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Can EU competition policy keep up with digital markets?

Can EU competition policy keep up with digital markets?

Irina M

04/12/2019

The EU competition framework is generally set out in Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU). Article 101 prohibits agreements between firms to engage in anti-competitive behaviour. It mainly tackles cartels and restrictive clauses in agreements between manufacturers and retailers. Article 102 prohibits dominant firms from engaging in unilateral abusive behaviour that stifles competition. Article 102 does not punish firms for being dominant; rather, dominant firms have increased responsibilities with respect to their market conduct.

In recent years, large tech firms have increasingly been on the European Commission’s radar for infringements of Article 102 of the TFEU. The commission is committed to improving its policy when it comes to this rapidly evolving market and recognises that adjustments are required in order to keep up with the market.

report released earlier in 2019 sets out the European Commission’s position on digital markets and includes several interesting findings. The report notes that the current legal regime is largely appropriate and sufficiently flexible to protect competition in digital markets. Further, unlike other legal regimes which generally deal with typified conflicts and benefit from a body of past decisions when tackling novel cases, competition law is highly fact specific. This is one of its strengths because it can apply to ever-changing market settings and incorporate analyses of new features of the business environment. However, this case-specific approach is also costly and time-consuming and can introduce uncertainty for firms.

The European Commission’s report emphasises that the digital market warrants a closer look given its unique features. One key finding is that large platforms “act as regulators, setting up the rules and institutions through which their users interact”. Notably, Google’s 1.5 billion users constitute a larger group than the population of China.

As these platforms create a space for stimulating innovation, the rule-setting function is not anti-competitive in itself, but can facilitate anti-competitive practices. The European Commission identified self-preferencing as a main concern. For example, the Google search algorithm determines the list of search results and therefore which retailers get more traffic and have a better chance of remaining viable. In the Google Shopping case, the commission found that Google had favoured its own shopping services in its search engine results. As this constituted an abuse of the Google’s dominant position under Article 102 of the TFEU, the commission imposed a €2 billlion fine on the web giant. The rule-setting function of digital platforms also facilitates ‘leveraging’ (ie, the expansion of digital platforms into adjacent markets to create ecosystems). This behaviour was penalised in the Android case. In light of these market settings, the commission needs to ensure that the rules set “do not impede free, undistorted and vigorous competition without objective justification”.

So how could this be achieved? An interesting proposal in the report is shifting the burden of proof onto firms. Dominant firms would have to show that no adverse effects on competition are created or that there is an overriding efficiency rationale. However, some commentators have expressed concerns that this approach may have a chilling effect on legitimate business and put Europe’s global presence as a tech incubator at risk.

In any event, attempts to strengthen EU competition law are likely to be eroded by political factors. Despite Competition Commissioner Margarethe Vestager’s remarkable commitment to enforcing competition policy, member states could pose a countervailing factor. Vestager’s decision to block the Alstom/Siemens merger arguably cost her the position of commission president after she lost the support of both France and Germany. There have also been demands for increased domestic control, thus casting doubt on the commission’s ability to further change and improve the EU framework in the future.