remarkable (and more intrusive and far-reaching that traditional competition law enforcement) in that it gets into the design of products and business models. Traditionally, authorities were reluctant to venture into such territory. Not anymore. Just compare and contrast the EU Microsoft saga, which left the firm’s business model untouched and Android, which challenged the core of Google’s monetisation strategy.

Given the paucity of precedents, it is not surprising that questions about the applicable legal test in relation to these practices have proved contentious. Slovak Telekom already suggested an approach to navigate the issue (as explained here, the applicable legal test would hinge on whether, in effect, intervention would force the dominant firm to conclude a contract with third parties with which it has chosen not to deal).

I look forward to your comments (as usual, nothing to disclose).

Written by Pablo Ibanez Colomo

30 July 2021 at 4:10 pm

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NEW PAPER | EU merger control between law and discretion: when is an impediment to effective competition significant?

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Merger control and mobile phone operators, or the limits of competition law  and sector-specific regulation | Chillin'Competition

A new paper, entitled ‘EU merger control between law and discretion: when is an impediment to effective competition significant?’ is available on SSRN (see here). It is an attempt to make sense of the different approaches to define the substantive test under Regulation 139/2004 and of the choices made by the General Court in its landmark CK Telecoms ruling (the appeal against which is currently pending before the Court of Justice). Your comments on the draft would be most welcome (as usual, nothing to disclose).

The fundamental point the paper makes is that the Commission, in its Guidelines and administrative practice, has interpreted the substantive test in merger control in a way that it would be fulfilled, in principle, pretty much always and everywhere (at least in relation to transactions involving actual or potential competitors). This is the key reason, it is submitted, behind the annulment of the Commission decision in CK Telecoms (if anything, the standard of proof and the role of quantitative evidence come across as side issues that follow from this core question).

Suffice it to take a look at Hutchison 3G UK/Telefonica UK (Three/O2), which is at the origin of the ruling. The crucial passage is to be found in paragraphs 310-314 and 320-326 of the decision, where the Commission advances its interpretation of Article 2 of Regulation 139/2004. According to the authority, the compatibility of horizontal transactions with the internal market is to be evaluated in light of an unstructured set of factors, each of which may or may not be relevant in the context of a particular case.

Thus, the understanding advanced by the Commission in its decision would give it the leeway to decide the exact criteria against which compatibility of a given transaction would be assessed and how the said factors are weighed against one another. What is more, the decision suggested that an ‘important competitive force’ need not stand out from rivals.

If this approach to the substantive test were to be embraced, any undertaking in a given market would qualify as an ‘important competitive force’ (something noted by the General Court itself in CK Telecoms, para 174). For the same reason, virtually any transaction involving actual or potential competitors could be declared to be prima facie incompatible with the internal market. After all, horizontal mergers lead, by definition, to the elimination of a source of competitive pressure.

Two consequences follow from the interpretation of Article 2 of Regulation 139/2004 favoured by the Commission in Three/O2. First, it is an understanding of the substantive test that does not make it possible to draw a clear line between significant and insignificant impediments to effective competition.

Second, an approach that relies on an unstructured set of criteria (the relevance and weighing of which cannot be anticipated by the parties) is not only a source of legal uncertainty (as noted by the General Court in CK Telecoms, para 175) but amounts, for all intents and purposes, to giving de facto discretion to the administrative authority. One should note, in this regard, that the case-by-case evaluation of the likely effects of concentrations is the privileged realm of ‘complex economic assessments’ in relation to which the authority enjoys a margin of appreciation.

It is submitted that an interpretation of Article 2 that gives the Commission such leeway is not obvious to square with Regulation 139/2004 and, more generally, the division of powers between the administrative authority and the EU courts. Pursuant to Article 2 of the Regulation, the substantive test is an issue of law.

In addition, the approach favoured by the Commission would not allow the EU courts to review administrative action in an effective way. If the substantive test were interpreted in a manner that does not impose meaningful boundaries defined ex ante, judicial control would be confined, in practice, to ‘manifest errors of assessment’. Such a reality would not be easy to reconcile with the fact that the interpretation of issues of law is subject to full review.

This is the background against which the CK Telecoms judgment must be understood. The General Court crafted a substantive test that defines a set of clear legal boundaries to administrative action and that makes it possible to draw the line between significant and insignificant impediments to effective competition. These legal boundaries can be found in the Table below.

CK Telecoms is no different from Airtours in the above regard. In the latter, the Commission had also defined the notion of collective dominance in a way that the test would be satisfied in pretty much any oligopolistic market (by focusing on the incentives to collude and neglecting the ability to do so on a sustainable basis, the authority identified a set of conditions that would rarely ever, if at all, fail to be met).

As was true of Airtours, the interpretation of Article 2 embraced in CK Telecoms ensures that the EU courts can perform their core function.

