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ICLE White Paper For more on this topic, see the ICLE Issue Spotlight “Digital Competition Regulations Around the World.” Executive Summary Inspired by the European Union’s Digital Markets . . .
For more on this topic, see the ICLE Issue Spotlight “Digital Competition Regulations Around the World.”
Inspired by the European Union’s Digital Markets Act (DMA), a growing number of jurisdictions around the globe either have adopted or are considering adopting a framework of ex-ante rules to more closely regulate the business models and behavior of online platforms.
These digital competition regulations (“DCRs”) share two key features. The first is that they target so-called “gatekeepers” who control the world’s largest online platforms. Such regulations assume that these firms have accumulated a degree of economic and political power that allows them to harm competition, exclude rivals, exploit users, and possibly inflict a broader range of social harms in ways that cannot be adequately addressed through existing competition laws. Typically cited as examples of gatekeepers are the main platforms of Google, Amazon, Facebook/Meta, Apple, and Microsoft.
The second common features of these DCR regimes is that they impose similar, if not identical, per-se prohibitions and obligations on gatekeepers. These often include prohibitions on self-preferencing and the use of third-party party data, as well as obligations for interoperability and data sharing. These two basic characteristics set DCRs apart from other forms of “digital regulation”—e.g., those that concern with AI, privacy, or content moderation and misinformation.
This paper seeks to understand what digital competition regulations aim to achieve and whether a common rationale underpins their promulgation across such a broad swatch of territories.
We find that DCRs pursue multiple goals that may vary across jurisdictions. Some DCRs are guided by the same goals as competition law, and may even be embedded into such laws. Such is the case, e.g., in Germany and Turkey. Other regulations address competition concerns under differing or modified standards. Examples here include the “material-harm-to-competition” standard in the United States and, arguably, digital competition regulation in the UK and Australia—where traditional competition-law goals such as the protection of competition and consumer welfare comingle with an increased emphasis on “fairness.”
DCRs sometimes pursue a much broader set of goals. For instance, a prospective digital competition regulation in South Africa seeks greater visibility and opportunities for small South African platforms and increased inclusivity of historically disadvantaged peoples, along with other more competition-oriented objectives (this duality is a common feature of South African legislation). Similarly, a bill proposed in Brazil attempts to reduce regional and social inequality, as well as to widen social participation in matters of public interest, alongside its stated effort to protect competition.
In the United States, apart from protection of competition, proponents of the (now-stalled) DCR bills have invoked a broad set of potential benefits, including fairness; fair prices; a more level playing field; reduced gatekeeper power; protections for small and medium-sized enterprises (“SMEs”); reduced costs for consumers; and boosts to innovation.
Some DCRs, however, are not promulgated in pursuit of competition-oriented objectives at all—at least, not explicitly or not in the sense in which such objectives are understood in traditional competition law. The clearest example is the EU’s DMA itself, which openly eschews traditional competition-related goals and instead seeks to make digital markets “fair” and “contestable.”
Regardless of the overarching goals, it is evident that DCRs incorporate themes and concepts familiar to the competition lawyer, such as barriers to entry, exclusionary conduct, competitive constraints, monopolistic outcomes, and, in some cases, even market power. This may, at first blush, hint at a close relationship between digital competition regulation and competition law. While not entirely incorrect, that assessment must come with a number of caveats.
DCRs diverge in subtle but significant ways from mainstream notions of competition law. We posit that DCRs are guided by three fundamental goals: wealth redistribution among firms, the protection of competitors of incumbent digital platforms, and the “leveling down” of those same digital platforms.
The notion of “gatekeepers” itself presumes asymmetrical power relations between digital platforms and other actors, which are further presumed both to lead to unfair outcomes and to be insurmountable without regulatory intervention. Thus, the first commonality among the DCRs we study is that they all seek to transfer rents directly from gatekeepers to rival firms, complementors, and, to a lesser extent, consumers. This conclusion follows inexorably from the DCRs’ stated goals, the prohibitions and obligations they promulgate, and the public statements of those who promote them.
While the extent to which various groups are intended to benefit from this rent re-allocation might not always be identical, all DCRs aim to redistribute rents generated on digital platforms away from gatekeepers and toward some other group or groups—most commonly the business users active on those platforms.
Another important feature that DCRs share is the common goal not just to protect business users, but to directly benefit competitors—including, but not limited to, via rent redistribution. DCRs are concerned with ensuring that competitors—even if they are less efficient—enter or remain on the market. This is evidenced by the lack of overarching efficiency or consumer-welfare goals—at the very least, for those regulations not based on existing competition laws—that would otherwise enable enforcers to differentiate anticompetitive exclusion of rivals from those market exits that result from rivals’ inferior product offerings.
This focus on protecting competitors can also be seen in DCRs’ pursuit of “contestability.” As defined by DCRs, promoting contestability entails diminishing the benefits of network effects and the data advantages enjoyed by incumbents because they make it hard for other firms to compete, not because they are harmful in and of themselves or because they have been acquired illegally or through deceit. In other words, DCRs pursue contestability—understood as other firms’ ability to challenge incumbent digital platforms’ position—regardless of the efficiency of those challengers or the ultimate effects on consumers.
The other way that DCRs seek to balance power relations and achieve fairness is by “leveling down” the status of the incumbent digital platforms. DCRs directly and indirectly worsen gatekeepers’ competitive position in at least three ways:
For example, prohibitions on the use of nonpublic (third-party) data benefit competitors, but they also negate the massive investments that incumbents have made in harvesting that data. Similarly, data-sharing obligations impose a cost on gatekeepers because data-tracking and sharing is anything but free. Gatekeepers are expected to aid and subsidize competitors and third parties at little or no cost, thereby diminishing their competitive position and dissipating their resources (and investments) for the benefit of another group. The same can be said, mutatis mutandis, for other staples of digital competition regulation, such as prohibitions on self-preferencing and sideloading mandates.
It should be noted, of course, that direct rent redistribution among firms is generally not the goal of competition law. Rent redistribution entails significant risks of judicial error and rent seeking. Regulators may require firms to supply their services at inefficiently low prices that are not mutually advantageous, and may diminish those same firms’ incentives to invest and innovate. Those difficulties are compounded in the fast-moving digital space, where innovation cycles are faster, and yesterday’s prices and other nonprice factors may no longer be relevant today. In short, rent redistribution is difficult to do well in traditional natural-monopoly settings and may be impossible to do without judicial error in the digital world.
Protecting competitors at the expense of competition, as DCRs aim to do, is equally problematic. Competition depresses prices, increases output, leads to the efficient allocation of resources, and encourages firms to innovate. By facilitating competitors—including those that may have fallen behind precisely because they have not made the same investments in technology, innovation, or product offerings—DCRs may dampen incentives to strive to become a so-called gatekeeper, to the ultimate detriment of consumers. Protecting competition benefits the public, but protecting competitors safeguards their special interests at the public’s expense.
This is not only anathema to competition law but also to free competition. As Judge Learned Hand observed 80 years ago in his famous Alcoa decision: “the successful competitor, having been urged to compete, must not be turned upon when he wins.” Critiques of digital competition regulation’s punitive impulse against incumbent platforms flow from this essential premise—which, we contend, is the cornerstone of good competition regulation. The multiplicity of alternative justifications put forward by proponents of such regulations are generally either pretextual or serve as a signal to the voting public. To paraphrase Aldous Huxley: “several excuses are always less convincing than one.”
We end by speculating that digital competition regulation could signal more than just a digression from established principles in a relatively niche, technical field such as competition law. If extended, the DCR approach could mark a new conception of the roles of companies, markets, and the state in society. In this “post-neoliberal” world, the role of the state would not be limited to discrete interventions to address market failures that harm consumers, invoking general, abstract, and reactive rules—such as, among others, competition law. It would instead be free to intercede aggressively to redraw markets, redesign products, pick winners, and redistribute rents; indeed, to function as the ultimate ordering power of the economy.
Ultimately, however, we conclude that it is too early to make any such generalizations, and that only time will tell whether digital competition regulation was truly a sign of things to come, or merely a small but ultimately insignificant abrupt dirigiste turn in the zig-zagging of antitrust history.
Inspired by the European Union’s Digital Markets Act (“DMA”),[1] a growing number of jurisdictions around the globe either have adopted or are considering adopting a framework of ex-ante rules to more closely regulate the business models and behavior of online platforms.
These “digital competition regulations”[2] (“DCRs”) share two key features. The first is that they target so-called “gatekeepers” who control the world’s largest online platforms. Such regulations assume that these firms have accumulated a degree of economic and political power that allows them to harm competition, exclude rivals, exploit users, and possibly inflict a broader range of social harms in ways that cannot be adequately addressed through existing competition laws.[3] Typically cited as examples of gatekeepers are the main platforms of Google, Amazon, Facebook/Meta, Apple, and Microsoft.
The second common feature these DCR regimes share is that they impose similar, if not identical, per-se prohibitions and obligations on gatekeepers. These often include prohibitions on self-preferencing and the use of third-party party data, as well as obligations for interoperability and data sharing. These two basic characteristics set DCRs apart from other forms of “digital regulation”—e.g., those dealing with AI,[4] privacy,[5] or content moderation and misinformation.[6]
It is not, however, always entirely clear what DCRs aim to achieve. A cursory survey suggests that these rules pursue different goals, without an immediately apparent unifying theme. For example, some DCRs have been integrated into existing competition laws and ostensibly pursue the same goals: the protection of competition and consumer welfare. Others aim for a range of goals—including, but not limited to, competition—such as the protection of small and medium-sized enterprises (“SMEs”); regional equality; social participation; and improving the lot of business users who operate on online platforms. Some DCRs purposefully and explicitly sidestep competition-oriented considerations, aiming instead for such adjacent but ultimately distinct goals as “fairness” and “contestability.”[7]
What emerges is a seeming patchwork of goals and objectives. In this paper, we seek to assess those disparate goals and objectives, drawing on many of the major proposed and enacted DCRs.
Part I examines the goals that DCRs claim to pursue. It takes those goals at face value and offers a largely descriptive account of the objectives offered. Where necessary (such as, for example, where those goals are cryptic or not clearly articulated), reference is made to public statements by those who promulgated them.
Part II argues that DCRs are best understood as a new form of law, grounded in ideas that have found limited success in competition law itself. To some extent, DCRs are based on a common narrative that has transformed some of the core principles and themes of antitrust law. As such, DCRs partially jibe with antitrust law, but ultimately diverge from it in subtle but consequential ways.
Part III argues that, despite superficial differences, DCRs share three common goals. The first is a desire to redistribute rents from some companies to others. At the most fundamental level, DCRs all seek to address what are perceived to be extreme power imbalances between digital platforms and the rest of society—especially business users and competitors. Thus, they seek to redistribute rents away from so-called “gatekeepers” and toward the business users that operate on those platforms, and to promote competitors (including, but not limited to, via rent redistribution).
DCRs are particularly concerned with ensuring that competitors, even if they are less efficient, enter or remain in the market. This is evidenced by a lack of overarching efficiency or consumer-welfare goals—even in those regulations that are based on existing competition laws—that would otherwise enable enforcers to differentiate between anticompetitive exclusion of rivals and market exit that results from rivals’ inferior product offerings. The focus on protecting competitors also stems from DCRs’ pursuit of “contestability.” In this context, promoting contestability entails diminishing the benefits of the network effects and the data advantages enjoyed by incumbents on the theory that they make it difficult for other firms to compete—not because they are harmful to consumers or because they have been acquired illegally or through deceit.
The third way that DCRs seek to balance power relations and achieve fairness is by “leveling down” the status of the incumbent digital platforms. DCRs worsen the competitive position of gatekeepers in at least three ways:
Essentially, gatekeepers are expected to aid and subsidize competitors and third parties at little or no cost. This, in turn, diminishes their competitive position and dissipates their resources (and investments) for the benefit of another group.
Part IV concludes. It speculates that DCRs might signal the advent of a new paradigm in political economy: a redrawing of the existing lines and roles between states, markets, and firms, with greater emphasis on the role of the state as the ultimate ordering power of the economy. In hindsight, one expression of this could turn out to be the overturning (if only partial) of the essential principles of modern competition policy: the protection of competition rather than competitors, a policy emphasis on maximizing economic output rather than rent redistribution among firms, and a commitment to merit, rather than fairness and equity. It is difficult to overstate how deeply at loggerheads this conception of the role of competition is from the existing, predominant paradigm long found in competition law.
Most DCRs pursue multiple overlapping objectives. The global picture is even more complex, as there is only partial overlap among the various goals pursued by DCRs in different jurisdictions.
Some DCRs are an extension of competition-law frameworks and are sometimes even formally embedded into existing competition laws. In principle, this means that the standard goals and rationale of competition law apply. Germany, for instance, recently amended its Competition Act, emphasizing the need to “intervene at an early stage in cases where competition is threatened by certain large digital companies.”[8] According to the Bundeskartellamt:
The newly introduced Section 19a probably represents the most important change as the Bundeskartellamt will now be able to intervene at an early stage in cases where competition is threatened by certain large digital companies. As a preventive measure the Bundeskartellamt can prohibit certain types of conduct by companies which, due to their strategic position and their resources, are of paramount significance for competition across markets.[9]
Similarly, Turkey currently is looking to amend the Turkish Competition Act with the objectives of promoting competition and innovation in digital markets; protecting consumer and business rights; and ensuring that gatekeepers do not engage in anticompetitive practices.[10] Proponents argue that the current Turkish Competition Act is not adequately equipped to address anticompetitive conduct in digital markets—such as, e.g., that the process of defining relevant markets is inappropriate for dynamic and global digital ecosystems and that specific regulations are needed due to the network effects that digital platforms confer.[11] These are all nominally competition-related concerns.[12] Other proposed changes to the Turkish Competition Act similarly reflect an increased emphasis on competition. For instance, in merger analysis, the current “dominance test” would be substituted with a “significant impediment to effective competition test,” similar to that in the EU merger-control regime. A “de minimis” rule would also be added to Article 41 to exempt agreements “that do not significantly impede competition.”
Other DCRs appear, at least to some extent, to pursue competition-law-inspired goals, despite not being formally incorporated into existing competition laws. In South Korea, for example, the Korean Fair Trade Commission (“KFTC”) recently proposed a draft DMA-style bill, the Platform Competition Promotion Act, whose purpose is establish ex-ante rules to restore competition rapidly in designated markets “without the tedious process of defining a relevant market through economic analysis.”[13] According to the KFTC, digital competition regulation is necessary to combat monopolization in digital markets, where monopolies tend to become entrenched.[14] As some observers have noted,[15] the Platform Competition Promotion Act covers conduct already addressed by South Korea’s existing Monopoly Regulation and Fair Trade Act.[16] Thus, while the draft bill is likely to be passed as a separate piece of legislation, there appears to be a continuum between it and South Korean competition law.
In the United Kingdom, the 2023 Digital Markets, Competition, and Consumer Bill (“DMCC”) is in the final stages of legislative approval.[17] The DMCC aims to “provide for the regulation of competition in digital markets” and, in theory, dovetails with goals pursued by competition law (it even invokes familiar competition-law themes, such as market power).[18] The DMCC would grant the UK antitrust enforcer, the Competition and Markets Authority (“CMA”), power to take “pro-competition interventions” where it has reasonable grounds to believer there may be an adverse effect on competition.[19]
The DMCC has, however, also been touted as a tool to “stamp out unfairness in digital markets.”[20] This could refer to the bill’s consumer-protection provisions, which would prohibit, inter alia, unfair commercial practices.[21] But it may also suggest that the DMCC goes beyond the remit of traditional competition law, in which “unfairness” is generally not central, except within the relatively narrow confines of the abuse-of-dominance provision under S.18 of the Competition Act.[22]
Further, in a press release welcoming the DMCC draft, the CMA enumerated the bill’s benefits as falling into the three categories of “consumer protection,” “competition,” and “digital markets.”[23] The second category grants the CMA increased powers to “identify and stop unlawful anticompetitive conduct more quickly.”[24] The third, however, proposes that the bill will “[enable] all innovating businesses to compete fairly.”[25] This could imply that competition rules in “digital markets” would be governed by different principles than those that apply in “traditional” markets—that is, those that do not involve the purchase or sale of goods over the internet, or the provision of digital content.[26] The DMCC’s provisions on “digital markets” are also formally separate from those on “competition.”[27]
In Australia, the Australian Competition and Consumers Commission (“ACCC”) is conducting a five-year digital-platform-services inquiry (“DPS Inquiry”), set to be finalized in March 2025.[28] The ACCC recommended, as part of the inquiry’s fifth interim report, service-specific obligations (similar to the UK’s proposed ex-ante rules) for “designated” digital platforms.[29] These would serve to address “anticompetitive conduct, unfair treatment of business users and barriers to entry and expansion that prevent effective competition in digital platform markets.”[30] Thus, alongside competition law’s traditional concerns (e.g., harms and benefits to consumers, innovation, efficiency, and “effective competition”), the ACCC would also incorporate concerns over “fairness” and, especially, the protection of business users.
In the United States, several bills have been put forward that are formally separate from existing antitrust law, but cover some of the same conduct as would typically be addressed under U.S. antitrust law—albeit with seemingly different goals and standards. Some of these new goals and standards represent only slight variations on the usual goals of competition law. Three main pieces of legislation have so far been put forward: the American Innovation and Choice Online Act (“AICOA”),[31] the Open App Market Act (“OAMA”),[32] and the Augmenting Compatibility and Competition by Enabling Service Switch Act (“ACCESS Act”)[33] (together, “U.S. tech bills”).
Although the U.S. tech bills largely fail to describe their underlying goals, the titles of the bills and statements made by their sponsors suggest a set of overlapping concerns, such as preventing “material harm to competition,”[34] reducing “gatekeeper power in the app economy,”[35] and “increasing choice, improving quality, and reducing costs for consumers.”[36] These goals appear to fall relatively well within the traditional remit of antitrust law.
But there are others. According to U.S. Sen. Amy Klobuchar (D-Minn.), the primary sponsor or cosponsor of several of the U.S. tech bills, AICOA is intended to “restore competition online by establishing commonsense rules of the road,” “ensure small businesses and entrepreneurs still have the opportunity to succeed in the digital marketplace,” and “create a more even playing field,” all “while also providing consumers with the benefit of greater choice online.”[37] “Fairness,” “fair prices,” and “innovation” all have also been invoked by the bills’ supporters.[38]
At the same time, for three out of the 10 types of challenged conduct, AICOA would require demonstrating “material harm to competition,” which would suggest that one of that bill’s goals is to protect competition. As the American Bar Association’s Antitrust Section has observed, however, there is no “material harm to competition” standard in U.S. antitrust law.[39] This suggests that AICOA may posit a different interpretation of what it means to protect competition, or of what sort of competition should be protected, than does traditional U.S. antitrust law.
OAMA, on the other hand, aims to open competitive avenues for startup apps, third-party app stores, and payment services in existing digital ecosystems.[40] Its title reads: “to promote competition and reduce gatekeeper power in the app economy, increase choice, improve quality, and reduce costs for consumers.” Unlike AICOA, however, OAMA would not require a showing of harm to competition—material or otherwise—to establish liability, which appears to suggest that competition might be less of a concern than the bill’s title implies.
Finally, the ACCESS Act is intended to “promote competition, lower entry barriers and reduce switching costs for consumers and businesses online.”[41] U.S. Sen. Mark Warner (D-Va.), the bill’s primary sponsor, has said that the ACCESS Act will promote competition, allow startups to “compete on equal terms with the biggest social media companies,” and “level the playing field between consumers and companies” by giving them more control over who manages their privacy.[42] Again, these are antitrust-adjacent objectives, but with a flavor (“equal terms,” “level playing field,” etc.) that is largely foreign to U.S. antitrust law.
Other DCRs pursue a mix of competition and noncompetition goals. The South African Competition Commission’s (“SACC”) Final Report on the Online Intermediation Platforms Market Inquiry, for example, found that remedial actions similar to the ex-ante rules contemplated in the DMA and elsewhere are needed to grant “[g]reater visibility and opportunity for smaller South African platforms” to compete with international players; “[e]nabl[e] more intense platform competition,” offer “more choice and innovation”; reduce prices for consumers and business users; “[p]rovid[e] a level playing field for small businesses selling through these platforms, including fairer pricing and opportunities”; and “[p]rovid[e] a more inclusive digital economy” for historically disadvantaged peoples.[43]
In a similar vein, Brazil’s proposed law PL 2768/2022 (“PL 2768”) pursues an expansive grab-bag of social and economic goals.[44] Article 4 states that targeted digital platforms must operate based on the following principles: freedom of initiative, free competition, consumer protection, a reduction in regional and social inequality, combatting the abuse of economic power, and widening social participation in matters of public interest.[45] In addition, PL 2768 also states as objectives that it will enable access to information, knowledge, and culture; foster innovation and mass access to new technologies and access models; promote interoperability among apps; and enable data portability.[46]
Finally, there are those DCRs that claim not to pursue competition-oriented goals at all. The DMA has two stated goals: “fairness” and “contestability,”[47] and explicitly denies being bound by, or even pursuing, the traditional goals of competition law: protecting competition and consumer welfare.[48] According to the DMA, competition, consumer welfare, and efficiency considerations such as those that underpin antitrust law are not relevant under the new framework. This is, according to the DMA’s text, because the goals of competition law and the DMA “are complimentary but ultimately distinct.”[49]
Interestingly, however, few other DCRs have so steadfastly disavowed competition considerations, even those that copy the DMA’s provisions verbatim. India is a case in point. In 2023, a report by the Standing Committee on Finance argued that, if digital competition regulation was not passed, “interconnected digital markets will rapidly demonstrate monopolistic outcomes that prevent fair competition. This will restrict consumer choice, inhibit business users, and prevent the rise of dynamic new companies.”[50] These concerns jibe with traditional antitrust goals, as indicated inter alia by the report’s title (“anti-competitive practices by big tech companies”). Later, another report—the Report of the Committee on Digital Competition Law (“CDC Report”)—proposed a Draft Digital Competition Bill (“DCB”).[51] According to the CDC Report, DMA-style digital competition regulation was needed to supplement the 2002 Indian Competition Act (“ICA”),[52] which—and here is the interesting part—supposedly also aims to promote “fairness and contestability.”[53]
But the ICA’s stated aims were the protection of competition, the interests of consumers, and free trade.[54] The Report of the High-Powered Expert Committee on Competition Law and Policy (“Raghavan Committee Report”),[55] which served as the basis for the ICA, modernized Indian competition law by moving it away from the structure-based paradigm of the earlier Anti-Monopolies and Restrictive Trade Practices Act of 1969 and toward an economic-effects-based analysis. The Raghavan Committee Report was unequivocal in its support of consumer welfare as the system’s ultimate goal.[56] Moreover, the report advised against a plurality of goals, including, specifically, “bureaucratic perceptions”[57] of equity and fairness, which, it argued, were mutually contradictory, difficult to quantify, and potentially opposed to the sustenance of free, unfettered competition.[58] It is therefore curious, to say the least, that the CDC Report would now, in hindsight, recast the ICA’s goals to support essentially the opposite idea.
The multiplicity of goals and their unclear, partially overlapping relationship with competition law raises questions about how we should think about these laws and, indeed, whether we can even think of them as a coherent, unified group. In the next section, we seek to untangle the nature and classification of digital competition regulation.
DCRs are likely best understood as a new form of competition regulation. As some authors have noted, the precise relationship between competition law and the EU’s DMA is difficult to pinpoint.[59] In a similar vein, it is evident that many DCRs incorporate themes and concepts familiar to the competition lawyer, such as barriers to entry, exclusionary conduct, competitive constraints, monopolistic outcomes, and, in some cases, even market power. At first blush, this may suggest a direct relationship between digital competition regulation and competition law. While not entirely incorrect, that assessment comes with considerable caveats.
In this section, we argue that DCRs are a new form of competition regulation that diverges in subtle but definitive ways from mainstream notions of competition law. In essence, DCRs take plausible competition-law themes and alter and subvert them in fundamental ways, creating what could be described as sector-specific[60] or enforcer-friendly[61] competition laws. Due to their blend of competition principles and prescriptive, top-down regulatory provisions, we have opted for the term “digital competition regulation.” To understand their nature, we must start with their underlying assumptions and the ills they claim to address.
A starting assumption of all DCRs is that there is an extreme imbalance of power between large digital platforms and virtually every other stakeholder with whom they deal—from other industries to the businesses that operate on digital platforms to their competitors to, finally, end-users.[62] Even governments are often presumed to be virtually powerless in the face of the depredations of so-called “Big Tech.”[63] The adage that “big tech has too much power” has been almost universally endorsed by proponents of DCRs and strong antitrust enforcement;[64] is explicitly or implicitly embedded into those DCRs;[65] and now also permeates popular discourse, media, and entertainment.[66] The corollary is that asymmetric regulation is needed to help those other actors that have been “dispossessed” by big-tech platforms.
This notion is widespread and underpins a range of other policy proposals, not just DCRs. For example, the EU is considering a “Fair Share” regulation that would address the supposed power imbalance between tech companies and telecommunications operators, by forcing the former to pay for the infrastructure of the latter.[67] Similarly, various “bargaining codes” either already have been adopted or are currently under consideration to force tech companies to pay news publishers. In Australia, the Treasury Laws Amendment (News Media and Digital Platforms Mandatory Bargaining Code) Act 2021 (“Bargaining Code”) was put in place to address the supposed bargaining-power imbalance between digital platforms and news-media businesses.[68] According to the ACCC, digital-advertisement regulation was necessary to support the sustainability of the Australian news-media sector, “which is essential to a well-functioning democracy.”[69] Laws with a similar rationale have also been passed or are under consideration in other jurisdictions.[70]
All these initiatives originate from the same foundational assumption, which is that tech companies are more powerful than anyone else, and are therefore able to get away with imposing draconian conditions unilaterally that allow them to benefit disproportionately at the expense of all other parties, business users, complementors, and consumers. While it is not always easy to identify a coherent thread running through the rules and prohibitions contained in DCRs and other initiatives to regulate “Big Tech,” a good rule of thumb to understand the unifying logic behind these initiatives is that digital platforms should have less “power,” and other stakeholders should have more “power.”
Sometimes—but by no means always—this also encompasses familiar notions of “market power,” i.e., firms’ ability to profitably raise prices because of the absence of sufficient competition. In fact, in most DCRs, “power” stems from the fact that an online platform is an important gateway for business users to reach consumers.[71] This is considered manifestly evident by the platform’s size, turnover, or “strategic” importance.[72] As Bundeskartellamt (the German competition authority) President Andreas Mundt has put it: “we shouldn’t talk about this narrow issue of price, we should talk about power.”[73]
DCRs embody this principle. They seek to extract better deals for the party or parties that are considered to suffer from an imbalance of bargaining power vis-à-vis digital platforms—such as, for instance, through interoperability and data-sharing mandates. As we argue in Section III, these beneficiaries are intended to be the platform’s business users and competitors.
The reasoning is as follows. The asymmetrical power relations between digital platforms and other actors are presumed to lead to unfair outcomes in how these stakeholders are treated and the ways that rents are allocated across the supply chain. As the DMA explains in its preamble:
The combination of those features of gatekeepers is likely to lead, in many cases, to serious imbalances in bargaining power and, consequently, to unfair practices and conditions for business users, as well as for end users of core platform services provided by gatekeepers, to the detriment of prices, quality, fair competition, choice and innovation in the digital sector.[74]
Once it is accepted that power relations between digital platforms and other stakeholders are unfairly skewed, any outcome resulting from the interaction of the two groups must also, by definition, be “unfair.” For example, under the DMA, “unfairness” is broadly defined as “an imbalance between the rights and obligations of business users where the gatekeeper obtains a disproportionate advantage.”[75] A “fair” outcome would be one in which market participants—including, but not limited to, business users—“adequately” capture the benefits from their innovations or other efforts, something the DMA assumes is currently not taking place due to gatekeepers’ superior bargaining power.
In the world of digital competition regulation, “unfairness” is a foregone conclusion. And, sure enough, the concept of “fairness” is the central normative value driving these regulations. Proponents liberally invoke it[76] and it features prominently in DCRs.[77] This narrative, however, is built on premises that differ markedly from those of antitrust law. We discuss these below.
The DMA is the original blueprint for all digital competition regulation that has followed in its wake. The DMA’s text states that it is distinct from competition law:
This Regulation pursues an objective that is complementary to, but different from that of protecting undistorted competition on any given market, as defined in competition-law terms, which is to ensure that markets where gatekeepers are present are and remain contestable and fair, independently from the actual, potential or presumed effects of the conduct of a given gatekeeper covered by this Regulation on competition on a given market. This Regulation therefore aims to protect a different legal interest from that protected by those rules and it should apply without prejudice to their application.[78]
Other DCRs are rarely so candid about their break with competition law. On the contrary, some are even outwardly couched in competition-based terms. But in the end, DCRs replicate all or most of the prohibitions and obligations pioneered by the DMA.[79] DCRs also apply largely to the same companies as the DMA or, at the very least, use the same thresholds to establish which companies should be subject to regulation.[80]
This leads to a curious “Schrödinger’s DCR” scenario, where the same substantive rules simultaneously are and are not competition law. In the EU, for example, they are not; but in Turkey and Germany, they are. India’s DCB is a verbatim copy of the DMA, yet it is presented as a specific competition law.[81] This apparent contradiction is salvageable only if one thinks of digital competition regulation neither as competition law, strictu sensu, nor as an entirely separate regulation, but rather, as a partially overlapping tool that regulates competition and competition-related conduct in a different—and sometimes fundamentally different—manner.
