Chillin'Competition

The emergence of large digital firms has attracted attention of all kinds, enough for it to become a literary genre. As noted by Petit, there is a book on big tech firms (“BigTechs’) “for every taste, and in every airport.” Spoiler alert: Petit’s new work is not that kind. Petit’s research on what he calls the “moligopoly hypothesis” shows that a competitive force underpins observed concentration. As the moligopoly mashup suggests, BigTechs might simultaneously be monopolists and competitive firms. This perspective has evident policy implications for the ongoing debate on the capability of antitrust frameworks to harness digital markets.

The current debate on the alleged crisis of antitrust is driven by two main arguments. First, digital markets move too fast to be supervised ex post. Antitrust agencies and courts often intervene once the tipping point has already been reached. Second, there has been an emergence of platform-based firms, which arguably enjoy a stronger type of market power relative to brick, and mortar economy firms. BigTech’s superior form of market power would imply greater responsibilities and justify specific responses.

Let us look closer at this latter point. The argument goes that BigTechs act as gatekeepers, private regulators or systemic players. Market contestability is reduced. And there is no level playing field for and within digital ecosystems. These concerns are heightened by the dual and conflicting role played by some. Amazon, for example, operates both as a traditional retailer and a third-party sales platform. Accordingly, BigTechs deserve to be treated like common carriers. They should be subject to a neutrality regime designed to ensure fairness and contestability on the platform and on neighbouring markets.

Hence, regulation is back in policy circles. Some proposals envisage the idea of establishing a public utilities-style regulation for the digital economy. They advocate for the creation of a digital authority that can impose measures against companies that hold a strategic market status. Some proponents further suggest break-ups and bans on vertical integration to address the economic and social problems raised by BigTechs. Other proposals want to integrate the antitrust toolkit with ex ante prohibitions to prevent anti-competitive practices by dominant platforms. Finally, the recent EU Commission Inception Impact Assessment goes even further by envisioning, along with an ex ante regulatory framework for large gatekeeping platforms, a new competition tool. This tool, which includes both dominance-based and market structure-based remedies, would apply to all sectors and would justify early intervention in tipping markets. Looking at the four available policy options, the new tool reminds me of Mario Draghi’s infamous “whatever it takes” speech, and raises doubts and concerns about the definition of “gatekeeper” and “tipping” markets as new thresholds for antitrust intervention.

The discussed proposals can be divergent. Some fail to reflect the traditional paradigm of economic regulation by offering a ‘more regulatory’ approach to antitrust law (see here). However, they all question the role of antitrust in the digital economy.

Against this background, Petit avoids the enforcement shortcuts ensured by the invoked regulatory interventions. Instead, he deals with the challenges of digital markets pursuing a pure antitrust perspective. Notably, Petit proposes a stricter antitrust regime towards tipped markets and moderate antitrust towards the leveraging of market power in untipped markets. He might be challenged to provide features characterizing tipped markets although he provides some. With him, however, I would counter-argue that it is it is equally controversial to prospectively define tipping markets, given the uncertainty surrounding the strength, direction and relevance of network effects…

I agree with Petit that competition law is still fit to preserve the contestability of markets. This is because the incumbency advantage in digital markets significantly depends on whether customers multi-home. Competition policy should therefore be focused on reducing barriers to entry, lowering switching costs, and encouraging interoperability and consumers’ engagement. At the same time, regulation might play a relevant role in preserving the intensity of competition amongst platforms, albeit a role which is limited to structural problems. Notably, it might play a role in specific markets, such as the banking and financial industry, where data represents a real bottleneck that does not allow a level playing field.

In this regard, the growing use of technology to provide financial services (FinTech) and the emergence of platform business models in finance (Open Banking) represent a perfect case study to assess the opportunities, limits, and risks of regulating emerging technologies and digital players. Indeed, data portability provisions envisaged in the European Payment Service Directive (PSD2); the UK Open Banking remedy; and the Australian Consumer Data Right aimed at unlocking competition and innovation by ensuring adequate levels of interoperability. This was so that consumers could share their data with different providers in a secure and standardized format (see here). However, several studies question the effectiveness of data portability in fostering market competition. Some commentators warn against the unintended competitive effects of the General Data Protection Regulation (GDPR), documenting that it has entrenched the market power of incumbents. Similar concerns have been expressed about the entry of BigTech platforms into retail banking as a result of the access to account (XS2A) rule introduced by the PSD2. Notably, banks run the risk of being enveloped by BigTech platforms. They might harness the network effects which had previously protected incumbents (see here).

In response to these concerns, and as part of general critique of the capability of antitrust law in providing an adequate constraint on the conduct of large digital platforms, a number of proposals have been targeted at the role of BigTechs in finance. This includes banning them from operating in financial markets or preventing them from adopting certain practices. However, in relation to legal definition, it is worth remembering that, in the banking sector, gatekeepers are represented by financial institutions, not BigTechs. Therefore, by adopting ex ante prohibitions against digital players, policy-makers run the risk of missing the forest for the trees. Namely, crafting an ex ante asymmetric regulation tailored by the size of some online companies could be at odds with the pro-competitive aim of data sharing provisions. It might also reflect the willingness of policy makers to intervene simply because they dislike certain market outcomes.

From this perspective, concerns that BigTech companies might prevail in financial markets overshadow the major risk associated with top-down solutions. That is, the regulation of digital markets seems to revolve around outcomes, rather than principles. For example, the idea that competition is only good when it comes from some players. This is even when new big digital players are challenging actual (although non-digital) gatekeepers and making contestable markets, that have traditionally been affected by low elasticity of demand and lock-in problems.

For all of these reasons, the emergence of platform business models should not imply a shift in the current equilibrium between antitrust and regulation. Rather, regulatory humility should be embraced. This means that the limits of regulation are acknowledged whilst refraining from picking winners and losers in the marketplace. In a way, the digital economy should not mark the substitution of antitrust by regulation. As Petit shows, there is still space for the careful, facts-driven process of antitrust enforcement in this space, and the digital economy should not represent the ‘last dance’ of antitrust.