Written by Pablo Ibanez Colomo

8 July 2021 at 4:48 pm

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When did the rule of law come to be seen as an inconvenience?

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Rule of law (2020) - Multimedia Centre

The attitude towards competition law enforcement has changed significantly over the past two years. For a fraction of our community, the focus should be on prohibiting conduct, and this, as fast as possible. This approach is behind proposals to reduce the constraints on administrative authorities (by means, inter alia, of presumptions and the reversal of the burden of proof) and to limit (even do away with) judicial review.

It is an attitude that has had a substantial impact on the way rule of law ideals are perceived. Not so long ago, there was little dispute about the importance of ensuring that the law is clear and can be anticipated by stakeholders, that firms have the means to defend themselves and that there is a robust mechanism for the review of administrative action (if you are curious about the rule of law in competition law, by the way, I very much recommend Ryan Stones‘ PhD thesis).

In the EU legal order, in particular, there was wide consensus about the improvement brought about by the changes which, over the years, infused the competition law system with principles associated with the rule of law. Such ideals were deemed valuable not only in and of themselves, but also insofar as they enhanced the quality of decisions. The perception (at least until recently) was that administrative action had become more robust and less prone to substantive and procedural errors.

Nothing is forever, alas, and many of the tenets we took for granted are questioned these days. We have read, with a great deal of interest, a number of pieces sowing doubts about some core aspects of the system (including the role of advisers). We have also heard claims suggesting that judicial review delays decision-making and frustrates ambitious enforcement.

According to an emerging view, the ideals of the rule of law are little more than a luxury, if not an inconvenience, that the competition law system cannot afford (or that it can only afford at the price of slower, less decisive intervention). For the same reason, it is occasionally suggested that the system would be better-off if some in-built guarantees were curtailed.

I do not intend to discuss here whether or not these views would change the system for the better (any moderately attentive reader of the blog knows where I stand). I am more interested in identifying the moment when these ideas, marginal until not so long ago, reached the mainstream and enriched the intellectual landscape of our field (definitely less uniform than 10 years ago).

I have the impression that there are two crucial factors behind the rising scepticism vis-a-vis rule of law ideals:

  • First, judicial review and procedural guarantees have come to be seen by some as devices to protect the rights of firms subject to competition law investigations. Contrary to this view, however, these mechanisms are there, first and foremost, to advance the public interest.
  • Second, there is a clear shift in the priorities of enforcement. What seems to matter is swift action. Enforcement errors are, if at all, a second or third order concern. What justifies intervention, according to this view, is intervention itself.

Judicial review and procedural guarantees advance the public interest

Judicial review has come to be seen with scepticism (and occasional hostility) by some in our community. I have the impression that this position stems from the perception that the control of administrative action by the independent judiciary (as much as procedural guarantees) is a concession that is made to firms subject to an investigation. From this perspective, judicial review would be about balancing the protection of individual rights and the general interest.

This is an understanding of judicial review that has featured prominently in influential documents, including the Furman Report. The idea that the scope and/or the intensity of the control of administrative action should be revisited has emerged as a relatively popular one. Some have even floated the idea of making some administrative decisions ‘unappealable’ (a proposal which, while definitely interesting, seems at odds with primary EU law and the general principles on which it is based).

If this understanding of judicial review is accepted, it makes sense to limit (even do away with) the control of administrative action. It would also make sense to see legal challenges against decisions as dispensable dilatory tactics that, on balance, do more harm than good. The sacrifice would be minimal where judicial involvement is seen through these lenses: does it really matter that large and powerful corporations are not allowed to protect their rights? Is it not better to intervene swiftly to preserve competition and protect consumers?

The problem is that this interpretation of judicial review does not reflect its purpose and importance for the system (and particularly so in continental legal traditions). It is often forgotten that the primary aim of the control of administrative action is to protect the general interest, not the interest of individual firms (juger l’administration, c’est encore administrer, as the old saying goes).

A judgment annulling a decision for misconstruing, say, the notion of restriction by object, or the SIEC test enshrined in Regulation 139/2004, benefits society as a whole, not just (not even primarily) the firms challenging the decision. Similarly, the error-correction role of judicial review advances the general interest by ensuring that administrative action is predictable and consistent (and thus aligned with the ideals of the rule of law).

Is rapid administrative action the goal of rapid administrative action?

The scepticism with which the error-correction function of courts is viewed signals a different attitude vis-a-vis administrative action. According to an emerging school of thought, swift and decisive intervention is what really matters, much more than getting it right. Enacting change, more than carefully pondering whether change is warranted, is seen as the priority. And, the argument follows, the institutional setup should adjust to meet this very vision.