Consider the example of the EU. EU competition law seeks to protect competition and consumer welfare. The DMA, on the other hand, is guided by the twin goals of “fairness” and “contestability.” As such, under the DMA (as under all other DCRs) the relevant standards are inverted. Under most DCRs, market power—understood as a firm’s ability to raise praises profitably—is either immaterial or not essential to establish whether a firm is a gatekeeper.[82] The competition-law practice of defining relevant markets on a case-by-case basis to determine whether a company has market power is, therefore, likewise moot.[83]
That approach is instead substituted for a list of pre-determined “core platform services,” which are thought to be sufficiently unique that they necessitate special and more stringent regulation.[84] Notably, and unlike in competition law, this presumption admits no evidence to the contrary. Once a good or service is marked as a core platform service, all a company can do to escape digital competition regulation is to argue either that it is not a gatekeeper, or that its services do not fall into the definition of a core platform service.
A corollary of this is that it is typically irrelevant whether a firm is dominant, or even a monopolist. Instead, DCRs apply to companies with high turnover and many business- or end-users—in other words, to “big” companies or companies people currently rely on or like to use.
Lastly, consumer-welfare considerations, which are central under competition law,[85] play only a marginal role in digital competition regulation, both in imposing prohibitions and mandates and in exempting companies from fulfilling those prohibitions or obligations.[86] While DCR supporters applaud this shift toward a broader conception of power,[87] it is important to understand how this approach differs from competition law.[88]
Competition law generally does not engage companies for being big or “important”—even if they are of “paramount importance”—except in very narrow instances, such as those prescribed by the essential-facilities doctrine.[89] Rather, antitrust targets conduct that restricts competition to the ultimate detriment of consumers. To establish whether a company has the ability and incentive to restrict competition, an assessment of market power is typically required, and definitions of relevant product and geographic markets are instrumental to that end.
Even the concept of dominance in competition law eschews crude arithmetic in favor of evidence-based analysis of market power, including the dynamics of the specific market; the extent to which products are differentiated; and shifts in market-share trends over time.[90] As one leading EU competition-law textbook puts it:
The assessment of substantial market power calls for a realistic analysis of the competitive pressure both from within and from outside the relevant market. A finding of a dominant position derives from a combination of several factors which, taken separately, are not necessarily determinative.[91]
Well-established competition-law principles—such as the prevention of free-riding,[92] the protection of competition rather than competitors,[93] and the freedom of even a monopolist to set its own terms and choose with whom it does business[94]—all preclude the imposition of hard-and-fast prohibitions and obligations without a robust case-by-case analysis or consideration of countervailing efficiencies. The narrow exceptions are those few cases where (substantive) experience shows that per-se prohibitions are warranted. But note that even cartels, “the cancers of the market economy,”[95] can generally be exempted under EU competition law.[96]
There exists no such consensus about the harms inflicted by the sort of gatekeeper conduct covered by DCRs.[97] Yet in digital competition regulation, strict (often per-se) prohibitions and obligations based on a company’s size are the norm.
Even those DCRs that explicitly allude to competition-related objectives—such as the protection of competition and consumers—modify those objectives in subtle, but important ways. The U.S. tech bills are a case in point. AICOA would introduce a new “material harm to competition” standard. This facially sounds like it could be an existing standard under U.S. antitrust law, but it is not.[98]
DCRs also combine traditional competition-law objectives with considerations that would not be cognizable under antitrust law. For example, Brazilian competition law is guided by the constitutional principles of free competition, freedom of initiative, the social role of property, consumer protection, and prevention of the abuse of economic power.[99] PL 2768, however, would add two exogenous elements to these relatively mainstream antitrust goals: a reduction in regional and social inequality and increased social participation in matters of public interest.[100]
Other DCRs—like the UK’s or Australia’s prospective efforts to regulate digital platforms—also combine “fairness” goals with consumer welfare and competition considerations.[101] India’s DCB even offers an ex-post rationalization of competition law that brings it in line with the “fairness and contestability” goals of the new digital competition regulation.[102]
It is also questionable whether the protection of consumers and business users under DCRs accords with antitrust notions of “consumer welfare.” It should be noted that competition law, unlike consumer-protection law, protects consumers only indirectly, through the suppression of anticompetitive practices that may affect them through increased prices or decreased quality. Thus, antitrust law is generally uninterested in a company’s deceptive practices, unless they stem directly from a competitive restraint or the misuse of market power.[103] In this scenario, market power acts as a filter to determine where a company’s conduct can be corrected by market forces, and where intervention may be necessary.[104]
By contrast, most DCRs that claim to protect consumers[105] seek to do so through mandates of increased transparency, explicit consent, choice screens, and the like, imposed independently of market power.[106] While some of the focus on consumers remains (at least nominally), the ways in which DCRs protect consumers are more in line with consumer-protection law than competition law.
As for the protection of business users, according to some interpretations, antitrust law protects both consumers and other trading parties (customers).[107] This could, in principle, also include “business users.” Unlike digital competition regulation, however, antitrust law does not generally protect a predetermined group of businesses such that, for example, business users of online platforms would be afforded special protection. Any trading party—regardless of size, industry, or position in the supply chain, and whether a small developer or a large online platform—could theoretically benefit from the protection afforded by antitrust law to those harmed by the misuse of market power.
While digital competition regulation’s approach to competition diverges from that of mainstream competition law, and may even be anathema to it, the arguments it espouses are not new. To the contrary, digital competition regulation, in many ways, codifies ideas that have been repeatedly tried and spurned by competition law.
The fountainhead of these ideas is that size alone should be the determining factor for antitrust action and liability.[108] On this historically recurring view—which is championed today most fervently by American “neo-Brandeisians” and European “ordoliberals”—big business inherently harms smaller companies, consumers, and democracy. It is therefore the role of antitrust law to combat this pernicious influence through structural remedies, merger control, and other interventions intended to disperse economic power.[109]
In a similar vein, digital competition regulation targets companies that, a priori, have little in common. Digital competition regulation applies to information-technology firms that specialize in online advertising, such as Google and Meta, but also to electronics companies that focus on hardware, such as Apple.[110] It covers voice assistants and social media, which are vastly different products. Cloud computing, another “core platform service,” is arguably not even a platform; yet, it was included in the DMA at the 11th hour.[111] In the end, what these “gatekeepers” have in common is that they all enjoy significant turnover, large user bases, are disruptors of legacy industries (such as, for example, news media), and are—possibly for these precise reasons—politically convenient targets.[112]
One corollary of this school of thought is that antitrust law should abandon (or, at least, drastically reduce) its reliance on the consumer-welfare standard as the lodestar of competition.[113] The law’s fixation on consumer welfare, the argument goes, has turned a blind eye to rampant economic concentration and to any form of abuse or exploitation that does not result in decreased output or higher prices.[114] Instead of this “myopic” focus on economic efficiency, proponents argue, antitrust law should strive to uphold a pluralistic market structure, which necessarily implies protecting companies from more efficient competitors.[115] This, they claim, was the Sherman Act’s original intent, which was subverted, in time, by the Chicago School’s emphasis on economic efficiency.[116]
Shunning consumer welfare also has implications for the role of market power in antitrust analysis. At the most fundamental level, competition law is concerned with controlling market power.[117] However, on the neo-Brandeisian view, antitrust’s historical concern with delineating efficient and inefficient market exit gives way to the unitary goal of controlling size and maintaining a certain market structure, regardless of companies’ ability to restrict competition and profitably raise prices.[118] This disenfranchises market power or, at the very least, redefines it as synonymous with size and market concentration.[119] This is familiar ground for digital competition regulation, which, as we have seen, generally does not target companies with market power, but companies with a certain size and “economic significance.”
Throughout antitrust law’s storied history, it has often been argued that antitrust law pursues, or should pursue, a plurality of goals and values.[120] Today, these arguments posit that antitrust law must look beyond a “narrow focus” on consumer welfare,[121] which is still enshrined as the dominant paradigm in most jurisdictions. Some of the alternative goals posited to inform the adjudication of competition-law cases include, but are not limited to, democracy, protection of competitors (especially SMEs), pluralism, social participation, combating undue corporate size, and equality. In turn, many of these goals are mentioned in digital competition regulation. In Section III, we argue that wealth redistribution (equality), the protection of competitors, and combatting size are truly shared goals of DCRs.
Digital competition regulation is a bridge between competition law and regulation. That bridge is built on old but persistent ideas that have found limited success in antitrust law and that have largely been precluded by decades of case-law and the progressively mounting exigencies of robust, effects-based economic analysis.[122] It is therefore perhaps unsurprising that digital competition regulation spurns both in favor or new legislation and per-se rules.
Its break with antitrust law, however, is not total, and was arguably never intended to be. Instead, digital competition regulation revises modern competition law to bring it in line with the regulatory philosophy it seeks to resuscitate, selectively plucking those bits and pieces that conform to that vision, and discarding those that do not.
The partial continuity between competition law and digital competition regulation is not merely hypothetical, either. Consider the example of the DMA. According to EU Commissioner of Competition Margrethe Vestager, “the Digital Markets Act is very different to antitrust enforcement under Article 102 TFEU. First, the DMA is not competition law. Its legal basis is Article 114 TFEU. Therefore, it pursues objectives pertaining to the internal market.”[123]
But observe that the DMA covers conduct identical to that which the Commission has pursued under EU competition law. For instance, Google Shopping is a self-preferencing case that would fall under Article 6(5) DMA.[124] Cases AT.40462 and AT.40703, which related to Amazon’s use of nonpublic trader data when competing on Marketplace, and its supposed bias when awarding the “Buy Box,” would now be caught by Articles 6(2) and 6(5) DMA.[125] The fine issued against Apple for its anti-steering provisions, which would be prohibited by Article 5(4) DMA, mere days before the law’s entry into force, is another case in point.[126]
This casts doubt on the assertion that the DMA and EU competition law are two distinctly different regimes. It suggests instead that the DMA is simply a more stringent, targeted, and enforcer-friendly form of competition regulation, intended specifically to cover certain products, certain companies, and certain markets. Or, as some have put it, “the DMA is just antitrust law in disguise.”[127] Indeed, Australia’s ACCC may have said the quiet part out loud when it contended that its proposed DCR would be both a “compliment to, and an expansion of, existing competition rules.”[128]
Or consider the example of India. In India, digital competition regulation would also be implemented though separate legislation. According to a 2023 report of the Standing Committee on Finance, a “Digital Competition Act”[129] is needed to prevent monopolistic outcomes and anticompetitive practices in “digital markets,” which are thought to differ in important ways from “traditional” markets:
India’s competition law must be enhanced so that it can meet the requirements of restraining anti-competitive behaviours in the digital markets. To that end, it is also necessary to strengthen the Competition Commission of India to take on the new responsibilities. India needs to enhance its competition law to address the unique needs of digital markets. Unlike traditional markets, the economic drivers that are rampant in digital markets quickly result in a few massive players dominating vast swathes of the digital ecosystem.[130]
But it seems that, based on the relevant Report of the Standing Committee on Finance, this new regime would be inspired by goals similar to Indian competition law. One important difference is that, according to Indian ministers, the new Digital Competition Act would adopt a “whole government approach.”[131] Pursuant to the Digital Competition Act, the government would have the power to override any decisions taken by the Competition Commission of India on public-policy grounds. This, again, underscores the “subtle” but significant differences between the competition regimes that would essentially apply in parallel to digital platforms and all other companies, as India’s Competition Act does not otherwise adopt a “whole government approach” to anticompetitive conduct.[132]
A separate question, beyond the scope of this paper, is whether the sui generis logic of digital competition regulation will eventually be transferred to standard competition law. Now that they have the weight of the law—in jurisdictions like Turkey and Germany, even formally incorporated into competition law—ideas that have hitherto remained at the fringes of mainstream competition law may start to be seen as more respectable. Further, the goals of competition law may even be reconfigured, a posteriori, in accordance with the rationale of digital competition regulation.
This possibility cannot be discarded as entirely hypothetical. For example, Andreas Mundt recently remarked that competition law “has always been about fairness and contestability,”[133] thus de facto extrapolating the logic of the DMA’s sector-specific competition regulation to all competition law.
When populist arguments about equality, fairness, and “anti-bigness” previously have reared their head in competition law, they have largely (though not entirely) failed. It is thus somewhat ironic that such ideas should now be spurred by passage of the DMA, a regulation that is—by its own terms—not even a competition law, sensu proprio.
Notwithstanding certain differences, DCRs are largely animated by a common narrative and seek to achieve, on the whole, similar goals. At the most basic level, DCRs seek to tip the balance of power away from digital platforms (see Section IIA); to scatter rents, especially toward app developers and complementors; and to make it easier for potential competitors to contest incumbents’ positions. In this context, traditional antitrust conceptions of competition and consumer welfare are afforded, at best, a ceremonial role.
Despite the apparent discrepancies identified in Section I, it becomes evident on closer examination that DCRs share a common set of assumptions, rationales, and goals. The first of these goals is direct rent redistribution among firms.
The central conceit of DCRs is that asymmetrical power relations between digital platforms and virtually everyone else produce “unfair” outcomes where, in a zero-sum game, “big tech” gets a big slice of the piece of the pie at the expense of every other stakeholder.[134] Thus, DCRs must step in to reallocate rents across the supply chain, so that other actors receive a share of benefits in line with regulators’ understanding of what constitutes a “fair” distributive outcome.
Indeed, as the OECD has noted, the concept of “fairness” is strongly tied to redistribution.[135] As Pablo Ibanez Colomo wrote of the then-draft DMA: “the proposal is crafted to grant substantial leeway to restructure digital markets and re-allocate rents.”[136] This notion is accepted even by DCR proponents, who have admitted that “the regime is not designed to regulate infrastructure monopolies, but rather to create competition as well as to redistribute some rents.”[137]
As to whom should benefit principally from such interventions, the answer varies across jurisdictions, and may depend on the effectiveness of various groups’ rent-seeking efforts, or the particular country’s political priorities.[138] In countries like Korea and South Africa, there has been an explicit emphasis on SMEs, with attempts made to “equalize” their bargaining position vis-à-vis large digital platforms.[139] Other jurisdictions, such as the EU, emphasize competitors (see Section IIIB) and companies that “depend” on the digital platform to do business—such as, e.g., app developers and complementors that “depend” on access to users through iOS; logistics operators that “depend” on Amazon to reach customers; and shops that “depend” on Google for exposure.[140] Granted, these companies may also be SMEs, but they need necessarily not be.[141] In fact, many of the DMA’s expected beneficiaries, including Spotify, Booking.com, Epic, and Yelp,[142] are not small companies at all.[143]
Elsewhere, it is explicitly recognized that DCRs seek to abet the market position of national companies. Prior to the DMA’s adoption, many leading European politicians touted the act’s text as a protectionist industrial-policy tool that would hinder U.S. firms to the benefit of European rivals. As French Minister of the Economy Bruno Le Maire stated:
Digital giants are not just nice companies with whom we need to cooperate, they are rivals, rivals of the states that do not respect our economic rules, which must therefore be regulated…. There is no political sovereignty without technological sovereignty. You cannot claim sovereignty if your 5G networks are Chinese, if your satellites are American, if your launchers are Russian and if all the products are imported from outside.[144]
This logic dovetails neatly with the EU’s broader push for digital and technology sovereignty, a strategy intended to reduce the continent’s dependence on technologies that originate abroad. This strategy has already been institutionalized at different levels of EU digital and industrial policy.[145] In fact, the European Parliament’s 2020 briefing on “Digital Sovereignty for Europe” explicitly anticipated an ex-ante regulatory regime similar to the DMA as a central piece of that puzzle.[146]
The fact that no European companies were designated as gatekeepers lends credence to theories about the DMA’s protectionist origins.[147] But while protectionism is not explicitly embedded in EU law, it likely will be in South Africa’s digital competition regulation. The understanding of “free competition” that underpins the SACC’s DCR proposal hinges on forcing large, foreign digital platforms to elevate local competitors and complementors, even if it means granting them unique advantages.[148] Moreover, unlike other DCRs, SACC’s proposal explicitly notes that its proposed remedies are designed to redistribute wealth from the targeted digital companies or downstream business users toward certain social groups—namely, South African companies, historically disadvantaged peoples (“HDPs”), and SMEs, especially those owned by HDPs.
For instance, to address the “unfair” advantage enjoyed by larger competitors who are displayed more prominently in Google’s search results and are able to invest in search-engine optimization,[149] the SACC would oblige Google to introduce “new platform sites unit (or carousel) to display smaller SA platforms relevant to the search (e.g., travel platforms in a travel search) for free and augment organic search results with a content-rich display.”[150] In addition, Google would be forced to add a South African flag identifier and South African platform filter to “aid consumers to easily identify and support local platforms in competition to global ones.”[151]
The SACC’s proposal is chock full of similar, blatantly redistributive policies that—despite being formally integrated into competition law—flip its logic on its head by requiring distortions of competition in order to (putatively) preserve undistorted competition. Thus, the SACC’s proposal would require gatekeepers to give free credit to South African SMEs; offer promotional rebates; waive fees; provide direct funding for the identification, onboarding, promotion, and growth of SMEs owned by HDPs; force app stores to have a “local curation of apps” aimed at circumventing “automated curation based on sales and downloads for the SA storefronts, and some geo-relevance criteria”; and ban both volume-based discounts that benefit larger companies (relative to SMEs) and promotions that would otherwise “decimate” local competitors.[152]
One reading is that the SACC’s report deviates from the “standard” in digital competition regulation. Another is that the SACC is simply more forthright about accomplishing the goals implicit in the DMA. Indeed, the SACC targets the same types of digital platforms as the DMA, includes many of the same prohibitions and obligations (e.g., self-preferencing, interoperability, cross-use of data, price parity clauses), and openly references the DMA.[153]
In conclusion, despite some distributional differences, the overarching implication of digital competition regulation is generally the same: competitors and business-users (e.g., app store and app developers in the case of Apple’s iOS; sellers and logistics operators in the case of Amazon’s marketplace; competing search and service providers in the case of Google search) should be propped up by gatekeepers. These parties, DCR proponents argue, should get more and easier access to the platforms, feature more prominently therein, be entitled to a larger slice of the transactions facilitated by those platforms,[154] and pay gatekeepers less (or nothing at all).
In some countries, the beneficiaries are intended to be primarily national companies or SMEs. Ultimately, like many other questions surrounding digital competition regulation, the question of cui bono—who benefits?—is not an economic, but a political one, hinging on whatever parties lawmakers want to favor, and at the expense of whatever parties they wish to disfavor.[155] The bottom line, however, goes back to the same, simple idea: gatekeepers should get less, and other businesses should get more.
Consider, for example, the reaction to Apple’s DMA-compliance plan.[156] Most of the backlash concerned the (frustrated) expectations that Apple would, as a result of the obligations imposed by the DMA, take a smaller cut from in-app payments and paid downloads on its platform.[157] If one strips away the rhetoric, the reaction was not about competitive bottlenecks, competition, fairness, contestability, or any other such lofty ambitions, but about the very simple arithmetic of rent seeking, whereby those who invest in lobbying legislators expect a return on their investments.[158]
Or consider the UK’s DMCC. The DMCC includes a “final offer mechanism” that the CMA can use in some cases where a conduct requirement relating to fair and reasonable payment has been breached, and where the CMA considers other powers would not resolve the breach within a reasonable time period.[159] A key aspect of the mechanism is that the two parties to a transaction (at least one of them being a gatekeeper, or a firm with “strategic market status”) submit suggested payment terms for the transaction. The CMA then decides between the two offers, with no option to take a third or intermediate course.
Under the DMCC, however, this mechanism could be applied to any SMS business relationship with third parties. While, as the British government says, this does not involve “direct price setting,”[160] it does mean the CMA would be empowered to decide between two alternative offers and, thus, will determine the distribution of revenues between gatekeepers and, potentially, any third party.[161]
DCRs share a common aim not just to protect business users, but to benefit competitors directly.[162] In contrast with modern notions of competition law, which readily accept that protecting competition often forces less-efficient competitors to depart the market,[163] DCRs are chiefly concerned with ensuring that even inferior competitors enter or remain on the market. Simply put: if a designated digital platform acts “unfairly,” its actions are illegal. But it is generally—save limited exceptions—irrelevant whether its behavior is efficient or if it enhances consumer welfare. These are the very questions that typically serve to delineate pro-competitive from anti-competitive conduct in the context of competition law (and competition on the merits from anti-competitive conduct).[164]
This makes sense if one recognizes that digital competition regulation and competition law have fundamentally different goals: the former seeks to make it easier for nonincumbent digital platforms to succeed and stay on the market, regardless of the costs either to consumers or to the regulated platforms; the latter seeks to protect competition to the ultimate benefit of consumers, which often implies (and requires) weeding out laggard competitors (see Section II).[165]
As former Federal Trade Commission (“FTC”) Commissioner Maureen Ohlhausen has observed:
Some recent legislative and regulatory proposals appear to be in tension with this basic premise. Rather than focusing on protection of competition itself, they appear to impose requirements on some companies designed specifically to facilitate their competitors, including those competitors that may have fallen behind precisely because they had not made the same investments in technology, innovation or product offerings. For example, the Digital Markets Act (DMA) would force a ‘gatekeeper’ company to provide business users of its service, as well as those who provide complementary services, access to and interoperability with the same operating system, hardware, or software features that are available to or used by the gatekeeper. While this would restrain gatekeepers and presumably facilitate the interests of the gatekeeper’s rivals, it is not clear how this would protect consumers, as opposed to competitors.[166]
That is because the two kinds of legislation pursue mutually exclusive goals. DCRs aim to facilitate competitors by making covered digital markets more “contestable.” The assumption is that, because consumers consistently use certain dominant platforms, “digital markets” must not contestable, or not sufficiently contestable.[167] The putative reason for this low level of contestability allegedly lies in certain advantages that have accrued to incumbent platforms and that competitors purportedly cannot reasonably replicate, such as network effects, data accumulation, and data-driven economies of scale. Consumer cognitive biases and lock-in are asserted as further cementing incumbents’ positions. Because digital markets are also said to be “winner-takes-all,” the corollary is that currently dominant firms will remain dominant unless regulators intercede swiftly and decisively to bolster contestability.
DCRs seek to achieve this state of contestability by “equalizing” the positions of gatekeepers and competitors in two interconnected ways: by diminishing incumbents’ advantages and by forcing them to share some of those advantages with competitors. Making digital markets more contestable therefore requires undercutting the benefits of network effects and advantages enjoyed by “data-rich” incumbents,[168] not because data harvesting is inherently bad or because incumbents have acquired such data illegally or through deceit; but because it makes it hard for other firms to compete. Contestability—understood as other firms’ ability to challenge incumbent digital platforms’ positions—is therefore put forward as a goal in itself, regardless of those challengers’ relative efficiency or what effects the contestability-enhancing obligations have on consumers (see Section IIID).
It is not hard to see how the deontological focus on contestability is narrowly connected to the protection of competitors. Many, if not most, of the obligations and prohibitions in DCRs are best understood as attempts to improve contestability by facilitating competitors, while stifling incumbents. For instance, data-sharing obligations—such as those included in Article 19a of the German Competition Act and Art.6(j) DMA—make it harder for incumbents to accumulate data, while also forcing them to share the data they harvest with competitors. The objective is clearly not to tackle data harvesting because it is noxious, but to disperse users and data across smaller competitors and thereby make it easier for those competitors to stay on the market and contest the incumbents’ position.
Similarly, so-called “self-preferencing” provisions seek to prohibit designated companies from preferencing their own products’ position ahead of that granted to competitors, even if consumers ultimately benefit from such positioning (e.g., because the incumbent’s package is more convenient).[169]
Interoperability obligations likewise require incumbents to make their products and services compatible with those offered by competitors, often with very limited scope for affirmative defenses grounded solely in objective security and privacy considerations. The logic is that interoperability reduces switching costs and allows competitors to attract more easily the previously “locked-in” users.
There are also prohibitions on the use of data generated by a platform’s business users, which essentially ignore the potentially pro-competitive cost reductions and product improvements that may result from the cumulative use of such data. Instead, the goal is to preclude gatekeepers from outperforming—including through more vigorous competition, such as better products or more relevant offers—the third parties who have generated such data on gatekeepers’ platforms.
Ultimately, what all these provisions have in common is that they primarily seek to increase the number of competitors on the market and to enhance their ability to gain market share at the incumbent’s expense, regardless of the effects on the quality of competition, end products, or concerns related to free-riding on incumbents’ legitimate business investments, superior management decisions, or product design (all of which are considerations that would be cognizable under antitrust law—on which, see Section II).[170] “Contestability” in digital competition regulation thus means an erosion, through regulatory means, of incumbents’ competitive advantages, regardless of how those competitive advantages have been achieved.
Digital competition regulation is therefore inherently competitor-oriented, regardless of its stated goals, and this focus is often enshrined in law in other, subtler ways. For instance, the DMCC explicitly invites potential or actual competitors to provide testimony to the CMA before it imposes or revokes a conduct requirement. It requires the CMA to initiate consultations on the imposition or removal of such conduct requirements (S. 24), as well as on “procompetitive interventions” (S. 48).
The proposed ACCESS Act in the United States likewise gives competitors a privileged seat at the table.[171] According to Sec.4(e) of the bill, if a covered platform wishes to make any changes to its interoperability interface, it must ask the FTC for permission. In deciding the question, the FTC is to consult with a “technical committee” formed by, among others, representatives of businesses that utilize or compete with the covered platform.[172] Representatives of the covered platform also would sit on the technical committee, but have no vote.[173]
Importantly, the FTC’s decision in these matters would be dependent on whether competitors’ interests have been harmed—i.e., “that the change is not being made with the purpose or effect of unreasonably denying access or undermining interoperability for competing businesses or potential competing businesses.”[174] This is tantamount to asking competitors for permission to make product-design decisions on a company’s own platform, based on the vested interests of those competitors.
Finally, less than a month after the DMA’s entry into force, the European Commission launched investigations into four gatekeepers for noncompliance. Critical to the Commission’s decision to investigate these companies was feedback received from stakeholders,[175] most of whom are competing firms who hoped to benefit from its provisions.
There are two ways to promote equality: one is to lift up Party A, the other is to drag down Party B.[176] DCRs typically do both, all in service of suppressing the presumably illegitimate levels of gatekeeper power. In the previous subsection, we argued that DCRs facilitate competitors. But it is just as important to note that they also—sometimes concomitantly and sometimes separately—seek to worsen gatekeepers’ competitive position in at least three ways: by imposing costs on gatekeepers that are not borne by competitors, by negating their ability to capitalize on key investments, and by facilitating free riding by third parties on those investments.
For example, prohibitions on the use of nonpublic third-party data benefit competitors, but they also negate the massive investments made by incumbents to harvest that data. They preclude gatekeepers from monetizing the investments made in their platforms by, say, using that data to improve their own products and product lineup in response to new information about users’ changing tastes. This directly undermines gatekeepers’ competitive position, which depends on their ability to improve and adapt their products (see Section IIID). But this is a feature, not a bug, of DCRs. DCRs seek to dissipate gatekeepers’ “power,” where power does not necessarily mean “market power,” but simply their ability to compete effectively. For example, even if allowing gatekeepers to use nonpublic data would improve their products, to consumers’ ultimate benefit, it would also “harm” competitors in the sense that it would make it harder for them to compete with the gatekeeper. In other words, it would not be anticompetitive, but it would be “unfair.” By contrast, in the moral lexicon of digital competition regulation, free riding and effectively expropriating gatekeepers’ investments is not considered “unfair.”
Nor are data-sharing obligations. Data-sharing obligations clearly impose costs on gatekeepers: tracking and sharing data is anything but free. Nonetheless, gatekeepers are expected to aid and subsidize competitors and third parties at little or no cost,[177] thereby diminishing their competitive position and dissipating their resources (and investments) for the benefit of another group.
Similar arguments can be made about the other prohibitions and obligations that form part of the standard DCR package. Sideloading mandates allow third parties to free ride on gatekeepers’ investments in developing popular and functioning operating systems.[178] Insofar as they worsen gatekeepers’ ability to curate content and monitor safety and privacy risks, they also deprecate platforms’ overall quality and integrity, thereby potentially harming even the very companies they seek to aid.[179] Sideloading and interoperability mandates also essentially turn closed platforms into open ones (or, at the very least, they bring the two much closer together), thus forcing closed platforms to forfeit their competitive benefits relative to the primary alternatives.[180]
Antitrust law is unequivocal in its preference for inter-brand over intra-brand competition.[181] But under digital competition regulation, this principle gives way to a de-facto harmonization toward the model preferred by regulators—i.e., the one that makes every successful platform as open and accessible to competitors as possible, regardless of tradeoffs.
For example, self-preferencing prohibitions destroy one of the primary incentives for (and benefits of) vertical integration, which is the ability to prioritize a company’s own upstream or downstream products.[182] Such prohibitions also allow third parties that without the foresight to invest in a platform to accrue the same benefits as those that have. They also limit a platform’s ability to offer goods whose quality and delivery it can more readily guarantee,[183] another bane for competitiveness recast as a desirable symptom of “fairness and contestability.”
