2019 saw regulators across the EU rethinking the effectiveness of existing competition rules in digital markets. Within this context, the Dutch Ministry of Economic Affairs and Climate explored the possibility of adopting ex ante instruments to control “digital gatekeepers”, as part of its plan to modernize competition policy in relation to online platforms.
For this reason, the Ministry commissioned e-Conomics and Radicand Economics to produce a report (recently released) on the possible regulation of digital platforms with gatekeeper positions, focusing on competition problems that might arise due to discriminatory practices adopted by such platforms. The purpose of this study was to investigate potential reasons for ex ante rules, the nature of such rules and the conditions under which they should apply.
As identified in our blog post of why we need ex ante regulation of systemic online platforms, this study pointed out that existing competition law may not deter digital platforms from acting anticompetitively. Competition investigations are lengthy and, by the time a decision is adopted, the harm caused in the downstream market may be irreversible due to network effects. As such, gatekeepers reap the benefits of their anticompetitive behaviour even after authorities have condemned and prohibited such behaviour.
To address these shortcomings, the discussion paper explores, first, if, when and which type of ex ante regulation may be desirable in such cases, and second, whether there are any practical alternatives within the context of existing EU competition rules.
The report highlights a particularity of competition in digital markets: competition is not so much characterised by rivalry between providers of substitutes, but by disruptive value chains. In other words, in such markets, competing platforms intermediate and disintermediate each other, aiming at control of and access to content, data or user groups. Intermediation may lead to gatekeeper positions – i.e. control over nodes that cannot be avoided by users that want to interact with each other. These gatekeeper positions may be contested by rivals from parallel markets through disintermediation.
What the authors of the report argue is that discriminatory practices by a vertically integrated platforms indicate that the platform has a dominant position. In the absence of efficiency reasons, such discriminatory practices can be regarded as an abuse of dominance, unless they have a net pro-competitive effect. Therefore, ex ante rules prohibiting discrimination by vertically integrated digital platforms are desirable, except when discrimination is necessary to realize efficiency gains in the downstream or platform market and/or for pro-competitive effects in a parallel market. The question then is whether such rules should apply to all vertically integrated platforms or only to vertically integrated platforms with a (dominant) gatekeeper position.
As an alternative to such ex ante rules, the study proposes guidelines describing how competition authorities plan to infer dominance from observations about market behaviour. In essence, it proposes switching the burden of proof so that in case a downstream service provider complains about discrimination by a vertically integrated platform, the platform must make the case that its discriminatory conduct has efficiency or procompetitive effects. If it fails, the platform is dominant and abuses its position. The benefit of this is that there is no need to define the relevant market, assess dominance and analyze harm. If the platform’s defence is valid, the competition authority must weigh efficiency gains and pro-competitive effects against harm to competition. Only then does it have to define the relevant markets and carry out further competition analysis.
In this way, competition investigations are sped up, the risk of irreversible harm is mitigated, and the deterrent effect of competition law is enhanced. Competition authorities do not shoulder the burden of proof when efficiency reasons or procompetitive effects can easily be dismissed, while platforms can still motivate efficiency defences.
(Image Source: e-Conomics)