Of course, if one accepts that rapid intervention is to be prioritised, even if it comes at the price of enforcement errors, all the institutional mechanisms to correct the said errors (including judicial review and, more generally, rule of law ideals) become superfluous and/or suspect. In itself, this understanding of administrative action is indicative of a reinterpretation of competition law (its objectives, the rationale underpinning decision-making). As such, it deserves to be widely discussed and analysed.

It would seem that enacting change (namely altering market structures, changing business models and redistributing rents) is, according to this view, the very objective of the system. In other words, remedies would not serve a wider goal (such as the protection of the competitive process); remedies are now seen (at least by some) as the goal itself. The moment administrative action is justified by the fact that it takes place, the possibility of an enforcement error disappears (for how administrative action can be erroneous if it is warranted by its very existence?).

Written by Pablo Ibanez Colomo

30 June 2021 at 6:02 pm

Posted in Uncategorized

New podcasts in town: Jammin’Digital and Monopoly Attack

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Jammin’Digital is a new podcast aimed af fostering debate on all things digital in Brussels and beyond. As an exception to a series of excellent interviews conducted by Evelina Kurgonaite, its latest episode features my views about the DMA and competition law enforcement in the digital world. Nothing new to readers of this blog, but in a different format and without typos. It is available here.

There is also a great new entrant in the podcast field: Monopoly Attack (by Kay Jebelli and Friso Bostoen). It focuses specifically on tech antitrust policy. In only its first week, Monopoly Attack has already released 5 episodes, offering an overview of the enforcement landscape in the digital field and discussing the DMA proposal in detail. If you are interested in these topics, make sure to subscribe.

MONOPOLY ATTACK | Podcast on Spotify

Written by Alfonso Lamadrid

22 June 2021 at 4:57 pm

Posted in Uncategorized

Scale Effects – What We Can Learn From National Football Teams (by Stephen Lewis)

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by Stephen Lewis

What determines the quality of a national football team?  Other things being equal, we would expect countries with a large population to produce stronger teams than those with a smaller population.  They have more people to select from. It is therefore quite intuitive that football team quality must, to at least some extent, be positively impacted by population size.

This intuition seems to be borne out if we consider pairs of countries that have markedly different population sizes but are similar along other relevant dimensions.  For example, take Italy and San Marino. Italy has a population of 60 million, while San Marino has a population of less than 50,000.   The countries are otherwise (broadly) similar with respect to other factors that might determine football team quality, such as length of football tradition, the cultural significance of football, the relative popularity of alternative sports, climate, etc.  Italy last played San Marino in 2017 and won 8-0 (having won all previous encounters on record).  Results like this certainly cast doubt on any claim that there is no link between population and football team quality.  There may even be a “minimum efficient scale” below which a national football team cannot credibly compete with leading football nations (and perhaps San Marino is below that scale).

But the question is how strong is the link between population size and football team quality and how small is any minimum efficient scale?  Answer: surprisingly weak and surprisingly small.  This is obvious from a cursory review of the international football landscape.  The two most populous countries on the planet, China and India, have qualified for one world cup between them (China in 2002).  Meanwhile, Croatia has achieved an all time FIFA ranking high of 3rd (in 1999) and reached the World Cup final in 2018.   Croatia’s population is 4 million – smaller than the United Arab Emirates (10 million), which recently beat India 6-0.

Even ignoring the high leverage outliers of India and China and considering clusters of countries in relatively close geographic proximity where football has a similar level of cultural significance, the effect of population on performance seems remarkably weak above a certain size.  Uruguay (population: 3.5 million, FIFA ranking 9), is a match for much larger Argentina (population 45 million, FIFA ranking 8), which in turn is a match for much larger Brazil (population 220 million, FIFA ranking 3).  Similarly, Belgium (population 12 million, FIFA ranking 1) is evenly matched with France (population 65 million, FIFA ranking 2).  Indeed, today’s top 10 ranked teams include four countries with populations under 12 million (Belgium, Portugal, Uruguay and Denmark), while Germany (population 84 million) for the time being languishes in position 12.

And even amongst those countries with a very low population there are some standout national football teams, suggesting that if there is a minimum efficient scale, it may be very small indeed.  With a population of around 300,000, Iceland knocked England (population 55 million) out of Euro 2016, and reached an impressive FIFA ranking of 18 in 2018.

Quantitative studies support the view that population has weak explanatory power for football team quality.

A 2010 PWC study performed a statistical analysis in which total World Cup points were regressed against population, average income levels and a count variable based on the number of times a country has hosted the competition (with values 0, 1 or 2).  This included only 52 countries that have played at least 5 World Cup finals matches (so excluded China and India).  Even among this football-playing-country sample, population is insignificant once these other variables are included. 

Gelade (2007) finds that the relationship between FIFA ratings and (linear) total population is “vanishingly small”, finding in a sample of 204 countries that only 1% of variation in FIFA Ratings is explained by total population, and notes that this counterintuitive finding has also been reported by other studies.