Some DCRs are considerably more candid than others about their intent to hamstring gatekeepers. The Turkish E-Commerce Law includes some provisions that differ from the DMA, despite being evidently inspired by it.[184] Among those provisions are regulations that would not only prevent electronic-commerce intermediary-service providers (“ECISPs”) from gaining significant market power, but also require that those already in a dominant position must lose this power.[185] Moreover:
Another example of atypical regulations envisaged in the E-Commerce Law is the limitations imposed on the advertising and discount budgets of large-scale ECISPs. Under Additional Article 2/3(a), the annual advertising budget of large-scale ECISPs is limited to the sum of 2% of the amount of 45 Billion Turkish Liras of the net transaction volume of the previous calendar year applied to the twelve-month average Consumer Price Index change rate for the same calendar year and 0.03% of the amount above 45 Billion Turkish Liras. This limit constitutes the total advertising budget for all ECISPs within the same economic unit and for all ECSPs operating in the e-commerce marketplace within the same economic unity.[186]
According to Kadir Bas and Kerem Cen Sanli:
The amended E-Commerce Law goes beyond prohibiting gatekeepers’ behavior that restricts fair and effective competition, and introduces provisions that prevent undertakings in the e-commerce sector from gaining market power through organic internal growth without distorting competition or committing any unfair practices. In this context, the E-Commerce Law gradually imposes obligations and restrictions on undertakings based on their transaction volumes, which are not directly related to market power, and some restrictions significantly limiting the ability to compete are imposed on all undertakings in the sector. When those features of the E-Commerce Law are evaluated together, it can be said that the legislator aims to structurally design the competition conditions and business models in the Turkish e-commerce sector.[187]
Bas and Sanli argue that this distinguishes the E-Commerce Directive from the DMA. While it technically true that the DMA does not impose measures that would, e.g., directly limit a firm’s advertising expenditure or tax additional transactions beyond a certain threshold, it does nevertheless “level down” gatekeepers’ ability to compete and grow organically in other ways. On this view, the Turkish E-Commerce Directive takes the DMA’s logic to its natural conclusion and, much like the SACC’s proposal, simply says the quiet part out loud.
Similarly, the UK’s DMCC is designed to foreclose activities that would otherwise bolster gatekeepers’ “strategic significance.”[188] A company with strategic significance is defined as one that fulfills one or several of the following conditions: has achieved significant size or scale; is used by a significant number of other undertakings in carrying out their business; has a position that allows it to determine or substantially influence the ways in which other undertakings conduct themselves; or is in a position to extend its market power to different activities. At least three of these conditions (the first three) can easily result from organic growth or procompetitive behavior. There are many investments and innovations that would, if permitted, benefit consumers—either immediately or over the longer term—but which may enhance a platform’s “strategic significance,” as defined by the DMCC.[189] Indeed, improving a firm’s products and thereby increasing its sales will often naturally lead to increased size or scale.
The inverse is also true: product improvements, innovation, and efficiencies can result from size or scale.[190] This is especially relevant in the context of digital platforms, where a product’s attractiveness often comes precisely from its size and scope. In two-sided markets like digital platforms, product quality often derives from the direct and indirect network effects that result from adding an additional user to the network. In other words, the more consumers use a product or service, the more valuable that product or service becomes to consumers on both sides of the platform.[191] Capping scale and size thus curtails one of the primary (if not the main) spurs of digital platforms’ growth and competitiveness.
Which, of course, arguably was the intent behind DCRs all along. In this context, some DCRs contain provisions that allow enforcers to impose a moratorium on mergers and acquisitions involving a gatekeeper, even where such concentrations would not ordinarily fall within the scope of merger-control rules.[192]
This degree of animosity may seem puzzling.[193] but one’s priors matter quite a bit here. If one accepts, tout court, the dystopian narrative that casts digital platforms as uniquely powerful, unfair, and abusive (see Section IIA),[194] this punitive approach[195] is understandable and, in a sense, even required.
DCRs affect wealth transfers from gatekeepers to other firms (see Section IIIA). But DCRs also affect—or, at least, tacitly accept—wealth transfers from consumers to other firms. First, DCRs generally do not require a finding of consumer harm to intercede. Second, DCRs provide limited scope for efficiency defenses. Generally, only defenses rooted in objective privacy and security concerns are allowed,[196] and even these are subject to a high evidentiary burden.[197]
On the other hand, justifications related to product quality, curation, or that otherwise seek to preserve the consumers’ experience are not typically permitted. For example, the quality-of-life improvements that may come from better curation and selection of apps in a closed platform (e.g., one that does not allow for the sideloading of apps or third-party app stores) are not relevant under the DMA, nor is any other dimension of consumer welfare, including price, quality, aesthetics, or curation. The Turkish DCR goes even further than the DMA, in that does not appear to allow for any exemptions (even on the basis of safety and privacy).[198] The SACC’s proposal likewise does not appear to provide scope for affirmative defenses.
In Australia, the DPI states that exemptions should be put in place to mitigate “unintended consequences.” This could, in principle, include consumer-welfare considerations, but the DPI’s explicit reference to the DMA[199] and various public statements by the ACCC suggest that this is unlikely to be the case. The ACCC said in its Fifth Interim Report that “[t]he drafting of obligations should consider any justifiable reasons for the conduct (such as necessary and proportionate privacy or security justifications).”[200]
The narrow and strict exceptions to the above DCRs confirm the downgraded status of consumer welfare in digital competition regulation (vis-à-vis competition law). German Article 19a, for example, allows for exemptions where there is an “objective justification.”[201] But unlike in every other instance under the German Competition Act, Article 19a reverses the burden of proof and requires the gatekeeper, not the Bundeskartellamt, to prove that the prohibited conduct is objectively justified.
In a similar vein, the AICOA bill in the United States would only require that the plaintiff show “material harm to competition” in provisions related to self-preferencing and service discrimination provisions.[202] The remaining provisions do not contain affirmative-effects requirements, but would not apply if the defendant shows a lack of “material harm to competition.” In other words, the burden of proof is shifted from the plaintiff to the defendant — who must prove a negative.[203]
The UK’s DMCC allows for a “countervailing benefits exception,”[204] which would apply when behavior that breaches a conduct requirement is found to provide sufficient other benefits to consumers without making effective competition impossible, and is “indispensable and proportionate” (s. 29(2)(c)) to the achievement of the benefit.[205] Again, this sets a high bar to clear.[206] For example, a limitation on interoperability might provide a benefit to user security and safety. But the exemption would apply only if the CMA were persuaded that this limitation was the only way to achieve such protection, which could be very hard or impossible to demonstrate.
The marginality of consumer welfare as a relevant policy factor is compounded in the UK by the fact that CMA decisions would only be subject to judicial review. Firms will thus be unable to challenge the authority’s factual assessments on questions such as indispensability and proportionality.[207] Even the chance that such a thing could be shown will be of little value to affected firms since the exemption can apply only once an investigation into a breach of a conduct requirement is underway.[208]
Finally, the Brazilian proposal states that costs, benefits, and proportionality should be observed when establishing an obligation under Art.10, [209] although there is no telling what this would mean in practice, or whether it encompasses consumer welfare (Arts. 10 and 11 of PL 2768 do not mention consumer welfare).[210]
The broader question, however, is whether a pro-consumer approach is even compatible with the overarching goals of digital competition regulation. A corollary of facilitating competitors and levelling down gatekeepers is that successful companies and their products are made worse—often at consumers’ expense. For instance, choice screens may facilitate competitors, but at the expense of the user experience, in terms of the time taken to make such choices. Not integrating products might give a leg up to competing services, but consumers might resent the diminished functionality.[211] Interoperability may similarly reduce the benefits an incumbent enjoys from network effects, but users may prefer the improved safety, privacy, and curation that typically comes with closed or semi-closed “walled-garden” ecosystems, like Apple’s iOS.[212]
In sum, proponents of DCRs appear to see losses in consumer welfare as a valid and potentially even desirable tradeoff for competitors’ increased ability to contest the incumbents’ position, as well as for wealth transfers across the supply chain that are seen as inherently just, equitable, and fair.
While competition enforcement can affect the allocation of rents among firms, this is generally not the goal of competition policy. The only rent redistribution that is, in principle, relevant in competition law is the one between companies that misuse their market power and consumers (or, in some cases, trading parties). But the overarching goal is to prevent distortions of competition that result in deadweight loss and transfer consumer surplus to the monopolist, not to allocate resources among a set of hand-picked “big” firms and their smaller rivals in way that legislators or regulators consider “fair.” It is the market, not the government, that determines what is “fair.” Competition laws exist to preserve, not to rewrite, that outcome.
Indeed, even some advocates of incorporating political goals into antitrust law, such as Robert Pitofsky, have opposed using the law to protect small businesses and redistribute income to achieve social goals.[213] This is for good reason. Rent redistribution among firms entails significant risks of judicial error and rent seeking. Regulators may require firms to supply their services at inefficiently low prices that are not mutually advantageous, which may in turn diminish those firms’ incentives to invest and innovate.
DCR backers may retort that rent redistribution is the goal of most natural-monopoly regulations (such as those in the telecommunications and energy-distribution industries), which generally rely on both price regulation and access regimes to favor downstream firms and (ultimately) consumers.[214] But digital markets tend to be very different to those traditionally subject to price regulation and access regimes. And even in those industries, price regulation and access regimes raise many difficulties—such as identifying appropriate price/cost ratios and fleshing out the nonprice aspects of the goods/services or regulated firms.
Those difficulties are compounded in the fast-moving digital space, where innovation cycles are faster and yesterday’s prices and other nonprice factors may no longer be relevant today.[215] In short, rent redistribution is difficult to do well in traditional natural-monopoly settings, and may be impossible to do without judicial error in the digital world.
Assuming that such redistribution was to take place, what would a fair redistribution entail? “Fairness” is subjective and, as such, in the eye of the beholder.[216] Moreover, reasonable people may and often do disagree on what is and is not fair. What is “unfair” for the app distributor who pays a commission to use in-app payments may seem “fair” to the owner of the operating system and the app store that makes significant investments to maintain them.[217] Because fairness is such an inherently elusive concept,[218] DCRs ultimately define “fair” and “unfair” by induction—i.e., from the bottom up, in a “you know it when you see it” approach that is difficult to square with any cogent normative theory or limiting principle.[219]
For example, in response to claims that Apple must allow competing in-app purchases (“IAPs”) on its App Store in order to make its 30% IAP fee more competitive (cheaper), Apple could allow independent payment processors to compete, charge an all-in fee of 30% when Apple’s IAP is chosen and, in order to recoup the costs of developing and running its App Store, charge app developers a reduced, mandatory per-transaction fee (on top of developers’ “competitive” payment to a third-party IAP provider) when Apple’s IAP is not used. Indeed, where such a remedy has already been imposed, that is exactly what Apple has done. In the Netherlands, where Apple is required by the Authority for Consumers and Markets (“ACM”) to uncouple distribution and payments for dating apps, Apple adopted the following policy:
Developers of dating apps who want to continue using Apple’s in-app purchase system may do so and no further action is needed…. Consistent with the ACM’s order, dating apps that . . . use a third-party in-app payment provider will pay Apple a commission on transactions. Apple will charge a 27% commission on the price paid by the user, net of value-added taxes. This is a reduced rate that excludes value related to payment processing and related activities.[220]
The company responded similarly to the DMA.[221] It is not hard to see the fundamental problem with this approach. If a 27% commission plus competitive payment-provider fee permits more “competition,” or is fairer, than complete exclusion of third-party providers, then surely a 26% fee would permit even more competition, or be even fairer. And a 25% fee fairer still. Such a hypothetical exercise logically ends only where a self-interested competitor or customer wants it to end, and is virtually impossible to measure.[222]
Even if it were possible, it would entail precisely the kind of price management that antitrust law has long rejected as being at loggerheads with a free market.[223] Without a measurable market failure, what is the frontier of fairness? When does a complaint stop being a competition or gatekeeper issue and become a private dispute about wanting to pay less—or nothing—for a service?[224]
Another obvious problem with facilitating competitors and levelling down gatekeepers is that it discourages investment, innovation, and competition on the merits. Having been encouraged to bring new, innovative products to market and compete for consumers’ business, successful companies—now branded with the “gatekeeper” epithet—are subject to punitive regulation.[225] The benefits that they have legitimately and arduously acquired are dissipated across the supply chain and their competitors, who lacked the foresight and business acumen to make the same or similar investments, are rewarded for their sluggishness.[226] This stifles the mechanisms that propel competition. As Justice Learned Hand observed almost 80 years ago, “the successful competitor, having been urged to compete, must not be turned upon when he wins.”[227] There is no reason why digital competition regulation should be impervious to that logic.
The abrupt shift from competition law to digital competition regulation also sends investors the wrong message by creating commitment issues.
Commitment issues arise where a government commits itself in one period to behaving in certain ways in the future but, when it comes to a future point in time, reneges on the earlier commitment to reflect its preferences at that later point in time.[228]
For example, today’s gatekeepers have made significant investments in data processing, vertical integration, scaling, and building ecosystems. Many of these investments are sunk, meaning that they can no longer be recouped or can be recouped only partially. With the various DCRs’ entry into force, however, gatekeepers can no longer fully utilize those investments. For instance, they cannot self-preference and thereby reap the full benefits of vertical integration;[229] they cannot use third-party data generated on the platforms they have built and in which they have invested; and they must now allow third-parties and competitors to free ride on those investments in a plethora of ways, ranging from allowing sideloading to mandated data sharing (see Section IIIB).
In dynamic contexts, time-inconsistency can obviously affect firms’ actions and decisions, leading to diminished investments.[230] From a less consequentialist and more deontological perspective, however, it is also questionable how “fair” (to use the mot du jour of digital competition regulation) it is to expropriate a company’s sunk-cost investments by abruptly shifting the regulatory goalposts under a new paradigm of competition regulation that essentially subverts the logic of the previous one, and penalizes what was until recently seen as permissible and even desirable conduct (see Section II).
Aldous Huxley once wrote that several excuses are always less convincing than one.[231] His point was that multiple justifications may often conceal the fact that none of them are entirely convincing in their own right. This maxim aptly captures the doubts that persist surrounding DCRs.
On the surface, DCRs pursue a variety of sometimes overlapping, sometimes contradictory, and sometimes disparate goals and objectives (Section I). Some of these goals and objectives hearken back to familiar antitrust themes, but it would be a mistake to treat DCRs as either an appendix to or extension of competition law (Section II). Unlike mainstream competition laws, DCRs address a moral, rather than an economic failure. DCRs emphasize notions of power that are foreign to competition law, essentially promulgating a new form of competition regulation that subverts the logic, rationale, and goals of the existing paradigm.
This approach to regulating competition may be new, but it is not original. To the contrary, the use of antitrust law to castigate concerns seen as “too big and powerful,” promote visions of social justice, and facilitate laggard competitors (even if it comes at the expense of competition, total, or consumer welfare) have been around since the inception of the Sherman Act.[232] In this sense, those who say that digital competition regulation is not competition law, and should therefore not be judged by competition-law standards, [233] are correct on the form but wrong on the substance.[234] They miss the bigger and more important point, which is that—regardless of its legal classification—digital competition regulation is competition regulation, just not the kind we have known for (at least) the last half a century.
The rationale that underpins digital competition regulation can be explained as follows. (Section III). Competition is no longer about consumer-facing efficiency, but about fairness, equality, and inclusivity. In practice, this means improving the lot of some, while “levelling down” others—regardless of the respective merits or demerits of each group (or their products). In this world, “contestability” is not so much the ability to displace an incumbent through competition on the merits, but very much the reverse. It is about lowering the competitive bar to increase the number of companies on the market—full stop. Whether or not this benefits consumers is largely immaterial, as the normative lodestars of digital competition regulation—fairness and contestability—are seen as having inherent and deontological value and thus removed from any utilitarian calculi of countervailing efficiencies (except, arguably, increases in competitors’ market shares).
Ultimately, however, this “new” approach to competition will have to reckon with the same problems and contradictions as the erstwhile antitrust paradigms from which it draws inspiration. The minefield of redistributive policies is likely to hamstring investment and innovation by targeted digital platforms significantly, while simultaneously encouraging rent-seeking behavior by self-interested third parties. Enabling competitors and purposefully harming incumbents also sends the message that equitable outcomes are preferred to excellence, which could encourage even more free riding and rent seeking and further stifle procompetitive conduct.
Finally, the irony is likely not lost on even the most casual observer that, for regulations so obsessed with “fairness,” it is fundamentally unfair for DCRs to syphon rents away from some companies and into others by fiat; and to force those companies to share their hard-earned competitive advantages with others who have not had the foresight or business acumen to make the same investments in a timely fashion.
It is difficult to overstate how big of a departure from competition law this approach to competition regulation is. But digital competition regulation is potentially more than just a digression from established principles in a relatively niche, technical field like competition law. Under the most expansive version of this interpretation, digital competition regulation heralds a new conception of the role and place of companies, markets, and the state in society.
In this “post-neoliberal” world,[235] the role of the state would not be to address market failures that harm consumers through discrete interventions guided by general, abstract, and reactive rules (such as competition law). Instead, it would be to intercede aggressively to redraw markets, redesign products, pick winners, and redistribute rents; indeed, to act as the ultimate ordering power of the economy.[236] It is not difficult to see how “old” competition-law principles, such as the consumer-welfare standard, effects-based analysis, and the procedural safeguards designed to cabin enforcers’ discretion could disrupt this system.
But for now, this remains just a hypothesis, and some would say—perhaps rightly so—an alarmist one. Yet there are unmistakable signs—as unmistakable as social science will allow—that a new paradigm of political philosophy is in the making: from the rehabilitation of once-maligned industrial policy to the rise of neo-Brandeisianism to recurrent proclamations of the “death of neoliberalism”[237] and its “idols,” including the consumer-welfare standard in antitrust law.[238]
Only time will tell if the digital competition regulation is truly sign of things to come, or merely a small but ultimately insignificant and abrupt dirigiste turn in the zig-zagging of antitrust history.[239] And only time will tell whether the approach to competition regulation promulgated by digital competition regulation will stay confined to the activities of a few large concerns and a handful of core platform services, or whether its logic will, in the end, seep into other spheres of policy and social life.
[1] Regulation (EU) 2022/1925 of the European Parliament and of the Council of 14 September 2022 on Contestable and Fair Markets in the Digital Sector and amending Directives (EU) 2019/1937 and (EU) 2020/1828, 2022 O.J. (L 265) 1 (hereinafter “Digital Markets Act” or “DMA”).
[2] “Digital competition regulation” or “DCR” will be used throughout to refer both to rules already in place and to rules currently under consideration. Context on legislative status will be given where available and appropriate.
[3] The terms “competition law” and “antitrust law” will be used interchangeably.
[4] See, e.g., Proposal for a Regulation of the European Parliament and of the Council Laying Down Harmonised Rules on Artificial Intelligence (Artificial Intelligence Act) and Amending Certain Union Legislative Acts, COM (2021) 206 final (Apr. 21, 2021).
[5] Regulation (EU) 2022/2065 of the European Parliament and of the Council of 19 October 2022 on a Single Market for Digital Services and Amending Directive 2000/31/EC, 2022, O.J. (L 277) 1 (hereinafter “Digital Services Act” or “DSA”).
[6] Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the Protection of Natural Persons with Regard to the Processing of Personal Data and on the Free Movement of Such Data, and Repealing Directive 95/46/EC, 2016 O.J. (L 119) 1 (hereinafter “General Data Protection Regulation” or “GDPR”).
[7] See, e.g., DMA, supra note 1.
[8] Press Release, Amendment of the German Act Against Restraints of Competition, Bundeskartellamt (Jan. 19, 2021), https://www.bundeskartellamt.de/SharedDocs/Meldung/EN/Pressemitteilungen/2021/19_01_2021_GWB%20Novelle.html.
[9] Id.
[10] The Act on the Protection of Competition No. 4054, Official Gazette (Dec. 13, 1994) (Turk.).
[11] See, E-Pazaryeri Platformari Sektor Incelemesi Nihai Raporu, Turkish Competition Authority (2022), available at https://www.tpf.com.tr/dosyalar/2022/06/e-pazaryeri-si-raporu-pdf.pdf (Turkish language only).
[12] Arguably, however, there is an increased emphasis on “business rights.”
[13] See, KFTC Proposes Ex-Ante Regulation of Platforms Under the “Platform Competition Promotion Act,” Legal 500 (Jan. 4, 2024), https://www.legal500.com/developments/thought-leadership/kftc-proposes-ex-ante-regulation-of-platforms-under-the-platform-competition-promotion-act.
[14] Park So-Jeong & Lee Jung-Soo, S. Korea Speeds Up to Regulate Platform Giants Such as Google or Apple, The Chosun Daily (Feb. 4, 2024), https://www.chosun.com/english/national-en/2024/02/04/MCCJQZTJ3ZC5JJ7NVDM46D6R2I.
[15] Id.
[16] Monopoly Regulation and Fair Trade Act, Act. No, 3320, Dec. 31, 1980, amended by Act No. 18661, Dec. 28, 2021 (S. Kor.).
[17] Digital Markets Competition and Consumer Bill, 2023-24, H.L. Bill (53) (U.K.) (hereinafter “DMCC”).
[18] See, e.g., id. at Part 1, S. 2, which defines companies with “strategic market status” as those with “substantial and entrenched market power.” By contrast, Recital 5 of the DMA states: “Although Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU) apply to the conduct of gatekeepers, the scope of those provisions is limited to certain instances of market power, for example dominance on specific markets and of anti-competitive behaviour, and enforcement occurs ex post and requires an extensive investigation of often very complex facts on a case by case basis. Moreover, existing Union law does not address, or does not address effectively, the challenges to the effective functioning of the internal market posed by the conduct of gatekeepers that are not necessarily dominant in competition-law terms.”
[19] DMCC, supra note 18, at Part 1, Chapter 4.
[20] Press Release, New Bill to Stamp Out Unfair Practices and Promote Competition in Digital Markets, UK Competition and Markets Authority (Apr. 25, 2023), https://www.gov.uk/government/news/new-bill-to-stamp-out-unfair-practices-and-promote-competition-in-digital-markets.
[21] DMCC, supra note 18, at Part 4.
[22] Competition Act 1998 c.41 (U.K.).
[23] See Press Release, supra note 21.
[24] Id.
[25] Id. (emphasis added).
[26] The DMCC defines “digital activities” as those involving the purchase or sale of goods over the internet, or the provision of digital content. DMCC, Part 1, S.3.
[27] The provisions on digital markets are covered in Part 1 of the DMCC. DMCC, Part 2 covers competition.
[28] Digital Platform Services Inquiry 2020-25, Australian Competition and Consumer Commission, https://www.accc.gov.au/inquiries-and-consultations/digital-platform-services-inquiry-2020-25 (last accessed May 13, 2024).
[29] Digital Platform Services Inquiry, Interim Report 5, Australian Competition and Consumer Commission (2022), at 5 (“The ACCC recommends a new regulatory regime to promote competition in digital platform services. The regime would introduce new competition measures for digital platforms.”). The term “digital regime” has also been used to describe the authority granted to the UK’s newly created Digital Markets Unit. See Moritz Godel, Mayumi Louguet, Paula Ramada, & Rhys Williams, Monitoring and Evaluating the Digital Markets Unit (DMU) and New Pro-Competition Regime for Digital Markets, London Economics (Jan. 2023), available at https://assets.publishing.service.gov.uk/media/64538076c33b460012f5e65d/monitoring_and_evaluating_the_new_pro-competition_regime_for_digital_markets.pdf.
[30] Digital Platform Services Inquiry, Interim Report 5, id. at 5.
[31] American Innovation and Choice Online Act, S. 2992, 117th Cong. (2022), (hereinafter “AICOA”).
[32] Open App Market Act, S. 2710, 117th Cong. (2022), (hereinafter “OAMA”).
[33] ACCESS Act of 2021, H.R. 3849, 117th Cong. (2021).
[34] AICOA, § 3.
[35] OAMA.
[36] Id.
[37] Press Release, Klobuchar, Grassley, Colleagues to Introduce Bipartisan Legislation to Rein in Big Tech, U.S. Sen. Amy Klobuchar (Oct. 14, 2021), https://www.klobuchar.senate.gov/public/index.cfm/2021/10/klobuchar-grassley-colleagues-to-introduce-bipartisan-legislation-to-rein-in-big-tech. The bill’s title is somewhat ambiguous, as it reads: “to provide that certain discriminatory conduct by covered platforms shall be unlawful, and for other purposes.” See AICOA, supra note 36.
[38] See id.
[39] Comments of the American Bar Association Antitrust Law Section Regarding the American Innovation and Choice Online Act (S. 2992), American Bar Association Antitrust Law Section (Apr. 27, 2022) at 5, available at https://appliedantitrust.com/00_basic_materials/pending_legislation/Senate_2021/S2992_aba_comments2022_04_27.pdf (hereinafter “ABA Letter”).
[40] Press Release, Klobuchar Statement on Judiciary Passage of Legislation to Set App Store Rules of the Road, U.S. Senator Amy Klobuchar (Feb. 3, 2022), https://www.klobuchar.senate.gov/public/index.cfm/2022/2/klobuchar-statement-on-judiciary-committee-passage-of-legislation-to-set-app-store-rules-of-the-road.
[41] This is stated in the title of the bill. The ACCESS Act also claims to “encourage entry by reducing or eliminating the network effects that limit competition with the covered platform.” See ACCESS ACT at § 6(c).
[42] Press Release, Lawmakers Reintroduce Bipartisan Legislation to Encourage Competition in Social Media, U.S. Sen. Mark R. Warner (May 25, 2022), https://www.warner.senate.gov/public/index.cfm/2022/5/lawmakers-reintroduce-bipartisan-legislation-to-encourage-competition-in-social-media; see also, The ACCESS Act of 2022, U.S. Senator Mark R. Warner, available at https://www.warner.senate.gov/public/_cache/files/9/f/9f5af2f7-de62-4c05-b1dd-82d5618fb843/BA9F3B16A519F296CAEDE9B7EFAB0B7A.access-act-one-pager.pdf.
[43] Online Intermediation Platforms Market Inquiry, Summary of Final Report and Remedial Actions, South African Competition Commission (2023), 13, available at https://www.compcom.co.za/wp-content/uploads/2023/07/CC_OIPMI-Summary-of-Findings-and-Remedial-action.pdf.
[44] Projeto de Lei PL 2768/2022, https://www.camara.leg.br/proposicoesWeb/fichadetramitacao?idProposicao=2337417 (Braz.) (Portuguese language only).
[45] Id. at Art. 4.
[46] Id. at Art. 5.
[47] DMA, supra note 2 at recitals 2, 31. On the two objectives being intertwined, see Recital 34.
[48] Id., at Recital 10.
[49] Id.
[50] Anti-Competitive Practices by Big Tech Companies, Fifty Third Report, Standing Committee on Finance, 17th Lok Sahba (India), (2022-23), available at https://eparlib.nic.in/bitstream/123456789/1464505/1/17_Finance_53.pdf, at 29.
[51] Report of the Committee on Digital Competition Law (India), Annexure IV: Draft Digital Competition Bill (2024), https://www.mca.gov.in/bin/dms/getdocument?mds=gzGtvSkE3zIVhAuBe2pbow%253D%253D&type=open.
[52] The Competition Act, No. 12 of 2003, INDIA CODE (1993).
[53] CDC Report, at 4, 42.
[54] ICA, preamble. The ICA does not mention “contestability.”
[55] Report of the High-Powered Expert Committee on Competition Law and Policy (India) (1999), available at https://theindiancompetitionlaw.wordpress.com/wp-content/uploads/2013/02/report_of_high_level_committee_on_competition_policy_law_svs_raghavan_committee.pdf.
[56] Raghavan Committee Report, at 1.1.9. “The ultimate raison d’être of competition is the interest of the consumer”; see also at 1.2.0.
[57] Raghavan Committee Report, at 2.4.1.
[58] Raghavan Committee Report, at 3.2.8. “If multiple objectives are allowed to rein in the Competition Policy, conflicts and inconsistent results may surface detriment to the consumers… In addition, such concerns as community breakdown, fairness, equity and pluralism cannot be quantified easily or even defined acceptably… it needs to be underscored that attempts to incorporate such concerns may result in inconsistent application and interpretation of Competition Policy, besides dilution of competition principles. The peril is that the competitive process may be undermined, if too many objectives are built into the Competition Policy and too many exemptions/exceptions are laid down in dilution of competition principles.”
[59] See, e.g., Pelle Beems, The DMA in the Broader Regulatory Landscape of the EU: An Institutional Perspective, 19 Eur. Comp. J. 1, 27 (2023); Pierre Larouche & Alexandre De Streel, The European Digital Market: A Revolution Grounded on Traditions, 12 J. Eur. Comp. L. & Practice 542, 542 (2021) (arguing that the DMA’s conceptual nature is in a “difficult epistemological position”).
[60] See Nicolas Petit, The Proposed Digital Markets Act (DMA): A Legal and Policy Review, 12 J. Eur. Competition L. & Practice 529, 530 (2021) (“The DMA is essentially sector-specific competition law.”). The DMA’s competition-law DNA is also explicitly reflected in Section 1.4.1 of the Legislative Financial Statement, which is annexed to the DMA proposal. See id. (“The general objective of this initiative is to ensure the proper functioning of the internal market by promoting effective competition in digital markets.”). See also Beems, supra note 62, at 27 (“In my view, it could be desirable to qualify the DMA as a specific branch of competition law that applies to gatekeepers.”).
[61] See Giuseppe Colangelo, The European Digital Markets Act and Antitrust Enforcement: A Liaison Dangereuse, 5 Eur. L. Rev., 597, 610 (2022) (“In service of this goal of speedier enforcement, the DMA dispenses with economic analysis and the efficiency-oriented consumer welfare test, substituting lower legal standards and evidentiary burdens.”). See also Pablo Iba?n?ez Colomo, The Draft Digital Markets Act: A Legal and Institutional Analysis, 12 J. Eur. Competition L. & Practice 561, 566 (2021).
[62] It should be underscored that “power” here means something much broader and general than the narrow concept of “market power” under competition law. Unlike “market power,” assertions that so-called “Big Tech” wield “power” are not intended to invoke a state-of-the art term, but rather are general references to companies’ size, resources, and capacity. Neo-Brandeisians like Lina Khan and Tim Wu often refer to the “power” of Big Tech in such terms. See generally Tim Wu, The Curse of Bigness: Antitrust in the Gilded Age (2018). For Wu, like Khan, the harmful “power” of Big Tech refers not just to concentrated economic power or market power, but to a range of other mechanisms by which these firms allegedly hold sway over democracy, elections, and society at-large. See also Zephyr Teachout & Lina Khan, Market Structure and Political Law: A Taxonomy of Power, 9 Duke J. Const. L. & Pub. Pol’y 37,74 (2014).
[63] See, e.g., Joshua Q. Nelson, Joe Concha: “Big Tech is More Powerful than Government” in Terms of Speech, Fox News (Jan. 27 2021), https://www.foxnews.com/media/joe-concha-big-tech-more-powerful-government-speech; How 5 Tech Giants Have Become More like Governments than Companies, Fresh Air (Oct. 26, 2017), https://www.npr.org/2017/10/26/560136311/how-5-tech-giants-have-become-more-like-governments-than-companies (“New York Times tech columnist Farhad Manjoo warns that the ‘frightful five’—Amazon, Google, Apple, Microsoft and Facebook—are collectively more powerful than many governments.”).
[64] See, e.g., Press Release, Klobuchar, Grassley Statements on Judiciary Committee Passage of First Major Technology Bill on Competition to Advance to Senate Floor Since the Dawn of the Internet, U.S. Sen. Amy Klobuchar (Jan. 20, 2022), https://www.klobuchar.senate.gov/public/index.cfm/2022/1/klobuchar-grassley-statements-on-judiciary-committee-passage-of-first-major-technology-bill-on-competition-to-advance-to-senate-floor-since-the-dawn-of-the-internet (“Everyone acknowledges the problems posed by dominant online platforms.”).
[65] See, e.g., DMA recitals 3, 4, 33, and 62.
[66] See, e.g., The Social Dilemma (Exposure Labs, Argent Pictures & The Space Program, 2020); Tech Monopolies: Last Week Tonight with John Oliver (HBO, 2022); Yanis Varoufakis, Technofeudalism: What Killed Capitalism (2023); Shoshana Zuboff, The Age of Surveillance Capitalism: The Fight for a Human Future at the New Frontier of Power (2019).
[67] See Luca Bertuzzi, EU Commission Launches Connectivity Package with ‘Fair Share‘ Consultation, EurActiv (Feb. 28, 2023), https://www.euractiv.com/section/digital/news/eu-commission-launches-connectivity-package-with-fair-share-consultation; see also Daniele Condorelli, Jorge Padilla, & Zita Vasas, Another Look at the Debate on the “Fair Share” Proposal: An Economic Viewpoint, Compass Lexecon (2023), available at https://www.telefonica.com/en/wp-content/uploads/sites/5/2023/05/Compass-Lexecon-Report-on-the-fair-share-debate.pdf. On the supposed bargaining-power imbalance between large traffic originators and telecommunications companies, see id. at point 1.34(d). “There is a risk that the current unregulated arrangements result in no payments from LTOs due to asymmetries of information between industry participants, free-riding among LTOs, and the large imbalance in bargaining power between LTOs and TELCOs.” See also id. at points 3.77, 3.78 and 3.79-3.84 for the argument that the power imbalances require intervention. For a different view of “fair share,” see Giuseppe Colangelo, Fair Share of Network Costs and Regulatory Myopia: Learning from Net Neutrality Mistakes, Int’l. Ctr. for Law & Econ. (Jul. 18, 2023) (forthcoming in Law, Innovation and Technology), available at https://ssrn.com/abstract=4452280.
[68] See Treasury Laws Amendment (News Media and Digital Platforms Mandatory Bargaining Code) Act 2021 (Austl.); for a defense of legislation forcing digital platforms to compensate media companies, see Zephyr Teachout, The Big Unfriendly Tech Giants, The Nation (Dec. 25, 2023), https://www.thenation.com/article/society/big-tech-nondiscrimination.
[69] News Media Bargaining Code, Australian Competition and Consumer Commission, https://www.accc.gov.au/focus-areas/digital-platforms/news-media-bargaining-code/news-media-bargaining-code (last accessed May 14, 2024).
[70] See, e.g., Journalism and Competition Preservation Act of 2023, S. 1094, 118th Cong. (2023); Online News Act (S.C. 2023, c.23) (Can.).
[71] See, e.g., DMA at recitals 1, 15, 20, 62, and Art.1(b); DMCC at s.6(b); PL 2768 at Art. 2, which defines the regulation’s targets as companies with the “power to control essential access”; Competition Act in the version published on 26 June 2013 (Bundesgesetzblatt (Federal Law Gazette) I, 2013, p. 1750, 3245), as last amended by Article 1 of the Act of 25 October 2023 (Federal Law Gazette I, p. 294), Art.19(a) (1)5 (Ger.) (hereinafter “German Competition Act”).
[72] See, e.g., DMA at Recital 23, Art.3 and Art.3(8)(a); DMCC at s.6(a); German Competition Act, Art.19(a); but see DSA, Section 5, which imposes special obligations on “very large online platforms.”
[73] “From Price to Power”? Reorienting Antitrust for the New Political Economy, panel at Antitrust, Regulation and the Next World Order conference, Youtube.com (Feb. 2, 2024), https://www.youtube.com/watch?v=rWNIhGA8Rx8&ab_channel=Antitrust%2CRegulationandtheNextWorldOrder.
[74] DMA, at recital 4 (emphasis added).
[75] DMA, at recital 33.
[76] See Press Release, Digital Markets Act: Commission Welcomes Political Agreement on Rules to Ensure Fair and Open Digital Markets, European Commission (Mar. 25, 2022), https://ec.europa.eu/commission/presscorner/detail/en/ip_22_1978 (“What we want is simple: Fair markets also in digital. We are now taking a huge step forward to get there—that markets are fair, open and contestable…. This regulation, together with strong competition law enforcement, will bring fairer conditions to consumers and businesses for many digital services across the EU.”) (emphasis added); see also Press Release, Klobuchar, Grassley, Colleagues to Introduce Bipartisan Legislation to Rein in Big Tech, U.S. Sen. Amy Klobuchar (Oct. 14, 2021), https://www.klobuchar.senate.gov/public/index.cfm/2021/10/klobuchar-grassley-colleagues-to-introduce-bipartisan-legislation-to-rein-in-big-tech (joint statement by Sens. Amy Klobuchar and Chuck Grassley with references to “fair competition,” “fair prices,” “unfairly preferencing their own products,” “fairer prices,” “unfairly limiting consumer choices,” “fair rules for the road”).
[77] For example, the DMA mentions the term “fairness,” or some variation thereof, 90 times in 66 pages.
[78] DMA, at Recital 11 (emphasis added).
[79] See DMA, Arts. 5-7.
[80] See DMA, Art. 3.
[81] CDC Report, at 2.
[82] See, e.g., German Competition Act, at Section 19a(1), stating that, in determining the paramount significance for competition across an undertaking’s markets, there shall be particular account taken of its dominant position; financial strength or access to other resources; vertical integration; access to data relevant to competition; and the relevance of its activities for third-party access to supply and sales markets. See also DMCC, at S. 5 and S.6 (substantial and entrenched market power is a cumulative criterion, together with a position of strategic significance); DMA, at Recital 5 and Art. 3 (market power is irrelevant because the criteria for designation are (a) having a significant impact on the internal market; (b) providing a core platform service that is an important gateway for business users to reach end users; and (c) enjoying an entrenched and durable position). PL 2768 does not mention market power, and instead references control of essential access; the U.S. tech bills do not define covered platforms on the basis of market power either.
[83] The DMA explicitly rejects it. See Recital 23.
[84] Examples include online-intermediation services, online search engines, online social-networking services, and video-sharing platform services. See DMA, at Art. 2.
[85] See Elise Dorsey, Geoffrey A. Manne, Jan M. Rybnicek, Kristian Stout, and Joshua D. Wright, Consumer Welfare & the Rule of Law: The Case Against the New Populist Antitrust Movement, 47 Pepp. L. Rev. 861, 916 (2020).
[86] There are some exceptions to this. Some digital competition regulations seem to incorporate consumer-welfare considerations. One example is the KFTC’s recently proposed digital competition regulation, which is putatively aimed at protecting business users and consumers, and would allow for an efficiency defense. See Lee & Ko, supra note 21.
[87] See supra note 76.
[88] See infra Sections II.C and II.D.
[89] On the essential-facilities doctrine in the United States, see Philip K. Areeda, Essential Facilities: An Epithet in Need of Limiting Principles, 58 Antitrust L.J. 841 (1990); ever since the Supreme Court’s ruling in Trinko, no plaintiff has successfully litigated an essential-facilities claim to judgment. See, Verizon Communications, Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398 (2003) (“As a general matter, the Sherman Act “does not restrict the long recognized right of [a] trader or manufacturer engaged in an entirely private business, freely to exercise his own independent discretion as to parties with whom he will deal.’”) (citations omitted).
[90] Communication from the Commission — Guidance on the Commission’s enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings (2009), at recital 13.
[91] Richard Whish & David Bailey, Competition Law (10th ed. 2021), at 142-3.
[92] See, e.g., Christopher M. Seelen, The Essential Facilities Doctrine: What does it Mean to be Essential? 80 Marq. L. Rev. 1117, 1123 (1997), discussing free-riding and the moral-hazard considerations implicit in defining essential facilities as essential to a competitor, rather than to competition. (“[A]pplication of the doctrine often focuses unduly on the effect of the denial of access on the plaintiff’s ability to compete-not on the infringement of competition which is the objective of the antitrust law.” (citations omitted), and at 1124 (“There exists a moral hazard when plaintiffs bring an essential facility claim against a single competitor. Indeed, firms might try to use the doctrine to take a ‘free ride’ on the efforts of a competitor.”). See also, Verband Deutscher Wetterdienstleister v. Google, Reference No. 408 HKO 36/13, Court of Hamburg (Apr. 4, 2013), 4, available at http://deutschland.taylorwessing.com/documents/get/150/court-order-googleweatherinbox-english-unofficial-translation.pdf (“[A]pplicant’s members have been participating and will continue to participate in Google Search as ‘free riders.’ They demand favorable positioning without offering compensation.”); Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36 (1977) (applying the rule of reason to territorial restrictions because they might be imposed by a manufacturer who wishes to prevent dealers from free-riding on point-of-sale services provided by another dealer).
[93] See, e.g., Brown Shoe Co. v. United States, 370 U.S. 294, 344 (1962) (“It is competition, not competitors, which the Act protects.”). See also Donna E. Patterson and Carl Shapiro, Transatlantic Divergence in GE/Honeywell: Causes and Lessons, Antitrust 18 (2001); Maureen K. Ohlhausen & John M. Taladay, Are Competition Officials Abandoning Competition Principles?, 13 J. Comp. L. & Practice 463 (2022).
[94] See, e.g., Trinko at 408; Pac. Bell Tel. Co. v. Linkline Commc’ns, Inc., 555 U.S. 438, 448 (2009); Chavez v. Whirlpool Corp., 113 Cal. Rptr. 2d, 182-83 (Ct. App. 2001); Foremost Pro Color, Inc. v. Eastman Kodak Co., 703 F.2d 534, 545 (9th Cir. 1983) (“The antitrust laws [do] not impose a duty on [firms] . . . to assist [competitors] . . . to ‘survive or expand.’”) (citations omitted).
[95] Mario Monti, Speech at the Third Nordic Competition Policy Conference, Stockholm: Fighting Cartels Why and How? Why Should We be Concerned with Cartels and Collusive Behaviour? (Sept. 11, 2000); see also Trinko at 408 (characterizing cartels as “the supreme evil of antitrust”).
[96] Although there is a rebuttable presumption to the contrary, undertakings can argue that agreements containing hardcore restrictions should benefit from an individual exemption under Article 101(3) TFEU. See Judgment of 13 October 2011, Pierre Fabre, C?439/09, ECLI:EU:C:2011:649. Moreover, “hardcore restrictions,” like cartels, need to be restrictions of competition “by object,” within the meaning of Art. 101(1) TFEU. Undertakings can hence try to demonstrate that a given hardcore restriction, examined in its economic and legal context, is objectively justified and does not fall within the prohibition laid down in Article 101(1) TFEU. See Opinion of Advocate General Wahl delivered on 16 July 2017, Coty, C-230/16, ECLI:EU:C:2017:603.
[97] For an extensive set of views opposing those endorsed by proponents of digital competition regulations, see, e.g., The Global Antitrust Institute Report on the Digital Economy (Joshua D. Wright & Douglas H. Ginsburg, eds., Nov. 11, 2020), https://gaidigitalreport.com.
[98] See ABA letter, supra note 41.
[99] Law No. 12.529 of 30 November, 2011 (Braz.), available at https://www.icao.int/sustainability/Documents/Compendium_FairCompetition/LACAC/LAW_12529-2011_en.pdf.
[100] PL 2768, art. 4.
[101] See Section I.
[102] See Section I.
[103] See, e.g., Rambus v. Fed. Trade Comm’n, 522 F.3d 456, 459 (D.C. Cir. 2008) (“[D]eceit merely enabling a monopolist to charge higher prices than it otherwise could have charged—would not in itself constitute monopolization.”). See also Judgment of 4 August 2023, Meta Platforms v. Bundeskartellamt, Case C 252-21, ECLI:EU:C:2023:537.
[104] For example, where a small company increases prices or downgrades its product, this can generally be corrected through competition, as the company will lose market share and be forced out of the market unless it changes its behavior. But when the same outcome is achieved through restrictions of competition or the misuse of market power, the market may be unable to respond effectively, and intervention may become necessary.
[105] We question whether this was ever the true intent behind digital competition regulation, see Section IIII.C.
[106] See also Section IIB.
[107] See, e.g., Svend Albaek, Consumer Welfare in EU Competition Policy, in Aims and Values in Competition Law, 67, 75 (Caroline Heide-Jørgensen, Ulla Neergaard, Christian Bergqvist, & Sune T. Poulsen eds., 2013) (“In practice it turns out that we should understand ‘consumers’ as customers rather than ‘real’ or ‘final’ consumers. Paragraph 84 of the General Guidelines takes a first step towards clarifying this: ‘[C]onsumers within the meaning of Article 81(3) are the customers of the parties to the agreement and subsequent purchasers.”); see also Article 102 (c) TFEU, which prohibits dominant companies from “applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage” (emphasis added). For a U.S. perspective, see, e.g., Kenneth Heyer, Welfare Standards and Merger Analysis: Why Not the Best? 2 Comp. Pol’y Int’l 29 (2006).
[108] In the United States, the clearest exponent of these ideas was Justice Louis D. Brandeis, who coined the term “curse of bigness” to refer to the material, social, and political ills that accompanied large corporations. See, e.g., Louis D. Brandeis, The Curse of Bigness: Miscellaneous Papers of Louis D. Brandeis (Osmond K. Fraenkel ed., 1934); in Europe, the notion is associated with the ordoliberal school. See, e.g., Wilhelm Roepke, A Humane Economy: The Social Framework of the Free Market (2014) at 32 (“If we want to name a common denominator for the social disease of our times, then it is concentration”).
[109] See, e.g. Wu, 2018 supra note 65; Sally Lee, Tim Wu Explains How Big Tech is Crippling Democracy, Columbia Magazine (Spring 2019) https://magazine.columbia.edu/article/how-mega-corporations-are-crippling-democracy. Asked whether bigness must be bad by its very nature, Tim Wu replies: “well, it’s designed to put its own interests over human interests, to grow like a cancer, and to never die. I once heard someone say that if a corporation were a person, it would be a sociopath. Which brings us to the real question: who is this country for? For humans or these artificial entities?”; See also Khan & Teachout, 2014, supra note 65, at 37. “Ever-increasing corporate size and concentration undercut democratic self-governance by disproportionately influencing governmental actors, as recognized by campaign finance reformers.”; and at 40-1. “Antitrust means, for us, government power to limit company size and concentration; this incarnation is an ethos, not a legal term.”
[110] See, e.g., Amanda Lotz, “Big Tech” Isn’t One Big Monopoly — It’s 5 Companies All in Different Businesses, The Conversation (Mar. 23, 2018), https://theconversation.com/big-tech-isnt-one-big-monopoly-its-5-companies-all-in-different-businesses-92791; Isobel A. Hamilton, Tim Cook Says He‘s Tired of Big Tech Being Painted as a Monolithic Force That Needs Tearing Apart, Business Insider (May 7, 2019), https://www.businessinsider.com/apple-ceo-tim-cook-tired-of-big-tech-being-viewed-as-monolithic-2019-5. (“Tech is not monolithic. That would be like saying ‘all restaurants are the same,’ or ‘all TV networks are the same.’”) See also Nicolas Petit, Big tech and the Digital Economy: The Moligopoly Scenario (2022); Frank H. Easterbrook, Cyberspace and the Law of the Horse, 1996 U. Chi. Leg. Forum 207 (1996).
[111] See Friso Bostoen, Understanding the Digital Markets Act, 68 Antitrust Bull. 263, 282 (2023) (“It is difficult to find a common thread here. For starters, NIICS and cloud services are one-sided rather than multisided, so they can hardly be core platform services”).
[112] See Lazar Radic, Gatekeeping, the DMA, and the Future of Competition Regulation, Truth on the Market (Nov. 8, 2023), https://truthonthemarket.com/2023/11/08/gatekeeping-the-dma-and-the-future-of-competition-regulation. On tech disruption of traditional industries, see Adam Hayes, 20 Industries Threatened by Tech Disruption, Investopedia (Jan. 23, 2022), https://www.investopedia.com/articles/investing/020615/20-industries-threatened-tech-disruption.asp; on the bipartisan hostility toward “Big Tech” in the United States, see Nitasha Tiku, How Big Tech Became a Bipartisan Whipping Boy, Wired (Oct. 23, 2017), https://www.wired.com/story/how-big-tech-became-a-bipartisan-whipping-boy.
[113] See, e.g., Lina Khan, Amazon’s Antitrust Paradox, 126 Yale L.J. 710 (2017); Zephyr Teachout & Lina Khan, Market Power and Political Law: A Taxonomy of Power, 9 Duke J. Const. L. & Pub. Pol’y 37 (2014); Kirk Ott, Event Notes: The Consumer Welfare Standard is Dead, Long Live the Standard, ProMarket (Nov.1, 2022), https://www.promarket.org/2022/11/01/event-notes-the-consumer-welfare-standard-is-dead-long-live-the-standard; Zephyr Teachout, The Death of the Consumer Welfare Standard, ProMarket (Nov. 7, 2023), https://www.promarket.org/2023/11/07/zephyr-teachout-the-death-of-the-consumer-welfare-standard.
[114] See, e.g., Rana Foohar, The Great US-Europe Antitrust Divide, Financial Times (Feb. 5, 2024), https://www.ft.com/content/065a2f93-dc1e-410c-ba9d-73c930cedc14.
[115] Neo-Brandeisians often argue that antitrust law should strive to uphold a dispersed market structure and protect small business. See, e.g., Lina Khan & Sandeep Vaheesan. Market Power and Inequality: The Antitrust Counterrevolution and its discontents, 11 Harv. L. & Pol’y Rev. 235 (2017), at 237. “Antitrust laws must be reoriented away from the current efficiency focus toward a broader understanding that aims to protect consumers and small suppliers from the market power of large sellers and buyers, maintain the openness of markets, and disperse economic and political power.”
[116] See Khan & Vaheesan, supra note 122 at 236-7 (2017). “Antitrust laws historically sought to protect consumers and small suppliers from noncompetitive pricing, preserve open markets to all comers, and disperse economic and political power. The Reagan administration—with no input from Congress—rewrote antitrust to focus on the concept of neoclassical economic efficiency”; and, at 294, “It is important to trace contemporary antitrust enforcement and the philosophy underpinning it to the Chicago School intellectual revolution of the 1970s and 1980s, codified into policy by President Reagan. By collapsing a multitude of goals into the pursuit of narrow ‘economic efficiency,’ both scholars and practitioners ushered in standards and analyses that have heavily tilted the field in favor of defendants.”
[117] See, e.g., Nicolas Petit, Understanding Market Power (Robert Schuman Centre for Advanced Studies Working Paper No. RSC 14, 1, 2022) (“Antitrust laws are concerned with undue market power. In an economic conception of the law, antitrust rules of liability strike down anticompetitive business conduct or mergers that represent illegitimate market power strategies.”).
[118] On inefficient and efficient market exit, see Dirk Auer & Lazar Radic, The Growing Legacy of Intel, 14 J. Comp. L. & Prac. 15 (2023).
[119] According to some, the interpretation of market power as synonymous with size and concentration is the European reading of the concept. See Petit, supra note 124, at 1 (“When European antitrust lawyers think about market power, they do not direct their attention to consumer prices. They think about corporate size and industrial concentration, see giant American firms, and deduce that they have a domestic market power problem.”).
[120] See, e.g., Or Brook, Non-Competition Interests in EU Antitrust Law: An Empirical Study of Article 101 TFEU (1st ed. 2023), discussing the different goals and values of EU competition law throughout the years; Konstantinos Stylianou & Marcos Iacovides, The Goals of EU Competition Law: A Comprehensive Empirical Investigation, 42 Legal Studies 1, 17-8 (2020). “EU competition law is not monothematic but pursues a multitude of goals historically and today;” In the United States, see Robert H. Bork, The Antitrust Paradox: A Policy at War with Itself, 7 (1978) (finding the collection of socio-political goals at the time to be “mutually incompatible”); Joshua D. Wright & Douglas H. Ginsburg, The Goals of Antitrust: Welfare Trumps Choice, 81 Fordham L Rev 2405, 2405 (2013). “The Court interpreted the Sherman and Clayton Acts to reflect a hodgepodge of social and political goals…”; Thomas A. Lambert & Tate Cooper, Neo-Brandeisianism’s Democracy Paradox, University, 49 Journal of Corporation Law, 18 (2023).“In the mid-Twentieth Century, U.S. courts embraced the sort of multi-goaled deconcentration agenda Neo-Brandeisians advocate;” and Joshua D. Wright, Elyse Dorsey, Jonathan Klick, & Jan M. Rybnicek, Requiem for a Paradox: The Dubious Rise and Inevitable Fall of Hipster Antitrust, 51 Ariz. St. L. J. 293, 300-1 (2019) (discussing multi-goaled approach of mid-20th-century antitrust).
[121] See, e.g., Ioannis Lianos, Polycentric Competition Law, 71 Current Legal Problems 161 (2019); Maurice E. Stucke, Reconsidering Antitrust’s Goals, 53 B.C.L. Rev. 551, 551 (2012), “[t]he quest for a single economic goal has failed…this article proposes how to integrate antitrust’s multiple policy objectives into the legal framework.”; The Consumer Welfare Standard in Antitrust: Outdated or a Harbor in a Sea of Doubt?: Hearing Before the Subcomm. on Antitrust, Competition and Consumer Rights of the S. Comm. on the Judiciary, 115th Cong. (2017) (statement of Barry Lynn), arguing for the return to a “political antitrust”; Dina I. Walked, Antitrust as Public Interest Law: Redistribution, Equity, and Social Justice, 65 Antitrust Bull 87, 87 (2020), “[o]nce we frame antitrust as public interest law, in its broadest sense, we are empowered to use it to address inequality;” Saksham Malik, Social Justice as a Goal of Competition Policy, Kluwer Competition Law Blog (Feb. 23, 2024), https://competitionlawblog.kluwercompetitionlaw.com/2024/02/23/social-justice-as-a-goal-of-competition-policy.
[122] It is no coincidence that critics of the “status quo” consistently attempt to cast economic analysis and (certain) antitrust case-law as a mistake brought about by judges adhering to the ideology of “neoliberalism,” rather than as the result of organic, piecemeal progression. See Khan & Vaheesan, supra note 122.
[123] Magrethe Vestager, Keynote of EVP Vestager at the European Competition Law Tuesdays: A Principles Based Approach to Competition Policy (Oct. 25, 2022), https://ec.europa.eu/commission/presscorner/detail/en/SPEECH_22_6393; See also Ohlhausen & Taladay, supra note 70 at 465.
[124] See, supra note 8.
[125] See also Press Release, Antitrust: Commission Accepts Commitments by Amazon Barring It from Using Marketplace Seller Data and Ensuring Equal Access to BuyBox and Prime, European Commission (Dec. 20, 2022), https://ec.europa.eu/commission/presscorner/detail/en/ip_22_7777.
[126] For commentary, see Lazar Radic, Apple Fined at the 11th Hour Before DMA Enters into Force, Truth on the Market (Mar. 5 2024), https://truthonthemarket.com/2024/03/05/apple-fined-at-the-11th-hour-before-the-dma-enters-into-force.
[127] Giuseppe Colangelo (@GiuColangelo), Twitter (Oct. 5, 2023, 2:37 PM), https://x.com/GiuColangelo/status/1709910565496172793?s=20.
[128] Digital Platform Services Inquiry, supra note 18 at 14.
[129] Standing Committee on Finance, supra note 22, at 28, 38-39.
[130] Id. at 30.
[131] Shivi Gupta & Mansi Raghav, Digital Competition Law Committee to Finalise Report by August 2023, Lexology (Jul. 31, 2023), https://www.lexology.com/library/detail.aspx?g=70b95f94-1ee2-4b11-bfc2-96155a8c333d; Whole Government Approach to be Adopted for Digital Competition Laws, The Economic Times (Jul. 4 2023), https://economictimes.indiatimes.com/tech/technology/whole-government-approach-to-be-adopted-for-digital-competition-laws/articleshow/101495358.cms.
[132] The Competition Act, 2002, No.12 of 2003 (India), available at https://www.cci.gov.in/images/legalframeworkact/en/the-competition-act-20021652103427.pdf.
[133] Antitrust, Regulation, and the Next World Order, supra note 53.
[134] See, e.g., the DMA’s definition of “fairness.” DMA, Recital 4.
[135] Ex Ante Regulation in Digital Markets – Background Note, DAF/COMP(2021)15, 16, OECD (Dec. 1, 2021) (“Framing regulations in terms of fairness may therefore also refer to redistribution, better treatment of users, or a host of other goals”). See also id. at 19.
[136] Pablo Ibanez Colomo, The Draft Digital Markets Act: A Legal and Institutional Analysis, 12 Journal of Competition Law & Practice 561, 562 (2021). See also id. at 565(“The driver of many disputes that may superficially be seen as relating to leveraging can be more rationalised, more convincingly, as attempts to re-allocate rents away from vertically-integrated incumbents to rivals”).
[137] See, e.g., Fiona Scott Morton & Cristina Caffarra, The European Commission Digital Markets Act: A Translation, VoxEU (Jan. 5, 021), https://cepr.org/voxeu/columns/european-commission-digital-markets-act-translation. We contest the assertion that the DMA and other digital competition regulations aim to create competition, rather than aid competitors, in Section IIIB.
[138] On the relationship between rent seeking and ex-ante regulation, see generally Thom Lambert, Rent-Seeking and Public Choice in Digital Markets, in The Global Antitrust Institute Report on the Digital Economy (Joshua D. Wright & Douglas H. Ginsburg, eds., Nov. 11, 2020). https://gaidigitalreport.com/2020/08/25/rent-seeking-and-public-choice-in-digital-markets.
[139] See, e.g., Making the Digital Market Easier to Use: The Act on Improving Transparency and Fairness of Digital Platforms (TFDPA), Japanese Ministry of Economy, Trade, and Industry (Apr. 23, 2021), https://www.meti.go.jp/english/mobile/2021/20210423001en.html. The Ministry of Economy, Trade, and Industry specifically links the TFDPA to benefits for SMEs; see also Ebru Gokce Dessemond, Restoring Competition in ”Winner-Took-All” Digital Platform Markets, UNCTAD (Feb. 4, 2020), https://unctad.org/news/restoring-competition-winner-took-all-digital-platform-markets (“Competition law provisions on unfair trade practices and abuse of superior bargaining position, as found in competition laws of Japan and the Republic of Korea, would empower competition authorities in protecting the interests of smaller firms vis-à-vis big platforms”).
[140] See DMA, Recital 2, referring to a significant degree of dependence of both consumers and business users. See, in a similar vein, DMA Recitals 20, 43, 75. On self-inflicted dependence, see Geoffrey A. Manne, The Real Reason Foundem Foundered, Int’l. Ctr. for Law & Econ. (2018), available at https://laweconcenter.org/wp-content/uploads/2018/05/manne-the_real_reaon_foundem_foundered_2018-05-02-1.pdf.
[141] For commentary on how bans on self-preferencing benefit large, but less-efficient competitors, see Lazar Radic & Geoffrey A. Manne, Amazon Italy’s Efficiency Offense, Truth on the Market (Jan. 11, 2022), https://truthonthemarket.com/2022/01/11/amazon-italys-efficiency-offense.
[142] Adam Kovacevich, The Digital Markets Act’s “Statler & Waldorf” Problem, Medium (Mar. 7 2024), https://medium.com/chamber-of-progress/the-digital-markets-acts-statler-waldorf-problem-2c9b6786bb55 (arguing that the companies who lobbied for the DMA are content aggregators like Yelp, Tripadvisor, and Booking.com; big app makers like Spotify, Epic Games, and Match.com; and rival search engines like Ecosia, Yandex, and DuckDuckGo).
[143] For example, Epic Games’ revenue in 2023 was roughly $5.6 billion. In 2023, Epic Games employed about 4,300 workers. See, respectively, https://www.statista.com/statistics/1234106/epic-games-annual-revenue and https://www.statista.com/statistics/1234218/epic-games-employees. According to the OECD, a small and medium-sized enterprise is one that employs fewer than 250 people. Enterprises by Business Size (Indicator), OECD https://data.oecd.org/entrepreneur/enterprises-by-business-size.htm#:~:text=In%20small%20and%20medium%2Dsized,More, (last accessed May 14, 2024).