The discussion above has focused on the Men’s game but considering the relative performance of teams in Women’s football reinforces the idea that factors other than population size are important for explaining football team quality.  For example, the US is ranked 1st in the Women’s FIFA ranking and 20th in the Men’s, whereas the comparative advantage arising from having a large total population to select from is equivalent for both the Men’s and Women’s teams.

Now imagine a strange parallel universe where the only two countries are Brazil and Australia.  Brazil is 10 times bigger than Australia and consistently wins when they play football.  In this parallel universe, researchers are tempted to conclude that the relationship between population and football team quality is very strong.  Not only are there sound a priori grounds for believing a larger population should translate into better football team quality, but this seems to be borne out by the only two observations available.  But this inference is not valid.  Brazil and Australia differ along various dimensions that are critical determinants of football team quality, such as footballing tradition and competition for athletic talent from other sports (football is the national sport of Brazil but football in Australia has to compete with other ball sports such cricket, Aussie rules, rugby league and rugby union).  Of course, this would be obvious in a world with hundreds of observations available; far less so in our parallel universe with two.

What has this got to do with online search engines?  

I should start by making clear that I make no claim that the apparent weakness of population scale effects in national football has any bearing at all on the strength or otherwise of any scale effects affecting search engine quality.  The lesson from the football analogy is that researchers could be fooled into thinking that they can see a strong scale effect if they compare a small number of subjects that differ in scale and quality and do not take account of other factors that also affect quality.  

My claim is that when it comes to analysing the effect of scale on search quality, competition authorities have not got far beyond the following reasoning:

Query data is used to produce search results (people are used to produce football teams).  More query data is better than less query data (more people to select from is better than fewer people to select from).  Google has many times more queries than Bing (Brazil has many times more people than Australia).  Google has much higher search quality than Bing (Brazil has a much better football team than Australia).  Therefore, query scale is a crucial determinant of search quality (population is a crucial determinant of national football team quality).

Some competition authorities have gone deeper than others, for example, by examining query level datasets to gain a better understanding of differences in the range and volumes of the distinct queries each search engine sees.    But a query level comparison of Google and Bing just confirms the obvious – Google has a scale advantage over Bing.  This, entirely unsurprisingly, implies that for any given distinct query, Google is likely to receive higher query volumes than Bing.  It follows that queries that are rare for Bing are not rare for Google, while the converse tends not to be true.  But this just supports the existence of a scale advantage.  It does not shed light on how this translates to quality and the relative importance of scale compared to other factors.  This would be like a researcher going to some lengths to establishing that not only does England have a higher population than Iceland, but also that for every left-footed person who can run fast (and who would therefore on paper make a good left wing back) in Iceland, there are 100 such individuals in England, and that for every tall agile person (who would on paper make a good goalkeeper) in Iceland, there are 100 in England.  This deeper assessment of the nature of the scale advantage should not be confused with an assessment of the explanatory power of scale for performance.

Yet the reasoning in italics above is clearly faulty. 

Companies, much like countries, differ in their histories, cultures and priorities.  Just as national football team quality may be better explained by length of football tradition, cultural factors and presence of competing sports than by population size, the quality of a company’s search engine may be better explained by length of time trying to make incremental improvements to search algorithms, the importance of experimentation and measurable improvement in a company’s culture, and the general strategic centrality of search to the company as a whole, which impacts among other things investment and hiring priorities.

These factors clearly cannot be assumed to be similar across Google and Microsoft.  This means that the extent to which scale advantages drive quality requires some unpicking.  But no competition authority to date has made a serious attempt to do this unpicking. 

So why is Google better than Bing in a given national market for search, say, Belgium?  Of course, data-scale could in principle be a factor that explains the difference in quality, and it could be an important factor.  But there’s another plausible story: it is about how many engineering hours the company has poured into improving its search engine. 

Google entered Belgium in March 2002, launching a localised version of its search engine with French and Dutch language capabilities.  Bing entered Belgium in October 2013, over 11 years later.  If search engine quality in Belgium is a function of how many Wednesday-morning-meetings search engineers have had to discuss improving search quality in Belgium, then Google might be better than Bing simply because its engineers have had about 600 more Wednesday-morning-meetings than Bing.  

So there are competing theories as to why Google is better than Bing in Belgium – is it data or is it the number of Wednesday-morning-meetings?  Both are consistent with a scale gap (under one theory the scale gap drives a quality difference and under the other it is caused by a quality difference).  Analysis of the extent of the scale advantage, even when based on granular query level data, cannot distinguish between these two competing theories.

Indeed, trying to unpick which theory is more plausible (or how much weight to place on each) is an area where competition authorities have yet to really scratch the surface.  They are still trying to make inferences on the importance of population for football team quality by comparing Brazil and Australia.

Written by Alfonso Lamadrid

21 June 2021 at 4:30 pm

Posted in Uncategorized