[144] Mathieu Pollet, France to Prioritise Digital Regulation, Tech Sovereignty During EU Council Presidency, EurActiv (Dec. 14, 2021), https://www.euractiv.com/section/digital/news/france-to-prioritise-digital-regulation-tech-sovereignty-during-eu-council-presidency.
[145] See, e.g., Matthias Bauer & Fredrik Erixon, Europe’s Quest for Technology Sovereignty: Opportunities and Pitfalls, ECIPE (2020), https://ecipe.org/publications/europes-technology-sovereignty; see also Dennis Csernatoni et al., Digital Sovereignty: From Narrative to Policy?, EU Cyber Direct (2022), https://eucyberdirect.eu/research/digital-sovereignty-narrative-policy.
[146] Digital Sovereignty for Europe, European Parliament (2020), available at https://www.europarl.europa.eu/RegData/etudes/BRIE/2020/651992/EPRS_BRI(2020)651992_EN.pdf. For further discussion, see Lazar Radic, Gatekeeping, the DMA, and the Future of Competition Regulation, Truth on the Market (Nov. 8, 2023), https://truthonthemarket.com/2023/11/08/gatekeeping-the-dma-and-the-future-of-competition-regulation.
[147] Press Release, Digital Markets Act: Commission Designates Six Gatekeepers, European Commission (Sep. 6, 2023), https://ec.europa.eu/commission/presscorner/detail/en/ip_23_4328.
[148] Online Intermediation Platforms Market Inquiry, Summary of Final Report, South African Competition Commission (2023), https://www.compcom.co.za/online-intermediation-platforms-market-inquiry.
[149] Note that the unfairness here stems from having the resources to invest in search-engine optimization.
[150] Id. at 3.
[151] Id.
[152] Id. at 10.
[153] Id, at 6, 9, 23, 32, and 67.
[154] It is becoming clearer and clearer that the test for compliance with DMA’s rules will be whether competitors and complementors enjoy an increase in market share. See Foo Yun Chee & Martin Coulter, EU’s Digital Markets Act Hands Boost to Big Tech’s Smaller Rivals, Reuters (Mar. 11 2024) https://www.reuters.com/technology/eus-digital-markets-act-hands-boost-big-techs-smaller-rivals-2024-03-08. The public-policy chief of Ecosia, one of Google’s competitors in search, had this to say about the implementation of the DMA: “the implementation of these new rules is a step in the right direction, but the proof of the pudding is always in the eating, and whether we see any meaningful changes in market share.”
[155] Even the DMA’s supporters accept that the regulation is not grounded in economics. Cristina Caffarra, Europe’s Tech Regulation is Not Economic Policy, Project Syndicate (Oct. 11, 2023), https://www.project-syndicate.org/commentary/european-union-digital-markets-act-will-not-tame-big-tech-by-cristina-caffarra-2023-10?barrier=accesspaylog.
[156] Press Release, Apple Announces Changes to iOS, Safari, and the App Store in the European Union, Apple Inc., (Jan. 25, 2024), https://www.apple.com/newsroom/2024/01/apple-announces-changes-to-ios-safari-and-the-app-store-in-the-european-union.
[157] Andy Yen, Apple’s DMA Compliance Plan Is a Trap and a Slap in the Face for the European Commission, Proton (2024), https://proton.me/blog/apple-dma-compliance-plan-trap; Press Release, Apple’s Proposed Changes Reject the Goals of the DMA, Spotify (Jan. 26, 2024), https://newsroom.spotify.com/2024-01-26/apples-proposed-changes-reject-the-goals-of-the-dma; Morgan Meaker, Apple Isn’t Ready to Release Its Grip on the App Store (Jan. 26, 2024), https://www.wired.com/story/apple-app-store-sideloading-europe-dma.
[158] See, supra note 125 (discussing who lobbied for the DMA).
[159] DMCC, S. 38-45.
[160] See, A New Pro-competition Regime for Digital Markets: Policy Summary Briefing, UK Department for Business & Trade & Department for Science Innovation & Technology (2023), https://www.gov.uk/government/publications/digital-markets-competition-and-consumers-bill-supporting-documentation/a-new-pro-competition-regime-for-digital-markets-policy-summary-briefing; see also, A New Pro-Competition Regime for Digital Markets. Consultation Document, UK Department for Culture, M. S. and Department for Business Energy & Industrial Strategy (2022), available at https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1003913/Digital_Competition_Consultation_v2.pdf.
[161] Dirk Auer, Matthew Lesh, & Lazar Radic, Digital Overload: How the Digital Markets, Competition and Consumers Bill’s Sweeping New Powers Threaten Britain’s Economy, Institute of Economic Affairs (Sep. 18, 2023), https://iea.org.uk/publications/digital-overload-how-the-digital-markets-competition-and-consumers-bills-sweeping-new-powers-threaten-britains-economy.
[162] See also Alfonso Lamadrid & Pablo Ibáñez Colomo, The DMA – Procedural Afterthoughts, Chillin’ Competition (Sep. 5, 2022), https://chillingcompetition.com/2022/09/05/the-dma-procedural-afterthoughts (“Unlike competition law, the DMA is not so much about protecting consumers, but competitors/ third parties”); Chee & Coulter, supra note 137. “As the world’s biggest tech companies revamp their core online services to comply with the European Union’s landmark Digital Markets Act, the changes could give some smaller rivals and even peers a competitive edge.”
[163] See, e.g., Judgment of 6 September 2016, Intel v. Commission, Case C?413/14 P, EU:C:2017:632, para. 134 (“Thus, not every exclusionary effect is necessarily detrimental to competition. Competition on the merits may, by definition, lead to the departure from the market or the marginalisation of competitors that are less attractive to consumers from the point of view of, among other things, price, choice, quality or innovation”) (emphasis added).
[164] See, Auer & Radic, supra note 91.
[165] See, e.g., Competition on the Merits, DAF/COMP(2005)27, 9, OECD (2005), available at https://www.oecd.org/competition/abuse/35911017.pdf (“It is widely agreed that the purpose of competition policy is to protect competition, not competitors”).
[166] Ohlhausen & Taladay, supra note 70 at 465.
[167] See e.g., Questions and Answers, Digital Markets Act: Ensuring Fair and Open Digital Markets, European Commission (Sep. 6, 2023), https://ec.europa.eu/commission/presscorner/detail/en/qanda_20_2349 (“[Gatekeepers] will therefore have to proactively implement certain behaviours that make the markets more open and contestable”).
[168] Jan Krämer & Daniel Schnurr, Big Data and Digital Markets Contestability: Theory of Harm and Data Access Remedies, 18 Journal of Competition Law & Economics 255 (2021).
[169] On self-preferencing in the context of antitrust, see Radic & Manne, supra note 113.
[170] On data portability and free-riding, see Sam Bowman, Data Portability: The Costs of Imposed Openness, Int’l. Ctr. for Law & Econ. (2020), available at https://laweconcenter.org/wp-content/uploads/2020/09/ICLE-tldr-Data-Portability.pdf.
[171] H.R. 3849, supra note 29.
[172] Id. at § 7.
[173] Id. at § 7(b)(4).
[174] Id. at § 4(e)(1).
[175] Remarks by Executive-Vice President Vestager and Commissioner Breton on the Opening of Non-Compliance Investigations under the Digital Markets Act, European Commission (Mar. 25 2024), https://ec.europa.eu/commission/presscorner/detail/es/speech_24_1702. “Stakeholders provided feedback on the compliance solutions offered. Their feedback tells us that certain compliance measures fail to achieve their objectives and fall short of expectations.”
[176] The terms “levelling down” and “levelling up” are, to our knowledge, not normally deployed in the fields of antitrust law and digital competition regulation. They are, however, used frequently in areas of constitutional law, such as equality and free speech. In the context of equality law, see generally Deborah L. Brake, When Equality Leaves Everyone Worse Off: The Problem of Levelling Down in Equality Law, 46 Wm. & Mary L. Rev. 513 (2004). Examples include achieving equality between men and women by levelling down men’s opportunities until they reach parity with women’s, or levelling down public spending in wealthier school districts to reach equality with poorer districts.
[177] See, e.g., DMA Art. 6(7), establishing a duty to provide interoperability with the gatekeepers’ services, free of charge; see also arts.5(4), 5(10), 6(8), 6(9), and 7(1).
[178] See, e.g., Dirk Auer & Geoffrey A. Manne, TL;DR: Apple v Epic: The Value of Closed Systems, Int’l. Ctr. for Law & Econ. (Apr. 20, 2021), available at https://laweconcenter.org/wp-content/uploads/2021/04/tldr-Apple-v-Epic.pdf.
[179] This argument was accepted in the context of in-app payment systems by the U.S. District Court in Epic Games, Inc. v. Apple Inc., 4:20-cv-05640-YGR (N.D. Cal. Nov. 9, 2021). On the security and privacy risks posed by sideloading and interoperability, see, e.g., Mikolaj Barczentewicz, Privacy and Security Implications of Regulation of Digital Services in the EU and in the U.S., Stanford-Vienna Transatlantic Technology Law Forum TTLF Working Papers No. 84 (2022); Bjorn Lundqvist, Injecting Security into European Tech Policy, CEPA (2023), https://cepa.org/comprehensive-reports/reining-in-the-gatekeepers-and-opening-the-door-to-security-risks.
[180] “Open” and “closed” platforms are not synonymous with “good” and “bad” platforms. These are legitimate differences in product design and business philosophy, and neither is inherently more restrictive than the other. Andrei Haigu, Proprietary vs. Open Two-Sided Platforms and Social Efficiency, Harvard Business School Strategy Unit Working Paper No. 09-113 (2007), 2-3 (explaining that there is a “fundamental welfare tradeoff between two-sided proprietary . . . platforms and two-sided open platforms, which allow ‘free entry’ on both sides of the market” and thus “it is by no means obvious which type of platform will create higher product variety, consumer adoption and total social welfare”); see also Jonathan M. Barnett, The Host’s Dilemma: Strategic Forfeiture in Platform Markets for Informational Goods, 124 Harv. L. Rev. 1861, 1927 (2011).
[181] See, e.g., Bus. Elecs. Corp. v. Sharp Elecs. Corp., 485 U.S. 717, 748– 49 (1988) (Stevens, J., dissenting) (“A demonstrable benefit to interbrand competition will outweigh the harm to intrabrand competition that is caused by the imposition of vertical nonprice restrictions on dealers”); Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877 (2007) (“For, as has been indicated already, the antitrust laws are designed primarily to protect interbrand competition, from which lower prices can later result”).
[182] Issue Spotlight: Self-Preferencing, Int’l. Ctr. for Law & Econ. (last updated Nov. 10, 2022), https://laweconcenter.org/spotlights/self-preferencing.
[183] Sam Bowman & Geoffrey A. Manne, Platform Self-Preferencing Can be Good for Consumers and Even Competitors, Truth on the Market (Mar. 4, 2021), https://laweconcenter.wpengine.com/2021/03/04/platform-self-preferencing-can-be-good-for-consumers-and-even-competitors.
[184] Kadir Bas & Kerem Cem Sanli, Amendments to E-Commerce Law: Protecting or Preventing Competition?, Marmara University Law School Journal (2024) (forthcoming).
[185] Id. at 10.
[186] Id. at 21.
[187] Id. at 5 (emphasis added).
[188] DMCC, S. 20(3)(c).
[189] Auer, Lesh, & Radic, supra note 128.
[191] Two-sided markets connect distinct sets of users whose demands for the platform are interdependent—i.e., consumers’ demand for a platform increases as more products are available and, conversely, sellers’ demand for a platform increases as additional consumers use the platform, increasing the overall potential for transactions. These network effects can be direct (more consumers on one side attract more consumers on the same side), or indirect (more consumers on one side attract more consumers on the other side). See Bruno Jullien, Alessandro Pavan, & Marc Rysman, Two-Sided Markets, Pricing and Network Effects, 4 Handbook of Industrial Organization 485, 487 (2021)(“A central aspect of platform economics is the role of network effects, which apply when a product is valued based on the extent to which other market participants adopt or use the same product”); OECD Policy Roundtables, Two-Sided Markets 11 (Dec. 17, 2009), available at https://www.oecd.org/daf/competition/44445730.pdf.
[192] Art. 14 DMA establishes a duty to report mergers that would ordinarily fall under the relevant EU merger-control rules threshold. Art. 18(2) also empowers the Commission to prohibit gatekeepers from entering into future concentrations concerning core platform services or any digital products or services, in cases where gatekeepers have engaged in “systematic non-compliance.” Systemic noncompliance occurs when a gatekeeper receives as few as three noncompliance decisions within eight years (Art. 18(3)); S. 55 of the DMCC mandates companies with SMS to notify certain mergers, even though the UK does not have a compulsory notification regime.
[193] For a tongue-in-cheek remark, see Herbert Hovenkamp (@Sherman1890), Twitter (Jan. 15, 2024, 7:22 AM), https://x.com/Sherman1890/status/1746870481393762534?s=20; see also Robert Armstrong & Ethan Wu, What Big Tech Antitrust Gets Wrong, An Interview with Herbert Hovenkamp, Financial Times (Jan. 19, 2024), https://www.ft.com/content/4eec8bc3-c892-4704-ae66-a4432c6d4fd7 (“With Big Tech, we’re looking at probably the most productive part of the economy. The rate of innovation is high. They spend a lot of money on R&D. They are among the largest patent holders. There’s very little evidence of collusion. They seem to be competing with each other quite strongly. They pay their workers relatively well and have fairly educated workforces. None of this is a sign that these are industries we should be pursuing. That doesn’t mean they don’t do some anti-competitive things. But the whole idea that we should be targeting Big Tech strikes me as fundamentally wrong-headed”). It should be noted that Hovenkamp’s comment is made within the context of antitrust law. But the general sentiment about the unique hostility of certain regulators and legislatures toward certain tech companies could be extrapolated, mutatis mutandis, to digital competition regulation, especially with respect to the competition-oriented elements of DCRs (see Section II).
[194] See also Dirk Auer & Geoffrey Manne, Antitrust Dystopia and Antitrust Nostalgia: Alarmist Theories of Harm in Digital Markets and their Origins, 28(4) Geo. Mason L. Rev. 1279 (2023), https://lawreview.gmu.edu/print__issues/antitrust-dystopia-and-antitrust-nostalgia-alarmist-theories-of-harm-in-digital-markets-and-their-origins.
[195] Oles Andriychuk, Do DMA Obligations for Gatekeepers Create Entitlements for Business Users?, 11 Journal of Antitrust Enforcement 123 (2022) (Referring to the DMA as “punitive” and “interventionist,” and suggesting that exceptionally demanding obligations are put in place to slow down gatekeepers). See also at 127 (“the means for allowing the second-tier ersatz-Big Tech to scale up is punitive: to slow down the current gatekeepers by imposing upon them a catalogue of exceptionally demanding obligations”) and at 131 (“This punitive nature of the DMA also means that the obligations can be blatantly arduous and interventionist”) (emphasis added).
[196] DMA, Art. 7(9). There is also a limited exemption in which the gatekeeper can show that, due to exceptional circumstances beyond its control, complying with the obligations of the DMA endangers the economic viability of its operation in the EU. DMA, Art. 9(1).
[197] Id. (“…provided that such measures are strictly necessary and proportionate and are duly justified by the gatekeeper”) (emphasis added).
[198] Digital Markets Regulation Handbook, Cleary Gottlieb (Thomas Graf, et al., eds. 2022), 59, https://www.clearygottlieb.com/-/media/files/rostrum/22092308%20digital%20markets%20regulation%20handbookr16.
[199] See Digital Platform Services Inquiry, supra note 18 at § 7.2.4.
[200] Id. at 123 (emphasis added).
[201] German Competition Act, supra note 50 at Art. 19a(7).
[202] As discussed in Section II, “material harm to competition” already establishes a lower (but also fundamentally different) threshold for the plaintiff than the standard typically applied in antitrust law, as it implies a showing of harm to competitors, rather than to competition.
[203] Cleary Gottlieb, supra note 162 at 76.
[204] DMCC at S. 29; see also, A New Pro-Competition Regime for Digital Markets: Advice for the Digital Markets Taskforce section 4.40, CMA (2020), available at https://assets.publishing.service.gov.uk/media/5fce7567e90e07562f98286c/Digital_Taskforce_-_Advice.pdf (“Conduct which may in some circumstances be harmful, in others may be permissible or desirable as it produces sufficient countervailing benefits”).
[205] Auer, Lesh, & Radic, supra note 128.
[206] Id.
[207] Id.
[208] This is implied by the fact such an exemption arises only in S. 29, which concerns investigations into breaches of conduct requirements.
[209] PL 2768, supra note 32 at Art. 11.
[210] As discussed in Section I, PL 2768 pursues a multiplicity of goals, and there is no telling how much weight would be afforded to consumer protection under Art. 10.
[211] There is some evidence that this has already happened with Google and Google Maps. See Edith Hancock, “Severe Pain in the Butt”: EU’s Digital Competition Rules Make New Enemies on the Internet, Politico (Mar. 25 2024), https://www.politico.eu/article/european-union-digital-markets-act-google-search-malicious-compliance (“Before [the DMA], users could search for a location on Google by simply clicking on the Google Map link to expand it and navigate it easily. That feature doesn’t work in the same way in Europe anymore and users are irritated.”).
[212] For the importance of interbrand competition between closed and open platforms, see ICLE Brief for the 9th Circuit in Epic Games v. Apple, No. 21-16695 (9th Cir.), ID: 12409936, Dkt Entry: 98, Int’l. Ctr. for Law & Econ. (Mar. 31, 2022), https://laweconcenter.org/resources/icle-brief-for-9th-circuit-for-epic-games-v-apple. See also id. at 26 (“Even if an open platform led to more apps and IAP options for all consumers, some consumers may be better off as a result and others may be worse off. More vigilant users may avoid downloading apps and using IAP systems that are unreliable or which impose invasive data-sharing obligations, but less vigilant users will fall prey to malware, spyware, and other harmful content invited by an open system. The upshot is, “a more competitive market may be better at delivering to vigilant consumers what they want, but may end up exploiting more vulnerable consumers”). See also Mark Armstrong, Interactions Between Competition and Consumer Policy, Competition Policy International (2008), https://ora.ox.ac.uk/objects/uuid:ff166fcf-c3c1-4057-9cf5-10e295b66468/files/m4cc2cf988db14b5da92bb20f1f1a838b.
[213] Robert Pitofsky, The Political Content of Antitrust, 127 Penn. L. Rev. 1051, 1058 (1979).
[214] See, generally, Christopher Decker, Modern Economic Regulation (2014).
[215] In the context of the DMCC, see Auer, Lesh, & Radic, supra note 128.
[216] Pinar Akman, Regulating Competition in Digital Platform Markets: A Critical Assessment of the Framework and Approach of the EU Digital Markets Act, 47(1) European Law Review 85, 110 (2023) ( “The description of “(un)fairness” as provided for in the DMA cannot be said to improve upon the position of the concept in competition law, as it, too, relies on an assessment that is ultimately subjective and involves a value judgement”). See also id. at n. 134 (“This is because it involves establishing what counts as an ‘imbalance of rights and obligations’ on the business users of a gatekeeper and what counts as an ‘advantage’ obtained by the gatekeeper from its business users that is ‘disproportionate’ to the service provided by the gatekeeper to its business users’; see DMA (n 2) Article 10(2)(a) DMA. On the vagueness of the ‘fairness’ concept embodied in the DMA from an economics perspective, see also Monopolkommission (n 38) [23].”). The report Akman references is: Recommendations for an Effective and Efficient Digital Markets Act, Special Report 82, Monopolkommission (2021), https://www.monopolkommission.de/en/reports/special-reports/specialreports-on-own-initiative/372-sr-82-dma.html.
[217] On the in-app payment commission being a legitimate way to recoup investments, see ICLE Brief in Epic Games v. Apple, supra note 177.
[218] Giuseppe Colangelo, In Fairness we (Should Not) Trust. The Duplicity of the EU Competition Policy Mantra in Digital Markets, 68 Antitrust Bulletin 618, 622 (2023) (“Despite its appealing features, fairness appears a subjective and vague moral concept, hence useless as a tool in decisionmaking”).
[219] As an example, Chapter III of the DMA is appropriately entitled: “Practices of Gatekeepers that Limit Contestability or are Unfair.” The chapter sets out practices that are, by definition, unfair.
[220] Distributing Dating Apps in the Netherlands, Apple Developer Support, https://developer.apple.com/support/storekit-external-entitlement (last visited Mar. 10, 2024),
[221] Press Release, Apple Announces Changes to IOS, Safari, and the App Store in the European Union, Apple Inc. (Jan. 25, 2024), https://www.apple.com/newsroom/2024/01/apple-announces-changes-to-ios-safari-and-the-app-store-in-the-european-union.
[222] Adam Kovacevich has referred to this as the “Stalter and Waldorf” problem. See, supra note 125.
[223] Trinko at 407 (2003) (“The mere possession of monopoly power, and the concomitant charging of monopoly prices, is not only not unlawful; it is an important element of the free-market system […] Firms may acquire monopoly power by establishing an infrastructure that renders them uniquely suited to serve their customers […] Enforced sharing also requires antitrust courts to act as central planners, identifying the proper price, quantity, and other terms of dealing—a role for which they are ill-suited”); see also Brian Albrecht, Imposed Final Offer Arbitration: Price Regulation by Any Other Name, Truth on the Market (Dec. 7, 2022), https://truthonthemarket.com/2022/12/07/imposed-final-offer-arbitration-price-regulation-by-any-other-name.
[224] See, ICLE Brief in Epic Games v. Apple, supra note 174 (“In essence, Epic is trying to recast its objection to Apple’s 30% commission for use of Apple’s optional IAP system as a harm to consumers and competition more broadly”); on a similar trend in antitrust that we believe is even more relevant in the context of DCRs, see Jonathan Barnett, Antitrustifying Contract: Thoughts on Epic Games v. Apple and Apple v. Qualcomm, Truth on the Market (Oct. 26 2020) https://truthonthemarket.com/2020/10/26/antitrustifying-contract-thoughts-on-epic-games-v-apple-and-apple-v-qualcomm.
[225] Andriychuk, supra note 159.
[226] See also Ohlhausen & Taladay supra note 69.
[227] United States v. Aluminum Co. of America, 148 F.2d 416, 430 (2d Cir. 1945).
[228] Decker, supra note 176.
[229] Many companies vertically integrate to have the ability to preference their own downstream or upstream products or services. See generally Eric Fruits, Geoffrey Manne, & Kristian Stout, The Fatal Economic Flaws of the Contemporary Campaign Against Vertical Integration, 68 Kan. L. Rev. 5 (2020), https://kuscholarworks.ku.edu/handle/1808/30526; Sam Bowman & Geoffrey Manne, Tl;DR: Self-Preferencing: Building an Ecosystem, Int’l. Ctr. for Law & Econ. (Jul. 21, 2020).
[230]Decker, supra note 176 at 190-1.
[231] Aldous Huxley, Point Counter Point (1928).
[232] As discussed, these ideas are, at least to some extent, redolent of the neo-Brandeisian school of thought in the United States and ordoliberalism in Europe. See e.g., Joseph Coniglio, Why the “New Brandeis Movement Gets Antitrust Wrong, Law360 (Apr. 24, 2018), https://www.law360.com/articles/1036456/why-the-new-brandeis-movement-gets-antitrust-wrong (“The [neo-Brandeisian movement] is not a new entrant in the marketplace of ideas”); see also Daniel Crane, How Much Brandeis Do the Neo-Brandeisians Want?, 64 Antitrust Bulletin 4 (2019).
[233] See, e.g., Rupprecht Podszun, Philipp Bongartz, & Sarah Langenstein, Proposals on How to Improve the Digital Markets Act, 3, (Feb. 18, 2021), https://ssrn.com/abstract=3788571 (“Critics who wish to place the tool into the realm of competition law miss the point that this is a fundamentally different approach”).
[234] In the EU, for example, the DMA was proposed on the basis of Article 114 TFEU, rather than Article 352 TFEU. The consequence is that, for the purpose of EU law, the DMA is considered internal market regulation, rather than competition legislation. It has been argued that Article 352 TFEU, or Article 114 TFEU in conjunction with Article 103 TFEU, would have been the more appropriate legal mechanism. See, e.g., Alfonso Lamadrid de Pablo & Nieves Bayón Fernández, Why the Proposed DMA Might be Illegal Under Article 114 TFEU, and How to Fix It, 12 J. Competition L. & Prac. 7, (2021). One reason why the Commission might have preferred to use Art.114 TFEU over Art.352 TFEU is that the process under Art.114 TFEU is less cumbersome. Unlike Art. 114 TFEU, Article 352 TFEU requires unanimity among EU member states and would not enable the European Parliament to function as co-legislator. Alfonso Lamadrid de Pablo, The Key to Understand the Digital Markets Act: It’s the Legal Basis, Chilling Competition (Dec. 03, 2020), https://chillingcompetition.com/2020/12/03/the-key-to-understand-the-digital-markets-act-its-the-legal-basis.
[235] The term is used often in the literature and media. For an example of the former, see William Davies & Nicholas Gane, Post-Neoliberalism? An Introduction, 38 Theory, Culture & Soc’y 3 (2021); for an example of the latter, see Rana Fohar, The New Rules for Business in a Post-Neoliberal World, Financial Times (Oct. 9, 2022), https://www.ft.com/content/e04bc664-04b2-4ef6-90f9-64e9c4c126aa.
[236] Thomas Biebricher and Frieder Vogelmann have used the term in describing the views of ordoliberals on the role of the market and the state. Thomas Biebricher and Frieder Vogelmann, The Birth of Austerity: German Ordoliberalism and Contemporary Neoliberalism, 138-139 (2017).
[237] Davies and Gane, supra note 198 at 1 (“While events of 2020–21 have facilitated new forms of privatization of many public services and goods, they also signal, potentially, a break from the neoliberal orthodoxies of the previous four decades, and, in particular, from their overriding concern for the market”); see also Edward Luce, It’s the End of Globalism As We Know It, Financial Times (May 8, 2020), https://www.ft.com/content/3b64a08a-7d91-4f09-9a31-0157fa9192cf (“The past 40 years have been predicated on a complex system of neoliberalism that is slowly but surely coming undone, but as of yet, we don’t have any global replacement”); Paolo Gerbaudo, A Post-Neoliberal Paradigm is Emerging: Conversation with Felicia Wong, El Pais (Nov. 4, 2022), https://agendapublica.elpais.com/noticia/18303/post-neoliberal-paradigm-is-emerging-conversation-with-felicia-wong.
[238] Zephyr Teachout, The Death of the Consumer Welfare Standard, ProMarket (Nov. 07, 2023), https://www.promarket.org/2023/11/07/zephyr-teachout-the-death-of-the-consumer-welfare-standard.
[239] After Hillary Clinton lost the 2016 U.S. presidential election to Donald Trump, Barack Obama referred to history and progress in the United States as zig-zagging, rather than moving in a straight line. See, Statement by the President, White House Office of the Press Secretary (Nov. 09, 2016), https://obamawhitehouse.archives.gov/the-press-office/2016/11/09/statement-president.
ICLE White Paper Abstract Sherlocking refers to an online platform’s use of nonpublic third-party business data to improve its own business decisions—for instance, by mimicking the successful products . . .
Sherlocking refers to an online platform’s use of nonpublic third-party business data to improve its own business decisions—for instance, by mimicking the successful products and services of edge providers. Such a strategy emerges as a form of self-preferencing and, as with other theories about preferential access to data, it has been targeted by some policymakers and competition authorities due to the perceived competitive risks originating from the dual role played by hybrid platforms (acting as both referees governing their platforms, and players competing with the business they host). This paper investigates the competitive implications of sherlocking, maintaining that an outright ban is unjustified. First, the paper shows that, by aiming to ensure platform neutrality, such a prohibition would cover scenarios (i.e., the use of nonpublic third-party business data to calibrate business decisions in general, rather than to adopt a pure copycat strategy) that should be analyzed separately. Indeed, in these scenarios, sherlocking may affect different forms of competition (inter-platform v. intra-platform competition). Second, the paper argues that, in either case, the practice’s anticompetitive effects are questionable and that the ban is fundamentally driven by a bias against hybrid and vertically integrated players.
The dual role some large digital platforms play (as both intermediary and trader) has gained prominence among the economic arguments used to justify the recent wave of regulation hitting digital markets around the world. Many policymakers have expressed concern about potential conflicts of interest among companies that have adopted this hybrid model and that also control important gateways for business users. In other words, the argument goes, some online firms act not only as regulators who set their platforms’ rules and as referees who enforce those rules, but also as market players who compete with their business users. This raises the fear that large platforms could reserve preferential treatment for their own services and products, to the detriment of downstream rivals and consumers. That, in turn, has led to calls for platform-neutrality rules.
Toward this aim, essentially all of the legislative initiatives undertaken around the world in recent years to enhance competition in digital markets have included anti-discrimination provisions that target various forms of self-preferencing. Self-preferencing, it has been said, serves as the symbol of the current competition-policy zeitgeist in digital markets.[1] Indeed, this conduct is considered functional to leveraging strategies that would grant gatekeepers the chance to entrench their power in core markets and extend it into associated markets.[2]
Against this background, so-called “sherlocking” has emerged as one form of self-preferencing. The term was coined roughly 20 years ago, after Apple updated its own app Sherlock (a search tool on its desktop-operating system) to mimic a third-party application called Watson, which was created by Karelia Software to complement the Apple tool’s earlier version.[3] According to critics of self-preferencing generally and sherlocking in particular, biased intermediation and related conflicts of interest allow gatekeepers to exploit their preferential access to business users’ data to compete against them by replicating successful products and services. The implied assumption is that this strategy is relevant to competition policy, even where no potential intellectual-property rights (IPRs) are infringed and no slavish imitation sanctionable under unfair-competition laws is detected. Indeed, under such theories, sherlocking would already be prevented by the enforcement of these rules.
To tackle perceived misuse of gatekeepers’ market position, the European Union’s Digital Markets Act (DMA) introduced a ban on sherlocking.[4] Similar concerns have also motivated requests for intervention in the United States,[5] Australia,[6] and Japan.[7] In seeking to address at least two different theories of gatekeepers’ alleged conflicts of interest, these proposed bans on exploiting access to business users’ data are not necessarily limited to the risk of product imitation, but may include any business decision whatsoever that a platform may make while relying on that data.
In parallel with the regulatory initiatives, the conduct at-issue has also been investigated in some antitrust proceedings, which appear to seek the very same twofold goal. In particular, in November 2020, the European Commission sent a statement of objections to Amazon that argued the company had infringed antitrust rules through the systematic use of nonpublic business data from independent retailers who sell on the Amazon online marketplace in order to benefit Amazon’s own retail business, which directly competes with those retailers.[8] A similar investigation was opened by the UK Competition and Markets Authority (CMA) in July 2022.[9]
Further, as part of the investigation opened into Apple’s App Store rule requiring developers to use Apple’s in-app purchase mechanism to distribute paid apps and/or paid digital content, the European Commission also showed interest in evaluating whether Apple’s conduct might disintermediate competing developers from relevant customer data, while Apple obtained valuable data about those activities and its competitors’ offers.[10] The European Commission and UK CMA likewise launched an investigation into Facebook Marketplace, with accusations that Meta used data gathered from advertisers in order to compete with them in markets where the company is active, such as classified ads.[11]
There are two primary reasons these antitrust proceedings are relevant. First, many of the prohibitions envisaged in regulatory interventions (e.g., DMA) clearly took inspiration from the antitrust investigations, thus making it important to explore the insights that competition authorities may provide to support an outright ban. Second, given that regulatory intervention will be implemented alongside competition rules (especially in Europe) rather than displace them,[12] sherlocking can be assessed at both the EU and national level against dominant players that are not eligible for “gatekeeper” designation under the DMA. For those non-gatekeeper firms, the practice may still be investigated by antitrust authorities and assessed before courts, aside from the DMA’s per se prohibition. And, of course, investigations and assessments of sherlocking could also be made even in those jurisdictions where there isn’t an outright ban.
The former sis well-illustrated by the German legislature’s decision to empower its national competition authority with a new tool to tackle abusive practices that are similar and functionally equivalent to the DMA.[13] Indeed, as of January 2021, the Bundeskartellamt may identify positions of particular market relevance (undertakings of “paramount significance for competition across markets”) and assess their possible anticompetitive effects on competition in those areas of digital ecosystems in which individual companies may have a gatekeeper function. Both the initiative’s aims and its list of practices are similar to the DMA. They are distinguished primarily by the fact that the German list is exhaustive, and the practices at-issue are not prohibited per se, but are subject to a reversal of the burden of proof, allowing firms to provide objective justifications. For the sake of this analysis, within the German list, one provision prohibits designated undertakings from “demanding terms and conditions that permit … processing data relevant for competition received from other undertakings for purposes other than those necessary for the provision of its own services to these undertakings without giving these undertakings sufficient choice as to whether, how and for what purpose such data are processed.”[14]
Unfortunately, none of the above-mentioned EU antitrust proceedings have concluded with a final decision that addresses the merits of sherlocking. This precludes evaluating whether the practice would have survived before the courts. Regarding the Apple investigation, the European Commission dropped the case over App Store rules and issued a new statement of objections that no longer mentions sherlocking.[15] Further, the European Commission and the UK CMA accepted the commitments offered by Amazon to close those investigations.[16] The CMA likewise accepted the commitments offered by Meta.[17]
Those outcomes can be explained by the DMA’s recent entry into force. Indeed, because of the need to comply with the new regulation, players designated as gatekeepers likely have lost interest in challenging antitrust investigations that target the very same conduct prohibited by the DMA.[18] After all, given that the DMA does not allow any efficiency defense against the listed prohibitions, even a successful appeal against an antitrust decision would be a pyrrhic victory. From the opposite perspective, the same applies to the European Commission, which may decide to save time, costs, and risks by dropping an ongoing case against a company designated as a gatekeeper under the DMA, knowing that the conduct under investigation will be prohibited in any case.
Nonetheless, despite the lack of any final decision on sherlocking, these antitrust assessments remain relevant. As already mentioned, the DMA does not displace competition law and, in any case, dominant platforms not designated as gatekeepers under the DMA still may face antitrust investigations over sherlocking. This applies even more for jurisdictions, such as the United States, that are evaluating DMA-like legislative initiatives (e.g., the American Innovation and Choice Online Act, or “AICOA”).
Against this background, drawing on recent EU cases, this paper questions the alleged anticompetitive implications of sherlocking, as well as claims that the practice fails to comply with existing antitrust rules.
First, the paper illustrates that prohibitions on the use of nonpublic third-party business data would cover two different theories that should be analyzed separately. Whereas a broader case involves all the business decisions adopted by a dominant platform because of such preferential access (e.g., the launch of new products or services, the development or cessation of existing products or services, the calibration of pricing and management systems), a more specific case deals solely with the adoption of a copycat strategy. By conflating these theories in support of a blanket ban that condemns any use of nonpublic third-party business data, EU antitrust authorities are fundamentally motivated by the same policy goal pursued by the DMA—i.e., to impose a neutrality regime on large online platforms. The competitive implications differ significantly, however, as adopting copycat strategies may only affect intra-brand competition, while using said data to improve other business decisions could also affect inter-platform competition.
Second, the paper shows that, in both of these scenarios, the welfare effects of sherlocking are unclear. Notably, exploiting certain data to better understand the market could help a platform to develop new products and services, to improve existing products and services, or more generally to be more competitive with respect to both business users and other platforms. As such outcomes would benefit consumers in terms of price and quality, any competitive advantage achieved by the hybrid platform could be considered unlawful only if it is not achieved on the merits. In a similar vein, if sherlocking is used by a hybrid platform to deliver replicas of its business users’ products and services, that would likely provide short-term procompetitive effects benefitting consumers with more choice and lower prices. In this case, the only competitive harm that would justify an antitrust intervention resides in (uncertain) negative long-term effects on innovation.
As a result, in any case, an outright ban of sherlocking, such as is enshrined in the DMA, is economically unsound since it would clearly harm consumers.
The paper is structured as follows. Section II describes the recent antitrust investigations of sherlocking, illustrating the various scenarios that might include the use of third-party business data. Section III investigates whether sherlocking may be considered outside the scope of competition on the merits for bringing competitive advantages to platforms solely because of their hybrid business model. Section IV analyzes sherlocking as a copycat strategy by investigating the ambiguous welfare effects of copying in digital markets and providing an antitrust assessment of the practice at issue. Section V concludes.
Policymakers’ interest in sherlocking is part of a larger debate over potentially unfair strategies that large online platforms may deploy because of their dual role as an unavoidable trading partner for business users and a rival in complementary markets.
In this scenario, as summarized in Table 1, the DMA outlaws sherlocking, establishing that to “prevent gatekeepers from unfairly benefitting from their dual role,”[19] they are restrained from using, in competition with business users, “any data that is not publicly available that is generated or provided by those business users in the context of their use of the relevant core platform services or of the services provided together with, or in support of, the relevant core platform services, including data generated or provided by the customers of those business users.”[20] Recital 46 further clarifies that the “obligation should apply to the gatekeeper as a whole, including but not limited to its business unit that competes with the business users of a core platform service.”
A similar provision was included in the American Innovation and Choice Online Act (AICOA), which was considered, but not ultimately adopted, in the 117th U.S. Congress. AICOA, however, would limit the scope of the ban to the offer of products or services that would compete with those offered by business users.[21] Concerns about copycat strategies were also reported in the U.S. House of Representatives’ investigation of the state of competition in digital markets as supporting the request for structural-separation remedies and line-of-business restrictions to eliminate conflicts of interest where a dominant intermediary enters markets that place it in competition with dependent businesses.[22] Interestingly, however, in the recent complaint filed by the U.S. Federal Trade Commission (FTC) and 17 state attorneys general against Amazon that accuses the company of having deployed an interconnected strategy to block off every major avenue of competition (including price, product selection, quality, and innovation), there is no mention of sherlocking among the numerous unfair practices under investigation.[23]
Evaluating regulatory-reform proposals for digital markets, the Australian Competition and Consumer Commission (ACCC) also highlighted the risk of sherlocking, arguing that it could have an adverse effect on competition, notably on rivals’ ability to compete, when digital platforms exercise their strong market position to utilize nonpublic data to free ride on the innovation efforts of their rivals.[24] Therefore, the ACCC suggested adopting service-specific codes to address self-preferencing by, for instance, imposing data-separation requirements to restrain dominant app-store providers from using commercially sensitive data collected from the app-review process to develop their own apps.[25]
Finally, on a comparative note, it is also useful to mention the proposals advanced by the Japanese Fair Trade Commission (JFTC) in its recent market-study report on mobile ecosystems.[26] In order to ensure equal footing among competitors, the JFTC specified that its suggestion to prevent Google and Apple from using nonpublic data generated by other developers’ apps aims at pursuing two purposes. Such a ban would, indeed, concern not only use of the data for the purpose of developing competing apps, products, and services, but also its use for developing their own apps, products, and services.
As previously anticipated, sherlocking recently emerged as an antitrust offense in three investigations launched by the European Commission and the UK CMA.
In the first case, Amazon’s alleged reliance on marketplace sellers’ nonpublic business data has been claimed to distort fair competition on its platform and prevent effective competition. In its preliminary findings, the Commission argued that Amazon takes advantage of its hybrid business model, leveraging its access to nonpublic third-party sellers’ data (e.g., the number of ordered and shipped units of products; sellers’ revenues on the marketplace; the number of visits to sellers’ offers; data relating to shipping, to sellers’ past performance, and to other consumer claims on products, including the activated guarantees) to adjust its retail offers and strategic business decisions to the detriment of third-party sellers, which are direct competitors on the marketplace.[27] In particular, the Commission was concerned that Amazon uses such data for its decision to start and end sales of a product, for its pricing system, for its inventory-planning and management system, and to identify third-party sellers that Amazon’s vendor-recruitment teams should approach to invite them to become direct suppliers to Amazon Retail. To address the data-use concern, Amazon committed not to use nonpublic data relating to, or derived from, independent sellers’ activities on its marketplace for its retail business and not to use such data for the purposes of selling branded goods, as well as its private-label products.[28]
A parallel investigation ended with similar commitments in the UK.[29] According to the UK CMA, Amazon’s access to and use of nonpublic seller data could result in a competitive advantage for Amazon Retail arising from its operation of the marketplace, rather than from competition on the merits, and may lead to relevant adverse effects on competition. Notably, it was alleged this could result in a reduction in the scale and competitiveness of third-party sellers on the Amazon Marketplace; a reduction in the number and range of product offers from third-party sellers on the Amazon Marketplace; and/or less choice for consumers, due to them being offered lower quality goods and/or paying higher prices than would otherwise be the case.
It is also worth mentioning that, by determining that Amazon is an undertaking of paramount significance for competition across markets, the Bundeskartellamt emphasized the competitive advantage deriving from Amazon’s access to nonpublic data, such as Glance Views, sales figures, sale quantities, cost components of products, and reorder status.[30] Among other things, with particular regard to Amazon’s hybrid role, the Bundeskartellamt noted that the preferential access to competitively sensitive data “opens up the possibility for Amazon to optimize its own-brand assortment.”[31]
A second investigation involved Apple and its App Store rule.[32] According to the European Commission, the mandatory use of Apple’s own proprietary in-app purchase system (IAP) would, among other things, grant Apple full control over the relationship its competitors have with customers, thus disintermediating those competitors from customer data and allowing Apple to obtain valuable data about the activities and offers of its competitors.
Finally, Meta faced antitrust proceedings in both the EU and the UK.[33] The focus was on Facebook Marketplace—i.e., an online classified-ads service that allows users to advertise goods for sale. According to the European Commission and the CMA, Meta unilaterally imposes unfair trading conditions on competing online-classified ads services that advertise on Facebook or Instagram. These terms and conditions, which authorize Meta to use ads-related data derived from competitors for the benefit of Facebook Marketplace, are considered unjustified, as they impose an unnecessary burden on competitors and only benefit Facebook Marketplace. The suspicion is that Meta has used advertising data from Facebook Marketplace competitors for the strategic planning, product development, and launch of Facebook Marketplace, as well as for Marketplace’s operation and improvement.
Overall, these investigations share many features. The concerns about third-party business-data use, as well as about other forms of self-preferencing, revolve around the competitive advantages that accrue to a dominant platform because of its dual role. Such advantages are considered unfair, as they are not the result of the merits of a player, but derived purely and simply from its role as an important gateway to reach end users. Moreover, this access to valuable business data is not reciprocal. The feared risk is the marginalization of business users competing with gatekeepers on the gatekeepers’ platforms and, hence, the alleged harm to competition is the foreclosure of rivals in complementary markets (horizontal foreclosure).
The focus of these investigations was well-illustrated by the European Commission’s decision on Amazon’s practice.[34] The Commission’s concern was about the “data delta” that Amazon may exploit, namely the additional data related to third-party sellers’ listings and transactions that are not available to, and cannot be replicated by, the third-party sellers themselves, but are available to and used by Amazon Retail for its own retail operations.[35] Contrary to Amazon Retail—which, according to Commission’s allegations, would have full access to and would use such individual, real-time data of all its third-party sellers to calibrate its own retail decisions—sellers would have access only to their own individual listings and sales data. As a result, the Commission came to the (preliminary) conclusion that real-time access to and use of such volume, variety, and granularity of non-publicly available data from its retail competitors generates a significant competitive advantage for Amazon Retail in each of the different decisional processes that drive its retail operations.[36]
On a closer look, however, while antitrust authorities seem to target the use of nonpublic third-party business data as a single theory of harm, their allegations cover two different scenarios along the lines of what has already been examined with reference to the international legislative initiatives and proposals. Indeed, the Facebook Marketplace case does not involve an allegation of copying, as Meta is accused of gathering data from its business users to launch and improve its ads service, instead of reselling goods and services.
As illustrated above in Figure 1, while the claim in the latter scenario is that the preferential data use would help dominant players calibrate business decisions in general, the former scenario instead involves the use of such data for a pure copycat strategy of an entire product or service, or some of its specific features.
In both scenarios the aim of the investigations is to ensure platform neutrality. Accordingly, as shown by the accepted commitments, the envisaged solution for antitrust authorities is to impose data-separation requirements to restrain dominant platforms from using third-party commercially sensitive data. Putting aside that these investigations concluded with commitments from the firms, however, their chances of success before a court differ significantly depending on whether they challenge a product-imitation strategy, or any business decision adopted because of the “data delta.”
Before analyzing how existing competition-law rules could be applied to the various scenarios involving the use of third-party business data, it is worth providing a brief overview of the framework in which the assessment of sherlocking is conducted. As competition in the digital economy is increasingly a competition among ecosystems,[37] a lively debate has emerged on the capacity of traditional antitrust analysis to adequately capture the peculiar features of digital markets. Indeed, the combination of strong economies of scale and scope; indirect network effects; data advantages and synergies across markets; and portfolio effects all facilitate ecosystem development all contribute to making digital markets highly concentrated, prone to tipping, and not easily contestable.[38] As a consequence, it’s been suggested that addressing these distinctive features of digital markets requires an overhaul of the antitrust regime.
Such discussions require the antitrust toolkit and theories of harm to illustrate whether and how a particular practice, agreement, or merger is anticompetitive. Notably, at issue is whether traditional antitrust theories of harm are fit for purpose or whether novel theories of harm should be developed in response to the emerging digital ecosystems. The latter requires looking at the competitive impact of expanding, protecting, or strengthening an ecosystem’s position, and particularly whether such expansion serves to exploit a network of capabilities and to control access to key inputs and components.[39]
A significant portion of recent discussions around developing novel theories of harm to better address the characteristics of digital-business models and markets has been devoted to the topic of merger control—in part a result of the impressive number of acquisitions observed in recent years.[40] In particular, the focus has been on analyzing conglomerate mergers that involve acquiring a complementary or unrelated asset, which have traditionally been assumed to raise less-significant competition concerns.
In this regard, an ecosystem-based theory seems to have guided the Bundeskartellamt in its assessment of Meta’s acquisition of Kustomer[41] and by the CMA in Microsoft/Activision.[42] A more recent example is the European Commission’s decision to prohibit the proposed Booking/eTraveli merger, where the Commission explicitly noted that the transaction would have allowed Booking to expand its travel-services ecosystem.[43] The Commission’s concerns were related primarily to the so-called “envelopment” strategy, in which a prominent platform within a specific market broadens its range of services into other markets where there is a significant overlap of customer groups already served by the platform.[44]
Against this background, putative self-preferencing harms represent one of the European Commission’s primary (albeit contentious)[45] attempts to develop new theories of harm built on conglomerate platforms’ ability to bundle services or use data from one market segment to inform product development in another.[46] Originally formulated in the Google Shopping decision,[47] the theory of harm of (leveraging through) self-preferencing has subsequently inspired the DMA, which targets different forms of preferential treatment, including sherlocking.
In particular, it is asserting that platform may use self-preferencing to adopt a leveraging strategy with a twofold anticompetitive effect—that is, excluding or impeding rivals from competing with the platform (defensive leveraging) and extending the platform’s market power into associated markets (offensive leveraging). These goals can be pursued because of the unique role that some large digital platforms play. That is, they not only enjoy strategic market status by controlling ecosystems of integrated complementary products and services, which are crucial gateways for business users to reach end users, but they also perform a dual role as both a critical intermediary and a player active in complementors’ markets. Therefore, conflicts of interests may provide incentives for large vertically integrated platforms to favor their own products and services over those of their competitors.[48]
The Google Shopping theory of harm, while not yet validated by the Court of Justice of the European Union (CJEU),[49] has also found its way into merger analysis, as demonstrated by the European Commission’s recent assessment of iRobot/Amazon.[50] In its statement of objections, the Commission argued that the proposed acquisition of iRobot may give Amazon the ability and incentive to foreclose iRobot’s rivals by engaging in several foreclosing strategies to prevent them from selling robot vacuum cleaners (RVCs) on Amazon’s online marketplace and/or at degrading such rivals’ access to that marketplace. In particular, the Commission found that Amazon could deploy such self-preferencing strategies as delisting rival RVCs; reducing rival RVCs’ visibility in both organic and paid results displayed in Amazon’s marketplace; limiting access to certain widgets or commercially attractive labels; and/or raising the costs of iRobot’s rivals to advertise and sell their RVCs on Amazon’s marketplace.[51]
Sherlocking belongs to this framework of analysis and can be considered a form of self-preferencing, specifically because of the lack of reciprocity in accessing sensitive data.[52] Indeed, while gatekeeper platforms have access to relevant nonpublic third-party business data as a result of their role as unavoidable trading partners, they leverage this information exclusively, without sharing it with third-party sellers, thus further exacerbating an already uneven playing field.[53]
Insofar as prohibitions of sherlocking center on the competitive advantages that platforms enjoy because of their dual role—thereby allowing some players to better calibrate their business decisions due to their preferential access to business users’ data—it should be noted that competition law does not impose a general duty to ensure a level playing field.[54] Further, a competitive advantage does not, in itself, amount to anticompetitive foreclosure under antitrust rules. Rather, foreclosure must not only be proved (in terms of actual or potential effects) but also assessed against potential benefits for consumers in terms of price, quality, and choice of new goods and services.[55]
Indeed, not every exclusionary effect is necessarily detrimental to competition.[56] Competition on the merits may, by definition, lead to the departure from the market or the marginalization of competitors that are less efficient and therefore less attractive to consumers from the point of view of, among other things, price, choice, quality or innovation.[57] Automatically classifying any conduct with exclusionary effects were as anticompetitive could well become a means to protect less-capable, less-efficient undertakings and would in no way protect more meritorious undertakings—thereby potentially hindering a market’s competitiveness.[58]
As recently clarified by the CJEU regarding the meaning of “competition on the merits,” any practice that, in its implementation, holds no economic interest for a dominant undertaking except that of eliminating competitors must be regarded as outside the scope of competition on the merits.[59] Referring to the cases of margin squeezes and essential facilities, the CJEU added that the same applies to practices that a hypothetical equally efficient competitor is unable to adopt because that practice relies on using resources or means inherent to the holding of such a dominant position.[60]
Therefore, while antitrust cases on sherlocking set out to ensure a level playing field and platform neutrality, and therefore center on the competitive advantages that a platform enjoys because of its dual role, mere implementing a hybrid business model does not automatically put such practices outside the scope of competition on the merits. The only exception, according to the interpretation provided in Bronner, is the presence of an essential facility—i.e., an input whose access should be considered indispensable, as there are no technical, legal, or economic obstacles capable of making it impossible, or even unreasonably difficult, to duplicate it.[61]
As a result, unless it is proved that the hybrid platform is an essential facility, sherlocking and other forms of self-preferencing cannot be considered prima facie outside the scope of competition on the merits, or otherwise unlawful. Rather, any assessment of sherlocking demands the demonstration of anticompetitive effects, which in turn requires finding an impact on efficient firms’ ability and incentive to compete. In the scenario at-issue, for instance, the access to certain data may allow a platform to deliver new products or services; to improve existing products or services; or more generally to compete more efficiently not only with respect to the platform’s business users, but also against other platforms. Such an increase in both intra-platform and inter-platform competition would benefit consumers in terms of lower prices, better quality, and a wider choice of new or improved goods and services—i.e., competition on the merits.[62]
In Facebook Marketplace, the European Commission and UK CMA challenged the terms and conditions governing the provision of display-advertising and business-tool services to which Meta required its business customers to sign up.[63] In their view, Meta abused its dominant position by imposing unfair trading conditions on its advertising customers, which authorized Meta to use ads-related data derived from the latter in a way that could afford Meta a competitive advantage on Facebook Marketplace that would not have arisen from competition on the merits. Notably, antitrust authorities argued that Meta’s terms and conditions were unjustified, disproportionate, and unnecessary to provide online display-advertising services on Meta’s platforms.
Therefore, rather than directly questioning the platform’s dual role or hybrid business model, the European Commission and UK CMA decided to rely on traditional case law which considers unfair those clauses that are unjustifiably unrelated to the purpose of the contract, unnecessarily limit the parties’ freedom, are disproportionate, or are unilaterally imposed or seriously opaque.[64] This demonstrates that, outside the harm theory of the unfairness of terms and conditions, a hybrid platform’s use of nonpublic third-party business data to improve its own business decisions is generally consistent with antitrust provisions. Hence, an outright ban would be unjustified.
The second, and more intriguing, sherlocking scenario is illustrated by the Amazon Marketplace investigations and regards the original meaning of sherlocking—i.e., where a data advantage is used by a hybrid platform to mimic its business users’ products or services.
Where sherlocking charges assert that the practice allows some platforms to use business users’ data to compete against them by replicating their products or services, it should not be overlooked that the welfare effects of such a copying strategy are ambiguous. While the practice could benefit consumers in the short term by lowering prices and increasing choice, it may discourage innovation over the longer term if third parties anticipate being copied whenever they deliver successful products or services. Therefore, the success of an antitrust investigation essentially relies on demonstrating a harm to innovation that would induce business users to leave the market or stop developing their products and services. In other words, antitrust authorities should be able to demonstrate that, by allowing dominant platforms to free ride on their business guests’ innovation efforts, sherlocking would negatively affect rivals’ ability to compete.
The tradeoff between the short- and long-term welfare effects of copying has traditionally been analyzed in the context of the benefits and costs generated by intellectual-property protection.[65] In particular, the economic literature investigating the optimal life of patents[66] and copyrights[67] focuses on the efficient balance between dynamic benefits associated with innovation and the static costs of monopoly power granted by IPRs.
More recently, product imitation has instead been investigated in the different scenario of digital markets, where dominant platforms adopting a hybrid business model may use third-party sellers’ market data to design and promote their own products over their rivals’ offerings. Indeed, some studies report that large online platforms may attempt to protect their market position by creating “kill zones” around themselves—i.e., by acquiring, copying, or eliminating their rivals.[68] In such a novel setting, the welfare effects of copying are assessed regardless of the presence and the potential enforcement of IPRs, but within a strategy aimed at excluding rivals by exploiting the dual role of both umpire and player to get preferential access to sensitive data and free ride on their innovative efforts.[69]
Even in this context, however, a challenging tradeoff should be considered. Indeed, while in the short term, consumers may benefit from the platform’s imitation strategy in terms of lower prices and higher quality, they may be harmed in the longer term if third parties are discouraged from delivering new products and services. As a result, while there is empirical evidence on hybrid platforms successfully entering into third parties’ adjacent market segments, [70] the extant academic literature finds the welfare implications of such moves to be ambiguous.
A first strand of literature attempts to estimate the welfare impact of the hybrid business model. Notably, Andre Hagiu, Tat-How Teh, and Julian Wright elaborated a model to address the potential implications of an outright ban on platforms’ dual mode, finding that such a structural remedy may harm consumer surplus and welfare even where the platform would otherwise engage in product imitation and self-preferencing.[71] According to the authors, banning the dual mode does not restore the third-party seller’s innovation incentives or the effective price competition between products, which are the putative harms caused by imitation and self-preferencing. Therefore, the authors’ evaluation was that interventions specifically targeting product imitation and self-preferencing were preferable.
Germa?n Gutie?rrez suggested that banning the dual model would generate hardly any benefits for consumers, showing that, in the Amazon case, interventions that eliminate either the Prime program or product variety are likely to decrease welfare.[72]
Further, analyzing Amazon’s business model, Federico Etro found that the platform and consumers’ incentives are correctly aligned, and that Amazon’s business model of hosting sellers and charging commissions prevents the company from gaining through systematic self?preferencing for its private-label and first-party products.[73] In the same vein, on looking at its business model and monetization strategy, Patrick Andreoli-Versbach and Joshua Gans argued that Amazon does not have an obvious incentive to self-preference.[74] Indeed, Amazon’s profitability data show that, on average, the company’s operating margin is higher on third-party sales than on first-party retail sales.
Looking at how modeling details may yield different results with regard to the benefits and harms of the hybrid business model, Simon Anderson and O?zlem Bedre-Defoile maintain that the platform’s choice to sell its own products benefits consumers by lowering prices when a monopoly platform hosts competitive fringe sellers, regardless of the platform’s position as a gatekeeper, whether sellers have an alternate channel to reach consumers, or whether alternate channels are perfect or imperfect substitutes for the platform channel.[75] On the other hand, the authors argued that platform product entry might harm consumers when a big seller with market power sells on its own channel and also on the platform. Indeed, in that case, the platform setting a seller fee before the big seller prices its differentiated products introduces double markups on the big seller’s platform-channel price and leaves some revenue to the big seller.
Studying whether Amazon engages in self-preferencing on its marketplace by favoring its own brands in search results, Chiara Farronato, Andrey Fradkin, and Alexander MacKay demonstrate empirically that Amazon brands remain about 30% cheaper and have 68% more reviews than other similar products.[76] The authors acknowledge, however, that their findings do not imply that consumers are hurt by Amazon brands’ position in search results.
Another strand of literature specifically tackles the welfare effects of sherlocking. In particular, Erik Madsen and Nikhil Vellodi developed a theoretical framework to demonstrate that a ban on insider imitation can either stifle or stimulate innovation, depending on the nature of innovation.[77] Specifically, the ban could stimulate innovation for experimental product categories, while reducing innovation in incremental product markets, since the former feature products with a large chance of superstar demand and the latter generate mostly products with middling demand.
Federico Etro maintains that the tradeoffs at-issue are too complex to be solved with simple interventions, such as bans on dual mode, self-preferencing, or copycatting.[78] Indeed, it is difficult to conclude that Amazon entry is biased to expropriate third-party sellers or that bans on dual mode, self-preferencing, or copycatting would benefit consumers, because they either degrade services and product variety or induce higher prices or commissions.
Similar results are provided by Jay Pil Choi, Kyungmin Kim, and Arijit Mukherjee, who developed a tractable model of a platform-run marketplace where the platform charges a referral fee to the sellers for access to the marketplace, and may also subsequently launch its own private-label product by copying a seller.[79] The authors found that a policy to either ban hybrid mode or only prohibit information use for the launch of private-label products may produce negative welfare implications.
Further, Radostina Shopova argues that, when introducing a private label, the marketplace operator does not have incentive to distort competition and foreclose the outside seller, but does have an incentive to lower fees charged to the outside seller and to vertically differentiate its own product in order to protect the seller’s channel.[80] Even when the intermediary is able to perfectly mimic the quality of the outside seller and monopolize its product space, the intermediary prefers to differentiate its offer and chooses a lower quality for the private-label product. Accordingly, as the purpose of private labels is to offer a lower-quality version of products aimed at consumers with a lower willingness to pay, a marketplace operator does not have an incentive to distort competition in favor of its own product and foreclose the seller of the original higher-quality product.
In addition, according to Jean-Pierre Dubé, curbing development of private-label programs would harm consumers and Amazon’s practices amount to textbook retailing, as they follow an off-the-shelf approach to managing private-label products that is standard for many retail chains in the West.[81] As a result, singling out Amazon’s practices would set a double standard.
Interestingly, such findings about predictors and effects of Amazon’s entry in competition with third-party merchants on its own marketplace are confirmed by the only empirical study developed so far. In particular, analyzing the Home & Kitchen department of Germany’s version of Amazon Marketplace between 2016 and 2021, Gregory S. Crawford, Matteo Courthoud, Regina Seibel, and Simon Zuzek’s results suggest that Amazon’s entry strategy was more consistent with making Marketplace more attractive to consumers than expropriating third-party merchants.[82] Notably, the study showed that, comparing Amazon’s entry decisions with those of the largest third-party merchants, Amazon tends to enter low-growth and low-quality products, which is consistent with a strategy that seeks to make Marketplace more attractive by expanding variety, lessening third-party market power, and/or enhancing product availability. The authors therefore found that Amazon’s entry on Amazon Marketplace demonstrated no systematic adverse effects and caused a mild market expansion.
Massimo Motta and Sandro Shelegia explored interactions between copying and acquisitions, finding that the former (or the threat of copying) can modify the outcome of an acquisition negotiation.[83] According to their model, there could be both static and dynamic incentives for an incumbent to introduce a copycat version of a complementary product. The static rationale consists of lowering the price of the complementary product in order to capture more rents from it, while the dynamic incentive consists of harming a potential rival’s prospects of developing a substitute. The latter may, in turn, affect the direction the entrant takes toward innovation. Anticipating the incumbent’s copying strategy, the entrant may shift resources from improvements to compete with the incumbent’s primary product to developing complementary products.
Jingcun Cao, Avery Haviv, and Nan Li analyzed the opposite scenario—i.e., copycats that seek to mimic the design and user experience of incumbents’ successful products.[84] The authors find empirically that, on average, copycat apps do not have a significant effect on the demand for incumbent apps and that, as with traditional counterfeit products, they may generate a positive demand spillover toward authentic apps.
Massimo Motta also investigated the potential foreclosure effects of platforms adopting a copycat strategy committed to non-discriminatory terms of access for third parties (e.g., Apple App Store, Google Play, and Amazon Marketplace).[85] Notably, according to Motta, when a third-party seller is particularly successful and the platform is unable to raise fees and commissions paid by that seller, the platform may prefer to copy its product or service to extract more profits from users, rather than rely solely on third-party sales. The author acknowledged, however, that even though this practice may create an incentive for self-preferencing, it does not necessarily have anticompetitive effects. Indeed, the welfare effects of the copying strategy are a priori ambiguous.[86] While, on the one hand, the platform’s copying of a third-party product benefits consumers by increasing variety and competition among products, on the other hand, copying might be wasteful for society, in that it entails a fixed cost and may discourage innovation if rivals anticipate that they will be systematically copied whenever they have a successful product.[87] Therefore, introducing a copycat version of a product offered by a firm in an adjacent market might be procompetitive.
The economic literature has demonstrated that the rationale and welfare effects of sherlocking by hybrid platforms are definitively ambiguous. Against concerns about rivals’ foreclosure, some studies provide a different narrative, illustrating that such a strategy is more consistent with making the platform more attractive to consumers (by differentiating the quality and pricing of the offer) than expropriating business users.[88] Furthermore, copies, imitations, and replicas undoubtedly benefit consumers with more choice and lower prices.
Therefore, the only way to consider sherlocking anticompetitive is by demonstrating long-term deterrent effects on innovation (i.e., reducing rivals’ incentives to invest in new products and services) outweigh consumers’ short-term advantages.[89] Moreover, deterrent effects must not be merely hypothetical, as a finding of abuse cannot be based on a mere possibility of harm.[90] In any case, such complex tradeoffs are at odds with a blanket ban.[91]
Moreover, assessments of the potential impact of sherlocking on innovation cannot disregard the role of IPRs—which are, by definition, the main primary to promote innovation. From this perspective, intellectual-property protection is best characterized as another form of tradeoff. Indeed, the economic rationale of IPRs (in particular, of patents and copyrights) involves, among other things, a tradeoff between access and incentives—i.e., between short-term competitive restrictions and long-term innovative benefits.[92]
According to the traditional incentive-based theory of intellectual property, free riding would represent a dangerous threat that justifies the exclusive rights granted by intellectual-property protection. As a consequence, so long as copycat expropriation does not infringe IPRs, it should be presumed legitimate and procompetitive. Indeed, such free riding is more of an intellectual-property issue than a competitive concern.
In addition, to strike a fair balance between restricting competition and providing incentives to innovation, the exclusive rights granted by IPRs are not unlimited in terms of duration, nor in terms of lawful (although not authorized) uses of the protected subject matter. Under the doctrine of fair use, for instance, reverse engineering represents a legitimate way to obtain information about a firm’s product, even if the intended result is to produce a directly competing product that may steer customers away from the initial product and the patented invention.
Outside of reverse engineering, copying is legitimately exercised once IPRs expire, when copycat competitors can reproduce previously protected elements. As a result of the competitive pressure exerted by new rivals, holders of expired IPRs may react by seeking solutions designed to block or at least limit the circulation of rival products. They could, for example, request other IPRs to cover aspects or functionalities different from those previously protected. They could also bring (sometimes specious) legal action for infringement of the new IPR or for unfair competition by slavish imitation. For these reasons, there have been occasions where copycat competitors have received protection from antitrust authorities against sham litigation brought by IPR holders concerned about losing margins due to pricing pressure from copycats.[93]
Finally, within the longstanding debate on the intersection of intellectual-property protection and competition, EU antitrust authorities have traditionally been unsympathetic toward restrictions imposed by IPRs. The success of the essential-facility doctrine (EFD) is the most telling example of this attitude, as its application in the EU has been extended to IPRs. As a matter of fact, the EFD represents the main antitrust tool for overseeing intellectual property in the EU.[94]
After Microsoft, EU courts have substantially dismantled one of the “exceptional circumstances” previously elaborated in Magill and specifically introduced for cases involving IPRs, with the aim of safeguarding a balance between restrictions to access and incentives to innovate. Whereas the CJEU established in Magill that refusal to grant an IP license should be considered anticompetitive if it prevents the emergence of a new product for which there is potential consumer demand, in Microsoft, the General Court considered such a requirement met even when access to an IPR is necessary for rivals to merely develop improved products with added value.
Given this background, recent competition-policy concerns about sherlocking are surprising. To briefly recap, the practice at-issue increases competition in the short term, but may affect incentives to innovate in the long-term. With regard to the latter, however, the practice neither involves products protected by IPRs nor constitutes a slavish imitation that may be caught under unfair-competition laws.
The case of Amazon, which has received considerable media coverage, is illustrative of the relevance of IP protection. Amazon has been accused of cloning batteries, power strips, wool runner shoes, everyday sling bags, camera tripods, and furniture.[95] One may wonder what kind of innovation should be safeguarded in these cases against potential copies. Admittedly, such examples appear consistent with the findings of the already-illustrated empirical study conducted by Crawford et al. indicating that Amazon tends to enter low-quality products in order to expand variety on the Marketplace and to make it more attractive to consumers.
Nonetheless, if an IPR is involved, right holders are provided with proper means to protect their products against infringement. Indeed, one of the alleged targeted companies (Williams-Sonoma) did file a complaint for design and trademark infringement, claiming that Amazon had copied a chair (Orb Dining Chair) sold by its West Elm brand. According to Williams-Sonoma, the Upholstered Orb Office Chair—which Amazon began selling under its Rivet brand in 2018—was so similar that the ordinary observer would be confused by the imitation.[96] If, instead, the copycat strategy does not infringe any IPR, the potential impact on innovation might not be considered particularly worrisome—at least at first glance.
Further, neither the degree to which third-party business data is unavailable nor the degree to which they are relevant in facilitating copying are clear cut. For instance, in the case of Amazon, public product reviews supply a great deal of information[97] and, regardless of the fact that a third party is selling a product on the Marketplace, anyone can obtain an item for the purposes of reverse engineering.[98]
In addition, antitrust authorities are used to intervening against opportunistic behavior by IPR holders. European competition authorities, in particular, have never before seemed particularly responsive to the motives of inventors and creators versus the need to encourage maximum market openness.
It should also be noted that cloning is a common strategy in traditional markets (e.g., food products)[99] and has been the subject of longstanding controversies between high-end fashion brands and fast-fashion brands (e.g., Zara, H&M).[100] Furthermore, brick-and-mortar retailers also introduce private labels and use other brands’ sales records in deciding what to produce.[101]
So, what makes sherlocking so different and dangerous when deployed in digital markets as to push competition authorities to contradict themselves?[102]
The double standard against sherlocking reflects the same concern and pursues the same goal of the various other attempts to forbid any form of self-preferencing in digital markets. Namely, antitrust investigations of sherlocking are fundamentally driven by the bias against hybrid and vertically integrated players. The investigations rely on the assumption that conflicts of interest have anticompetitive implications and that, therefore, platform neutrality should be promoted to ensure the neutrality of the competitive process.[103] Accordingly, hostility toward sherlocking may involve both of the illustrated scenarios—i.e., the use of nonpublic third-party business data either in adopting any business decision, or just copycat strategies, in particular.
As a result, however, competition authorities end up challenging a specific business model, rather than the specific practice at-issue, which brings undisputed competitive benefits in terms of lower prices and wider consumer choice, and which should therefore be balanced against potential exclusionary risks. As the CJEU has pointed out, the concept of competition on the merits:
…covers, in principle, a competitive situation in which consumers benefit from lower prices, better quality and a wider choice of new or improved goods and services. Thus, … conduct which has the effect of broadening consumer choice by putting new goods on the market or by increasing the quantity or quality of the goods already on offer must, inter alia, be considered to come within the scope of competition on the merits.[104]
Further, in light of the “as-efficient competitor” principle, competition on the merits may lead to “the departure from the market, or the marginalization of, competitors that are less efficient and so less attractive to consumers from the point of view of, among other things, price, choice, quality or innovation.”[105]
It has been correctly noted that the “as-efficient competitor” principle is a reminder of what competition law is about and how it differs from regulation.[106] Competition law aims to protect a process, rather than engineering market structures to fulfill a particular vision of how an industry is to operate.[107] In other words, competition law does not target firms on the basis of size or status and does not infer harm from (market or bargaining) power or business model. Therefore, neither the dual role played by some large online platforms nor their preferential access to sensitive business data or their vertical integration, by themselves, create a competition problem. Competitive advantages deriving from size, status, power, or business model cannot be considered per se outside the scope of competition on the merits.
Some policymakers have sought to resolve these tensions in how competition law regards sherlocking by introducing or envisaging an outright ban. These initiatives and proposals have clearly been inspired by antitrust investigations, but they did so for the wrong reasons. Instead of taking stock of the challenging tradeoffs between short-term benefits and long-term risks that an antitrust assessment of sherlocking requires, they blamed competition law for not providing effective tools to achieve the policy goal of platform neutrality.[108] Therefore, the regulatory solution is merely functional to bypass the traditional burden of proof of antitrust analysis and achieve what competition-law enforcement cannot provide.
The bias against self-preferencing strikes again. Concerns about hybrid platforms’ potential conflicts of interest have led policymakers to seek prohibitions to curb different forms of self-preferencing, making the latter the symbol of the competition-policy zeitgeist in digital markets. Sherlocking shares this fate. Indeed, the DMA outlaws any use of business users’ nonpublic data and similar proposals have been advanced in the United States, Australia, and Japan. Further, like other forms of self-preferencing, such regulatory initiatives against sherlocking have been inspired by previous antitrust proceedings.
Drawing on these antitrust investigations, the present research shows the extent to which an outright ban on sherlocking is unjustified. Notably, the practice at-issue includes two different scenarios: the broad case in which a gatekeeper exploits its preferential access to business users’ data to better calibrate all of its business decisions and the narrow case in which such data is used to adopt a copycat strategy. In either scenario, the welfare effects and competitive implications of sherlocking are unclear.
Indeed, the use of certain data by a hybrid platform to improve business decisions generally should be classified as competition on the merits, and may yield an increase in both intra-platform (with respect to business users) and inter-platform (with respect to other platforms) competition. This would benefit consumers in terms of lower prices, better quality, and a wider choice of new or improved goods and services. In a similar vein, if sherlocking is used to deliver replicas of business users’ products or services, the anti-competitiveness of such a strategy may only result from a cumbersome tradeoff between short-term benefits (i.e., lower prices and wider choice) and negative long-term effects on innovation.
An implicit confirmation of the difficulties encountered in demonstrating the anti-competitiveness of sherlocking comes from the recent complaint issued by the FTC against Amazon.[109] Current FTC Chairwoman Lina Khan devoted a significant portion of her previous academic career to questioning Amazon’s practices (including the decision to introduce its own private labels inspired by third-party products)[110] and to supporting the adoption of structural-separation remedies to tackle platforms’ conflicts of interest that induce them to exploit their “systemic informational advantage (gleaned from competitors)” to thwart rivals and strengthen their own position by introducing replica products.[111] Despite these premises and although the FTC’s complaint targets numerous practices belonging to what has been described as an interconnected strategy to block off every major avenue of competition, however, sherlocking is surprisingly off the radar.
Regulatory initiatives to ban sherlocking in order to ensure platform neutrality with respect to business users and a level playing field among rivals would sacrifice undisputed procompetitive benefits on the altar of policy goals that competition rules are not meant to pursue. Sherlocking therefore appears to be a perfect case study of the side effects of unwarranted interventions in digital markets.
[1] Giuseppe Colangelo, Antitrust Unchained: The EU’s Case Against Self-Preferencing, 72 GRUR International 538 (2023).
[2] Jacques Cre?mer, Yves-Alexandre de Montjoye, & Heike Schweitzer, Competition Policy for the Digital Era (2019), 7, https://op.europa.eu/en/publication-detail/-/publication/21dc175c-7b76-11e9-9f05-01aa75ed71a1/language-en (all links last accessed 3 Jan. 2024); UK Digital Competition Expert Panel, Unlocking Digital Competition, (2019) 58, available at https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/785547/unlocking_digital_competition_furman_review_web.pdf.
[3] You’ve Been Sherlocked, The Economist (2012), https://www.economist.com/babbage/2012/07/13/youve-been-sherlocked.
[4] Regulation (EU) 2022/1925 on contestable and fair markets in the digital sector and amending Directives (EU) 2019/1937 and (EU) 2020/1828 (Digital Markets Act) (2022), OJ L 265/1, Article 6(2).
[5] U.S. S. 2992, American Innovation and Choice Online Act (AICOA) (2022), Section 3(a)(6), available at https://www.klobuchar.senate.gov/public/_cache/files/b/9/b90b9806-cecf-4796-89fb-561e5322531c/B1F51354E81BEFF3EB96956A7A5E1D6A.sil22713.pdf. See also U.S. House of Representatives, Subcommittee on Antitrust, Commercial, and Administrative Law, Investigation of Competition in Digital Markets, Majority Staff Reports and Recommendations (2020), 164, 362-364, 378, available at https://democrats-judiciary.house.gov/uploadedfiles/competition_in_digital_markets.pdf.
[6] Australian Competition and Consumer Commission, Digital Platform Services Inquiry Report on Regulatory Reform (2022), 125, https://www.accc.gov.au/about-us/publications/serial-publications/digital-platform-services-inquiry-2020-2025/digital-platform-services-inquiry-september-2022-interim-report-regulatory-reform.
[7] Japan Fair Trade Commission, Market Study Report on Mobile OS and Mobile App Distribution (2023), https://www.jftc.go.jp/en/pressreleases/yearly-2023/February/230209.html.
[8] European Commission, 10 Nov. 2020, Case AT.40462, Amazon Marketplace; see Press Release, Commission Sends Statement of Objections to Amazon for the Use of Non-Public Independent Seller Data and Opens Second Investigation into Its E-Commerce Business Practices, European Commission (2020), https://ec.europa.eu/commission/presscorner/detail/en/ip_20_2077.
[9] Press Release, CMA Investigates Amazon Over Suspected Anti-Competitive Practices, UK Competition and Markets Authority (2022), https://www.gov.uk/government/news/cma-investigates-amazon-over-suspected-anti-competitive-practices.
[10] European Commission, 16 Jun. 2020, Case AT.40716, Apple – App Store Practices.
[11] Press Release, Commission Sends Statement of Objections to Meta over Abusive Practices Benefiting Facebook Marketplace, European Commission (2022), https://ec.europa.eu/commission/presscorner/detail/en/ip_22_7728; Press Release, CMA Investigates Facebook’s Use of Ad Data, UK Competition and Markets Authority (2021), https://www.gov.uk/government/news/cma-investigates-facebook-s-use-of-ad-data.
[12] DMA, supra note 4, Recital 10 and Article 1(6).
[13] GWB Digitalization Act, 18 Jan. 2021, Section 19a. On risks of overlaps between the DMA and the competition law enforcement, see Giuseppe Colangelo, The European Digital Markets Act and Antitrust Enforcement: A Liaison Dangereuse, 47 European Law Review 597.
[14] GWB, supra note 13, Section 19a (2)(4)(b).
[15] Press Release, Commission Sends Statement of Objections to Apple Clarifying Concerns over App Store Rules for Music Streaming Providers, European Commission (2023), https://ec.europa.eu/commission/presscorner/detail/en/ip_23_1217.
[16] European Commission, 20 Dec. 2022, Case AT.40462; Press Release, Commission Accepts Commitments by Amazon Barring It from Using Marketplace Seller Data, and Ensuring Equal Access to Buy Box and Prime, European Commission (2022), https://ec.europa.eu/commission/presscorner/detail/en/ip_22_7777; UK Competition and Markets Authority, 3 Nov. 2023, Case No. 51184, https://www.gov.uk/cma-cases/investigation-into-amazons-marketplace.
[17] UK Competition and Markets Authority, 3 Nov. 2023, Case AT.51013, https://www.gov.uk/cma-cases/investigation-into-facebooks-use-of-data.
[18] See, e.g., Gil Tono & Lewis Crofts (2022), Amazon Data Commitments Match DMA Obligations, EU’s Vestager Say, mLex (2022), https://mlexmarketinsight.com/news/insight/amazon-data-commitments-match-dma-obligation-eu-s-vestager-says (reporting that Commissioner Vestager stated that Amazon’s data commitments definitively appear to match what would be asked within the DMA).
[19] DMA, supra note 4, Recital 46.
[20] Id., Article 6(2) (also stating that, for the purposes of the prohibition, non-publicly available data shall include any aggregated and non-aggregated data generated by business users that can be inferred from, or collected through, the commercial activities of business users or their customers, including click, search, view, and voice data, on the relevant core platform services or on services provided together with, or in support of, the relevant core platform services of the gatekeeper).
[21] AICOA, supra note 5.
[22] U.S. House of Representatives, supra note 5; see also Lina M. Khan, The Separation of Platforms and Commerce, 119 Columbia Law Review 973 (2019).
[23] U.S. Federal Trade Commission, et al. v. Amazon.com, Inc., Case No. 2:23-cv-01495 (W.D. Wash., 2023).
[24] Australian Competition and Consumer Commission, supra note 6, 125.
[25] Id., 124.
[26] Japan Fair Trade Commission, supra note 7, 144.
[27] European Commission, supra note 8. But see also Amazon, Supporting Sellers with Tools, Insights, and Data (2021), https://www.aboutamazon.eu/news/policy/supporting-sellers-with-tools-insights-and-data (claiming that the company is just using aggregate (rather than individual) data: “Just like our third-party sellers and other retailers across the world, Amazon also uses data to run our business. We use aggregated data about customers’ experience across the store to continuously improve it for everyone, such as by ensuring that the store has popular items in stock, customers are finding the products they want to purchase, or connecting customers to great new products through automated merchandising.”)
[28] European Commission, supra note 16.
[29] UK Competition and Markets Authority, supra notes 9 and 16.
[30] Bundeskartellamt, 5 Jul. 2022, Case B2-55/21, paras. 493, 504, and 518.
[31] Id., para. 536.
[32] European Commission, supra note 10.
[33] European Commission, supra note 11; UK Competition and Markets Authority, supra note 11.
[34] European Commission, supra note 16. In a similar vein, see also UK Competition and Markets Authority, supra note 16, paras. 4.2-4.7.
[35] European Commission, supra note 16, para. 111.
[36] Id., para. 123.
[37] Cre?mer, de Montjoye, & Schweitzer, supra note 2, 33-34.
[38] See, e.g., Marc Bourreau, Some Economics of Digital Ecosystems, OECD Hearing on Competition Economics of Digital Ecosystems (2020), https://www.oecd.org/daf/competition/competition-economics-of-digital-ecosystems.htm; Amelia Fletcher, Digital Competition Policy: Are Ecosystems Different?, OECD Hearing on Competition Economics of Digital Ecosystems (2020).
[39] See, e.g., Cristina Caffarra, Matthew Elliott, & Andrea Galeotti, ‘Ecosystem’ Theories of Harm in Digital Mergers: New Insights from Network Economics, VoxEU (2023), https://cepr.org/voxeu/columns/ecosystem-theories-harm-digital-mergers-new-insights-network-economics-part-1 (arguing that, in merger control, the implementation of an ecosystem theory of harm would require assessing how a conglomerate acquisition can change the network of capabilities (e.g., proprietary software, brand, customer-base, data) in order to evaluate how easily competitors can obtain alternative assets to those being acquired); for a different view, see Geoffrey A. Manne & Dirk Auer, Antitrust Dystopia and Antitrust Nostalgia: Alarmist Theories of Harm in Digital Markets and Their Origins, 28 George Mason Law Review 1281(2021).
[40] See, e.g., Viktoria H.S.E. Robertson, Digital merger control: adapting theories of harm, (forthcoming) European Competition Journal; Caffarra, Elliott, & Galeotti, supra note 39; OECD, Theories of Harm for Digital Mergers (2023), available at www.oecd.org/daf/competition/theories-of-harm-for-digital-mergers-2023.pdf; Bundeskartellamt, Merger Control in the Digital Age – Challenges and Development Perspectives (2022), available at https://www.bundeskartellamt.de/SharedDocs/Publikation/EN/Diskussions_Hintergrundpapiere/2022/Working_Group_on_Competition_Law_2022.pdf?__blob=publicationFile&v=2; Elena Argentesi, Paolo Buccirossi, Emilio Calvano, Tomaso Duso, Alessia Marrazzo, & Salvatore Nava, Merger Policy in Digital Markets: An Ex Post Assessment, 17 Journal of Competition Law & Economics 95 (2021); Marc Bourreau & Alexandre de Streel, Digital Conglomerates and EU Competition Policy (2019), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3350512.
[41] Bundeskartellamt, 11 Feb. 2022, Case B6-21/22, https://www.bundeskartellamt.de/SharedDocs/Entscheidung/EN/Fallberichte/Fusionskontrolle/2022/B6-21-22.html;jsessionid=C0837BD430A8C9C8E04D133B0441EB95.1_cid362?nn=4136442.
[42] UK Competition and Markets Authority, Microsoft / Activision Blizzard Merger Inquiry (2023), https://www.gov.uk/cma-cases/microsoft-slash-activision-blizzard-merger-inquiry.
[43] See European Commission, Commission Prohibits Proposed Acquisition of eTraveli by Booking (2023), https://ec.europa.eu/commission/presscorner/detail/en/ip_23_4573 (finding that a flight product is a crucial growth avenue in Booking’s ecosystem, which revolves around its hotel online-travel-agency (OTA) business, as it would generate significant additional traffic to the platform, thus allowing Booking to benefit from existing customer inertia and making it more difficult for competitors to contest Booking’s position in the hotel OTA market).
[44] Thomas Eisenmann, Geoffrey Parker, & Marshall Van Alstyne, Platform Envelopment, 32 Strategic Management Journal 1270 (2011).
[45] See, e.g., Colangelo, supra note 1, and Pablo Iba?n?ez Colomo, Self-Preferencing: Yet Another Epithet in Need of Limiting Principles, 43 World Competition 417 (2020) (investigating whether and to what extent self-preferencing could be considered a new standalone offense in EU competition law); see also European Commission, Digital Markets Act – Impact Assessment Support Study (2020), 294, https://op.europa.eu/en/publication-detail/-/publication/0a9a636a-3e83-11eb-b27b-01aa75ed71a1/language-en (raising doubts about the novelty of this new theory of harm, which seems similar to the well-established leveraging theories of harm of tying and bundling, and margin squeeze).
[46] European Commission, supra note 45, 16.
[47] European Commission, 27 Jun. 2017, Case AT.39740, Google Search (Shopping).
[48] See General Court, 10 Nov. 2021, Case T-612/17, Google LLC and Alphabet Inc. v. European Commission, ECLI:EU:T:2021:763, para. 155 (stating that the general principle of equal treatment obligates vertically integrated platforms to refrain from favoring their own services as opposed to rival ones; nonetheless, the ruling framed self-preferencing as discriminatory abuse).
[49] In the meantime, however, see Opinion of the Advocate General Kokott, 11 Jan. 2024, Case C-48/22 P, Google v. European Commission, ECLI:EU:C:2024:14, paras. 90 and 95 (arguing that the self-preferencing of which Google is accused constitutes an independent form of abuse, albeit one that exhibits some proximity to cases involving margin squeezing).
[50] European Commission, Commission Sends Amazon Statement of Objections over Proposed Acquisition of iRobot (2023), https://ec.europa.eu/commission/presscorner/detail/en/IP_23_5990.
[51] The same concerns and approach have been shared by the CMA, although it reached a different conclusion, finding that the new merged entity would not have incentive to self-preference its own branded RVCs: see UK Competition and Markets Authority, Amazon / iRobot Merger Inquiry – Clearance Decision (2023), paras. 160, 188, and 231, https://www.gov.uk/cma-cases/amazon-slash-irobot-merger-inquiry.
[52] See European Commission, supra note 45, 304.
[53] Id., 313-314 (envisaging, among potential remedies, the imposition of a duty to make all data used by the platform for strategic decisions available to third parties); see also Désirée Klinger, Jonathan Bokemeyer, Benjamin Della Rocca, & Rafael Bezerra Nunes, Amazon’s Theory of Harm, Yale University Thurman Arnold Project (2020), 19, available at https://som.yale.edu/sites/default/files/2022-01/DTH-Amazon.pdf.
[54] Colangelo, supra note 1; see also Oscar Borgogno & Giuseppe Colangelo, Platform and Device Neutrality Regime: The New Competition Rulebook for App Stores?, 67 Antitrust Bulletin 451 (2022).
[55] See Court of Justice of the European Union (CJEU), 12 May 2022, Case C-377/20, Servizio Elettrico Nazionale SpA v. Autorità Garante della Concorrenza e del Mercato, ECLI:EU:C:2022:379; 19 Apr. 2018, Case C-525/16, MEO v. Autoridade da Concorrência, ECLI:EU:C:2018:270; 6 Sep. 2017, Case C-413/14 P, Intel v. Commission, ECLI:EU:C:2017:632; 6 Oct. 2015, Case C-23/14, Post Danmark A/S v. Konkurrencerådet (Post Danmark II), ECLI:EU:C:2015:651; 27 Mar. 2012, Case C-209/10, Post Danmark A/S v Konkurrencera?det (Post Danmark I), ECLI: EU:C:2012:172; for a recent overview of the EU case law, see also Pablo Iba?n?ez Colomo, The (Second) Modernisation of Article 102 TFEU: Reconciling Effective Enforcement, Legal Certainty and Meaningful Judicial Review, SSRN (2023), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4598161.
[56] CJEU, Intel, supra note 55, paras. 133-134.
[57] CJEU, Servizio Elettrico Nazionale, supra note 55, para. 73.
[58] Opinion of Advocate General Rantos, 9 Dec. 2021, Case C?377/20, Servizio Elettrico Nazionale SpA v. Autorità Garante della Concorrenza e del Mercato, ECLI:EU:C:2021:998, para. 45.
[59] CJEU, Servizio Elettrico Nazionale, supra note 55, para. 77.
[60] Id., paras. 77, 80, and 83.
[61] CJEU, 26 Nov.1998, Case C-7/97, Oscar Bronner GmbH & Co. KG v. Mediaprint Zeitungs- und Zeitschriftenverlag GmbH & Co. KG, Mediaprint Zeitungsvertriebsgesellschaft mbH & Co. KG and Mediaprint Anzeigengesellschaft mbH & Co. KG, ECLI:EU:C:1998:569.
[62] CJEU, Servizio Elettrico Nazionale, supra note 55, para. 85.
[63] European Commission, supra note 11; UK Competition and Markets Authority, supra note 17, paras. 2.6, 4.3, and 4.7.
[64] See, e.g., European Commission, Case COMP D3/34493, DSD, para. 112 (2001) OJ L166/1; affirmed in GC, 24 May 2007, Case T-151/01, DerGru?nePunkt – Duales System DeutschlandGmbH v. European Commission, ECLI:EU:T:2007:154 and CJEU, 16 Jul. 2009, Case C-385/07 P, ECLI:EU:C:2009:456; European Commission, Case IV/31.043, Tetra Pak II, paras. 105–08, (1992) OJ L72/1; European Commission, Case IV/29.971, GEMA III, (1982) OJ L94/12; CJUE, 27 Mar. 1974, Case 127/73, Belgische Radio en Televisie e socie?te? belge des auteurs, compositeurs et e?diteurs v. SV SABAM and NV Fonior, ECLI:EU:C:1974:25, para. 15; European Commission, Case IV/26.760, GEMA II, (1972) OJ L166/22; European Commission, Case IV/26.760, GEMA I, (1971) OJ L134/15.
[65] See, e.g., Richard A. Posner, Intellectual Property: The Law and Economics Approach, 19 The Journal of Economic Perspectives 57 (2005).
[66] See, e.g., Richard Gilbert & Carl Shapiro, Optimal Patent Length and Breadth, 21 The RAND Journal of Economics 106 (1990); Pankaj Tandon, Optimal Patents with Compulsory Licensing, 90 Journal of Political Economy 470 (1982); Frederic M. Scherer, Nordhaus’ Theory of Optimal Patent Life: A Geometric Reinterpretation, 62 American Economic Review 422 (1972); William D. Nordhaus, Invention, Growth, and Welfare: A Theoretical Treatment of Technological Change, Cambridge, MIT Press (1969).
[67] See, e.g., Hal R. Varian, Copying and Copyright, 19 The Journal of Economic Perspectives 121 (2005); William R. Johnson, The Economics of Copying, 93 Journal of Political Economy 158 (1985); Stephen Breyer, The Uneasy Case for Copyright: A Study of Copyright in Books, Photocopies, and Computer Programs, 84 Harvard Law Review 281 (1970).
[68] Sai Krishna Kamepalli, Raghuram Rajan, & Luigi Zingales, Kill Zone, NBER Working Paper No. 27146 (2022), http://www.nber.org/papers/w27146; Massimo Motta & Sandro Shelegia, The “Kill Zone”: Copying, Acquisition and Start-Ups’ Direction of Innovation, Barcelona GSE Working Paper Series Working Paper No. 1253 (2021), https://bse.eu/research/working-papers/kill-zone-copying-acquisition-and-start-ups-direction-innovation; U.S. House of Representatives, Subcommittee on Antitrust, Commercial, and Administrative Law, supra note 8, 164; Stigler Committee for the Study of Digital Platforms, Market Structure and Antitrust Subcommittee (2019) 54, https://research.chicagobooth.edu/stigler/events/single-events/antitrust-competition-conference/digital-platforms-committee; contra, see Geoffrey A. Manne, Samuel Bowman, & Dirk Auer, Technology Mergers and the Market for Corporate Control, 86 Missouri Law Review 1047 (2022).
[69] See also Howard A. Shelanski, Information, Innovation, and Competition Policy for the Internet, 161 University of Pennsylvania Law Review 1663 (2013), 1999 (describing as “forced free riding” the situation occurring when a platform appropriates innovation by other firms that depend on the platform for access to consumers).
[70] See Feng Zhu & Qihong Liu, Competing with Complementors: An Empirical Look at Amazon.com, 39 Strategic Management Journal 2618 (2018).
[71] Andrei Hagiu, Tat-How Teh, and Julian Wright, Should Platforms Be Allowed to Sell on Their Own Marketplaces?, 53 RAND Journal of Economics 297 (2022), (the model assumes that there is a platform that can function as a seller and/or a marketplace, a fringe of small third-party sellers that all sell an identical product, and an innovative seller that has a better product in the same category as the fringe sellers and can invest more in making its product even better; further, the model allows the different channels (on-platform or direct) and the different sellers to offer different values to consumers; therefore, third-party sellers (including the innovative seller) can choose whether to participate on the platform’s marketplace, and whenever they do, can price discriminate between consumers that come to it through the marketplace and consumers that come to it through the direct channel).
[72] See Germa?n Gutie?rrez, The Welfare Consequences of Regulating Amazon (2022), available at http://germangutierrezg.com/Gutierrez2021_AMZ_welfare.pdf (building an equilibrium model where consumers choose products on the Amazon platform, while third-party sellers and Amazon endogenously set prices of products and platform fees).
[73] See Federico Etro, Product Selection in Online Marketplaces, 30 Journal of Economics & Management Strategy 614 (2021), (relying on a model where a marketplace such as Amazon provides a variety of products and can decide, for each product, whether to monetize sales by third-party sellers through a commission or become a seller on its platform, either by commercializing a private label version or by purchasing from a vendor and resell as a first party retailer; as acknowledged by the author, a limitation of the model is that it assumes that the marketplace can set the profit?maximizing commission on each product; if this is not the case, third-party sales would be imperfectly monetized, which would increase the relative profitability of entry).
[74] Patrick Andreoli-Versbach & Joshua Gans, Interplay Between Amazon Store and Logistics, SSRN (2023) https://ssrn.com/abstract=4568024.
[75] Simon Anderson & O?zlem Bedre-Defolie, Online Trade Platforms: Hosting, Selling, or Both?, 84 International Journal of Industrial Organization 102861 (2022).
[76] Chiara Farronato, Andrey Fradkin, & Alexander MacKay, Self-Preferencing at Amazon: Evidence From Search Rankings, NBER Working Paper No. 30894 (2023), http://www.nber.org/papers/w30894.
[77] See Erik Madsen & Nikhil Vellodi, Insider Imitation, SSRN (2023) https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3832712 (introducing a two-stage model where the platform publicly commits to an imitation policy and the entrepreneur observes this policy and chooses whether to innovate: if she chooses not to, the game ends and both players earn profits normalized to zero; otherwise, the entrepreneur pays a fixed innovation cost to develop the product, which she then sells on a marketplace owned by the platform).
[78] Federico Etro, The Economics of Amazon, SSRN (2022), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4307213.
[79] Jay Pil Choi, Kyungmin Kim, & Arijit Mukherjee, “Sherlocking” and Information Design by Hybrid Platforms, SSRN (2023), https://ssrn.com/abstract=4332558 (the model assumes that the platform chooses its referral fee at the beginning of the game and that the cost of entry is the same for both the seller and the platform).
[80] Radostina Shopova, Private Labels in Marketplaces, 89 International Journal of Industrial Organization 102949 (2023), (the model assumes that the market structure is given exogenously and that the quality of the seller’s product is also exogenous; therefore, the paper does not investigate how entry by a platform affects the innovation incentives of third-party sellers).
[81] Jean-Pierre Dube?, Amazon Private Brands: Self-Preferencing vs Traditional Retailing, SSRN (2022) https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4205988.
[82] Gregory S. Crawford, Matteo Courthoud, Regina Seibel, & Simon Zuzek, Amazon Entry on Amazon Marketplace, CEPR Discussion Paper No. 17531 (2022), https://cepr.org/publications/dp17531.
[83] Motta & Shelegia, supra note 68.
[84] Jingcun Cao, Avery Haviv, & Nan Li, The Spillover Effects of Copycat Apps and App Platform Governance, SSRN (2023), https://ssrn.com/abstract=4250292.
[85] Massimo Motta, Self-Preferencing and Foreclosure in Digital Markets: Theories of Harm for Abuse Cases, 90 International Journal of Industrial Organization 102974 (2023).
[86] Id.
[87] Id.
[88] See, e.g., Crawford, Courthoud, Seibel, & Zuzek, supra note 82; Etro, supra note 78; Shopova, supra note 80.
[89] Motta, supra note 85.
[90] Servizio Elettrico Nazionale, supra note 55, paras. 53-54; Post Danmark II, supra note 55, para. 65.
[91] Etro, supra note 78; see also Herbert Hovenkamp, The Looming Crisis in Antitrust Economics, 101 Boston University Law Review 489 (2021), 543, (arguing that: “Amazon’s practice of selling both its own products and those of rivals in close juxtaposition almost certainly benefits consumers by permitting close price comparisons. When Amazon introduces a product such as AmazonBasics AAA batteries in competition with Duracell, prices will go down. There is no evidence to suggest that the practice is so prone to abuse or so likely to harm consumers in other ways that it should be categorically condemned. Rather, it is an act of partial vertical integration similar to other practices that the antitrust laws have confronted and allowed in the past.”)
[92] On the more complex economic rationale of intellectual property, see, e.g., William M. Landes & Richard A. Posner, The Economic Structure of Intellectual Property Law, Cambridge, Harvard University Press (2003).
[93] See, e.g., Italian Competition Authority, 18 Jul. 2023 No. 30737, Case A538 – Sistemi di sigillatura multidiametro per cavi e tubi, (2023) Bulletin No. 31.
[94] See CJEU, 6 Apr. 1995, Joined Cases C-241/91 P and 242/91 P, RTE and ITP v. Commission, ECLI:EU:C:1995:98; 29 Apr. 2004, Case C-418/01, IMS Health GmbH & Co. OHG v. NDC Health GmbH & Co. GH, ECLI:EU:C:2004:257; General Court, 17 Sep. 2007, Case T-201/04, Microsoft v. Commission, ECLI:EU:T:2007:289; CJEU, 16 Jul. 2015, Case C-170/13, Huawei Technologies Co. Ltd v. ZTE Corp., ECLI:EU:C:2015:477.
[95] See, e.g., Dana Mattioli, How Amazon Wins: By Steamrolling Rivals and Partners, Wall Street Journal (2022), https://www.wsj.com/articles/amazon-competition-shopify-wayfair-allbirds-antitrust-11608235127; Aditya Kalra & Steve Stecklow, Amazon Copied Products and Rigged Search Results to Promote Its Own Brands, Documents Show, Reuters (2021), https://www.reuters.com/investigates/special-report/amazon-india-rigging.
[96] Williams-Sonoma, Inc. v. Amazon.Com, Inc., Case No. 18-cv-07548 (N.D. Cal., 2018). The suit was eventually dismissed, as the parties entered into a settlement agreement: Williams-Sonoma, Inc. v. Amazon.Com, Inc., Case No. 18-cv-07548-AGT (N.D. Cal., 2020).
[97] Amazon Best Sellers, https://www.amazon.com/Best-Sellers/zgbs.
[98] Hovenkamp, supra note 91, 2015-2016.
[99] Nicolas Petit, Big Tech and the Digital Economy, Oxford, Oxford University Press (2020), 224-225.
[100] For a recent analysis, see Zijun (June) Shi, Xiao Liu, Dokyun Lee, & Kannan Srinivasan, How Do Fast-Fashion Copycats Affect the Popularity of Premium Brands? Evidence from Social Media, 60 Journal of Marketing Research 1027 (2023).
[101] Lina M. Khan, Amazon’s Antitrust Paradox, 126 Yale Law Journal 710 (2017), 782.
[102] See Massimo Motta &Martin Peitz, Intervention Triggers and Underlying Theories of Harm, in Market Investigations. A New Competition Tool for Europe? (M. Motta, M. Peitz, & H. Schweitzer, eds.), Cambridge, Cambridge University Press (2022), 16, 59 (arguing that, while it is unclear to what extent products or ideas are worth protecting and/or can be protected from sherlocking and whether such cloning is really harmful to consumers, this is clearly an area where an antitrust investigation for abuse of dominant position would not help).
[103] Khan, supra note 101, 780 and 783 (arguing that Amazon’s conflicts of interest tarnish the neutrality of the competitive process and that the competitive implications are clear, as Amazon is exploiting the fact that some of its customers are also its rivals).
[104] Servizio Elettrico Nazionale, supra note 55, para. 85.
[105] Post Danmark I, supra note 55, para. 22.
[106] Iba?n?ez Colomo, supra note 55, 21-22.
[107] Id.
[108] See, e.g., DMA, supra note 4, Recital 5 (complaining that the scope of antitrust provisions is “limited to certain instances of market power, for example dominance on specific markets and of anti-competitive behaviour, and enforcement occurs ex post and requires an extensive investigation of often very complex facts on a case by case basis.”).
[109] U.S. Federal Trade Commission, et al. v. Amazon.com, Inc., supra note 23.
[110] Khan, supra note 101.
[111] Khan, supra note 22, 1003, referring to Amazon, Google, and Meta.
Popular Media Mexico’s Federal Economic Competition Commission (COFECE, after its Spanish acronym) has published the preliminary report it prepared following its investigation of competition in the retail . . .
Mexico’s Federal Economic Competition Commission (COFECE, after its Spanish acronym) has published the preliminary report it prepared following its investigation of competition in the retail electronic-commerce market (e.g., Amazon). The report finds that:
Read the full piece here.
TL;DR tl;dr Background: In the U.S. Justice Department’s (DOJ) recent suit against Google and the Federal Trade Commission’s (FTC) latest complaint against Amazon, both antitrust agencies . . .
Background: In the U.S. Justice Department’s (DOJ) recent suit against Google and the Federal Trade Commission’s (FTC) latest complaint against Amazon, both antitrust agencies allege these large technology firms behave anti-competitively by preventing their rivals from reaching the “scale” needed to compete effectively.
But… achieving scale or a large customer base does not, in itself, violate antitrust law. Private companies also owe no duty to allow their competitors to reach scale. For example, Google is not required to allow Bing to gain more users so that Bing’s quality can improve. Google and Amazon’s competition for users at the expense of competitors is central to the competitive process. To make an effective antitrust case, the agencies must delineate how Amazon and Google allegedly abuse their size in ways that harm competition and consumers.
Antitrust regulators often cite “scale” in recent complaints against large tech companies. Instead of throwing that particular term around loosely, the enforcement agencies should detail precisely how firms allegedly abuse scale to harm rivals.
Does scale unfairly raise barriers to entry? Does it impose costs on competitors? In both of the cases cited above, the alleged harm is the direct costs imposed on competitors, not the firm’s scale. After all, scale can be just another way of describing the firm that produces the highest-quality product at the lowest price. Without greater clarity, enforcement agencies would be unable to substantiate antitrust claims centered on “scale.”
To prevail in court, the agencies must articulate precise mechanisms of competitive injury from scale. Broad assertions about nebulous “scale advantages” are unlikely to demonstrate concrete anticompetitive effects.
It has long been recognized that simply “achieving scale” and becoming a large firm with significant market share or production capacity does not constitute an antitrust violation. No law prohibits a company from growing large through legal competitive means. The agencies know this. The FTC argues that its complaint against Amazon is “not for being big.”
While scale can potentially be abused, it also confers significant consumer advantages. Basic economic principles demonstrate the benefits of size or scale, which may allow larger firms to reduce average costs and become more efficient. These cost savings can then be passed on to consumers through lower prices. Larger firms may also be able to make more substantial investments in innovation and product development. And network effects in technology platforms show how scale can improve service quality by attracting more users.
Scale only becomes an issue if it is leveraged to restrain trade unfairly or in ways that harm consumers. The restraint is the harm, not the scale.
Preventing a competitor from achieving greater size and scale is not inherently an antitrust violation either. Companies routinely take business from one another through price competition, product improvements, or other means that may limit rivals’ growth. This is a normal part of market competition.
For example, if Amazon achieves sufficient scale that allows it to offer better prices or selection than smaller e-commerce websites, that may necessarily limit those competitors’ scale. But this does not constitute an antitrust harm; it is, instead, simply vigorous competition. An antitrust violation requires the firm to take specific actions to restrain trade or artificially raise rivals’ costs. Similar arguments hold for the DOJ’s case against Google over the company paying to be the default search engine on various mobile devices.
Unless the agencies can demonstrate precisely how a company has abused its position to undermine rivals’ scale unfairly—rather than winning business through competition on the merits—their complaints will struggle to establish antitrust liability.
Regulators often assume that large scale enables anticompetitive behavior to harm smaller rivals. Economic analysis, however, demonstrates that scale can benefit consumers and simultaneously increase concentration through competition.
Firms that achieve significant scale can leverage resulting efficiencies to reduce costs and prices. Scale enables investments in R&D, specialized assets, advertising, and other drivers of innovation and productive efficiency. By passing cost savings on to consumers, scaled firms often gain share at the expense of higher-cost producers.
As search and switching costs fall, consumers flock to the lowest-cost and highest-quality offerings. Competition redirects purchases toward scaled companies with superior productivity and lower prices stemming from economies of scale. This reallocates market share to efficient large firms, raising concentration.
Greater competition and the competitive advantages of scale are thus entirely consistent with increased concentration. Size alone does not imply anticompetitive behavior. Regulators should evaluate specific evidence of abuse, rather than assume that scale harms competition simply because it leads to concentration.
For more on this issue, see Brian Albrecht’s posts “Is Amazon’s Scale a Harm?” and “Competition Increases Concentration,” both at Truth on the Market.
TOTM This is the second post about the U.S. drug-approval process; the first post is here. It will explore how the Food and Drug Administration (FDA) arose, . . .
This is the second post about the U.S. drug-approval process; the first post is here. It will explore how the Food and Drug Administration (FDA) arose, how disasters drove its expansion and regulatory oversight, and how the epidemic of the human immunodeficiency virus (HIV) changed the approval processes.
TOTM The European Commission late last month published the full list of its “gatekeeper” designations under the Digital Markets Act (DMA). Alphabet, Amazon, Apple, ByteDance, Meta, and Microsoft—the six . . .
The European Commission late last month published the full list of its “gatekeeper” designations under the Digital Markets Act (DMA). Alphabet, Amazon, Apple, ByteDance, Meta, and Microsoft—the six designated gatekeepers—now have six months to comply with the DMA’s list of obligations and restrictions with respect to their core platform services (CPS), or they stand to face hefty fines and onerous remedies (see here and here for our initial reactions).
TOTM Under the leadership of its professional anti-Amazoner Chair Lina Khan, the Federal Trade Commission (FTC) has finally filed its antitrust complaint against Amazon. No, not . . .
Under the leadership of its professional anti-Amazoner Chair Lina Khan, the Federal Trade Commission (FTC) has finally filed its antitrust complaint against Amazon. No, not the complaint about how it’s unfair to take six clicks to cancel your Prime membership. This is the big one. It mostly revolves around sellers needing to use Amazon’s fulfillment services to be part of Amazon Prime and lowering reach rankings if products are priced lower on other sites.
Instead of covering the arguments in the complaint, I want to use the complaint as an example of how I use the basics of supply and demand to sort through one of the arguments made by the FTC. Nothing about the use of price theory implies certain policy conclusions about the case. I’m just trying to be transparent, as I’ve done in the past, about how I use economics to reason about these important questions. Besides self-indulgence, the hope is that the examples help readers do the same.
TOTM Why do monopolies exist? Many textbooks point to barriers to entry as a cause of monopolies. Tyler Cowen and Alex Tabarrok’s textbook says: “In addition to patents, . . .
Why do monopolies exist? Many textbooks point to barriers to entry as a cause of monopolies.
Tyler Cowen and Alex Tabarrok’s textbook says: “In addition to patents, government regulation and economies of scale, monopolies may be created whenever there is a significant barrier to entry, something that raises the cost to new firms of entering the industry.” Greg Mankiw’s textbook goes as far as to say: “The fundamental cause of monopoly is barriers to entry.”
Regulatory Comments I. Introduction: How Do You Solve a Problem Like ‘AI’? On behalf of the International Center for Law & Economics (ICLE), we thank the National . . .
On behalf of the International Center for Law & Economics (ICLE), we thank the National Telecommunications and Information Administration (NTIA) for the opportunity to respond to this AI Accountability Policy Request for Comment (RFC).
A significant challenge that emerges in discussions concerning accountability and regulation for artificial intelligence is the broad and often ambiguous definition of “AI” itself. This is demonstrated in the RFC’s framing:
This Request for Comment uses the terms AI, algorithmic, and automated decision systems without specifying any particular technical tool or process. It incorporates NIST’s definition of an ‘‘AI system,’’ as ‘‘an engineered or machine-based system that can, for a given set of objectives, generate outputs such as predictions, recommendations, or decisions influencing real or virtual environments.’’ This Request’s scope and use of the term ‘‘AI’’ also encompasses the broader set of technologies covered by the Blueprint: ‘‘automated systems’’ with ‘‘the potential to meaningfully impact the American public’s rights, opportunities, or access to critical resources or services.’’[1]
As stated, the RFC’s scope could be read to cover virtually all software.[2] But it is essential to acknowledge that, for the purposes of considering potential regulation, we lack a definition of AI that is either sufficiently broad as to cover all or even most areas of concern, and sufficiently focused as to be a useful lens for analysis. That is to say, what we think of as AI encompasses a significant diversity of discrete technologies that will be put to a huge number of potential uses.
One useful recent comparison is with the approach the Obama administration took in its deliberations over nanotechnology regulation in 2011.[3] Following years of consultation and debate, the administration opted for a parsimonious, context-specific approach precisely because “nanotechnology” is not really a single technology. In that proceeding, the administration ultimately recognized that it was not the general category of “nanotechnology” that was relevant, nor the fact that nanotechnologies are those that operate at very small scales, but rather the means by and degree to which certain tools grouped under the broad heading of “nanotechnology” could “alter the risks and benefits of a specific application.”[4] This calls to mind Judge Frank Easterbrook’s famous admonition that a “law of cyberspace” would be no more useful than a dedicated “law of the horse.”[5] Indeed, we believe Easterbrook’s observation applies equally to the creation of a circumscribed “law of AI.”
While there is nothing inherently wrong with creating a broad regulatory framework to address a collection of loosely related subjects, there is a danger that the very breadth of such a framework might over time serve to foreclose more fruitful and well-fitted forms of regulation.
A second concern in the matter immediately at hand is, as mentioned above, the potential for AI regulation to be formulated so broadly as to encompass essentially all software. Whether by design or accident, this latter case runs a number of risks. First, since the scope of the regulation will potentially cover a much broader subject, the narrow discussion of “AI” will miss many important aspects of broader software regulation, and will, as a consequence, create an ill-fitted legal regime. Second, by sweeping in a far wider range of tools into such a regulation than the drafters publicly acknowledge, the democratic legitimacy of the process is undermined.
The current hype surrounding AI has been driven by popular excitement, as well as incentives for media to capitalize on that excitement. While this is understandable, it arguably has led to oversimplification in public discussions about the underlying technologies. In reality, AI is an umbrella term that encompasses a diverse range of technologies, each with its own unique characteristics and applications.
For instance, relatively lower-level technologies like large language models (LLMs)[6] differ significantly from diffusion techniques.[7] At the level of applications, recommender systems can employ a wide variety of different machine-learning (or even more basic statistical) techniques.[8] All of these techniques collectively called “AI” also differ from the wide variety of algorithms employed by search engines, social media, consumer software, video games, streaming services, and so forth, although each also contains software “smarts,” so to speak, that could theoretically be grouped under the large umbrella of “AI.”
And none of the foregoing bear much resemblance at all to what the popular imagination conjures when we speak of AI—that is, artificial general intelligence (AGI), which some experts argue may not even be achievable.[9]
Attempting to create a single AI regulatory scheme commits what we refer to as “regulatory overaggregation”—sweeping together a disparate set of more-or-less related potential regulatory subjects under a single category in a manner that overfocuses on the abstract term and obscures differences among the subjects. The domains of “privacy rights” and “privacy regulation” are illustrative of the dangers inherent in this approach. There are, indeed, many potential harms (both online and offline) that implicate the concept of “privacy,” but the differences among these recommend examining closely the various contexts that attend each.
Individuals often invoke their expectation of “privacy,” for example, in contexts where they want to avoid the public revelation of personal or financial information. This sometimes manifests as the assertion of a right to control data as a form of quasi-property, or as a form of a right to anti-publicity (that is, a right not to be embarrassed publicly). Indeed, writing in 1890 with his law partner Samuel D. Warren, future Supreme Court Justice Louis Brandeis posited a “right to privacy” as akin to a property right.[10] Warren & Brandeis argued that privacy is not merely a matter of seclusion, but extends to the individual’s control over their personal information.[11] This “right to be let alone” delineates a boundary against unwarranted intrusion, which can be seen as a form of intangible property right.[12]
This framing can be useful as an abstract description of a broad class of interests and concerns, but it fails to offer sufficient specificity to describe actionable areas of law. Brandeis & Warren were concerned primarily with publicity;[13] that is, with a property right to control one’s public identity as a public figure. This, in turn, implicates a wide range of concerns, from an individual’s interest in commercialization of their public image to their options for mitigating defamation, as well as technologies that range from photography to website logging to GPS positioning.
But there are clearly other significant public concerns that fall broadly under the heading of “privacy” that cannot be adequately captured by the notion of controlling a property right “to be let alone.” Consider, for example, the emerging issue of “revenge porn.” It is certainly a privacy harm in the Brandeisian sense that it implicates the property right not to have one’s private images distributed without consent. But that framing fails to capture the full extent of potential harms, such as emotional distress and reputational damage.[14] Similarly, cases in which an individual’s cellphone location data are sold to bounty hunters are not primarily about whether a property right has been violated, as they raise broader issues concerning potential abuses of power, stalking, and even physical safety.[15]
These examples highlight some of the ways that, in failing to take account of the distinct facts and contexts that can attend privacy harms, an overaggregated “law of privacy” may tend to produce regulations insufficiently tailored to address those diverse harms.
By contrast, the domain of intellectual property (IP) may serve as an instructive counterpoint to the overaggregated nature of privacy regulation. IP encompasses a vast array of distinct legal constructs, including copyright, patents, trade secrets, trademarks, and moral rights, among others. But in the United States—and indeed, in most jurisdictions around the world—there is no overarching “law of intellectual property” that gathers all of these distinct concerns under a singular regulatory umbrella. Instead, legislation is specific to each area, resulting in copyright-specific acts, patent-specific acts, and so forth. This approach acknowledges that, within IP law, each IP construct invokes unique rights, harms, and remedies that warrant a tailored legislative focus.
The similarity of some of these areas does lend itself to conceptual borrowing, which has tended to enrich the legislative landscape. For example, U.S. copyright law has imported doctrines from patent law.[16] Despite such cross-pollination, copyright law and patent law remain distinct. In this way, intellectual property demonstrates the advantages of focusing on specific harms and remedies. This could serve as a valuable model for AI, where the harms and remedies are equally diverse and context dependent.
If AI regulations are too broad, they may inadvertently encompass any algorithm used in commercially available software, effectively stifling innovation and hindering technological advancements. This is no less true of good-faith efforts to craft laws in any number of domains that nonetheless suffer from a host of unintended consequences.[17]
At the same time, for a regulatory regime covering such a broad array of varying technologies to be intelligible, it is likely inevitable that tradeoffs made to achieve administrative efficiency will cause at least some real harms to be missed. Indeed, NTIA acknowledges this in the RFC:
Commentators have raised concerns about the validity of certain accountability measures. Some audits and assessments, for example, may be scoped too narrowly, creating a ‘‘false sense’’ of assurance. Given this risk, it is imperative that those performing AI accountability tasks are sufficiently qualified to provide credible evidence that systems are trustworthy.[18]
To avoid these unintended consequences, it is crucial to develop a more precise understanding of AI and its various subdomains, and to focus any regulatory efforts toward addressing specific harms that would not otherwise be captured by existing laws. The RFC declares that its aim is “to provide assurance—that AI systems are legal, effective, ethical, safe, and otherwise trustworthy.”[19] As we discuss below, rather than promulgate a set of recommendations about the use of AI, NTIA should focus on cataloguing AI technologies and creating useful taxonomies that regulators and courts can use when they identify tangible harms.
The RFC states that:
The most useful audits and assessments of these systems, therefore, should extend beyond the technical to broader questions about governance and purpose. These might include whether the people affected by AI systems are meaningfully consulted in their design and whether the choice to use the technology in the first place was well-considered.[20]
It is unlikely that consulting all of the people potentially affected by a set of technological tools could fruitfully contribute to the design of any regulatory system other than one that simply bans those tools.[21] Any intelligible accountability framework must be dedicated to evaluating the technology’s real-world impacts, rather than positing thought experiments about speculative harms. Where tangible harms can be identified, such evaluations should encompass existing laws that focus on those harms and how various AI technologies might alter how existing law would apply. Only in cases where the impact of particular AI technologies represents a new kind of harm, or raises concerns that fall outside existing legal regimes, should new regulatory controls be contemplated.
AI technologies will have diverse applications and consequences, with the potential for both beneficial and harmful outcomes. Rather than focus on how to constrain either AI developers or the technology itself, the focus should be on how best to mitigate or eliminate any potential negative consequences to individuals or society.
NTIA asks:
AI accountability measures have been proposed in connection with many different goals, including those listed below. To what extent are there tradeoffs among these goals?[22]
This question acknowledges that, fundamentally, AI accountability comes down to cost-benefit analysis. In conducting such analysis, we urge that the NTIA and any other agencies be sure to account not only for potential harms, but to take very seriously the massive benefits these technologies might provide.
To illustrate the challenges inherent to tailoring regulation of a new technology like AI to address the ways that it might generally create harm, it could be useful to analogize to a different existing technology: photography. If camera technology were brand new, we might imagine a vast array of harms that could arise from its use. But it should be obvious that creating an overarching accountability framework for all camera technology is absurd. Instead, laws of general applicability should address harmful uses of cameras, such as the invasion of privacy rights posed by surreptitious filming. Even where a camera is used in the commission of a crime—e.g., surveilling a location in preparation to commit a burglary—it is not typically the technology itself that is the subject of legal concern; rather, it is the acts of surveillance and burglary.
Even where we can identify a tangible harm that a new technology facilitates, the analysis is not complete. Instead, we need to balance the likelihood of harmful uses of that technology with the likelihood of nonharmful (or beneficial) uses of that technology. Copyright law provides an apt example.
Sony,[23] often referred to as the “Betamax case,” was a landmark U.S. Supreme Court case in 1984 that centered on Sony’s Betamax VCR—the first consumer device that could record television shows for later viewing, a concept now referred to as time-shifting.[24] Plaintiffs alleged that, by manufacturing and selling the Betamax VCRs, Sony was secondarily liable for copyright infringement carried out by its customers when they recorded television shows.[25] In a 5-4 decision, the Supreme Court ruled in favor of Sony, holding that the use of the Betamax VCR to record television shows for later personal viewing constituted “fair use” under U.S. copyright law.[26]
Critical for our purposes here was that the Court found that Sony could not be held liable for contributory infringement because the Betamax VCR was capable of “substantial noninfringing uses.”[27] This is to say that, faced with a new technology (recording relatively high-quality copies of television shows and movies at home), the Court recognized that, while the Betamax might facilitate some infringement, it would be inappropriate to apply a presumption against its use.
Sony and related holdings did not declare that using VCRs to infringe copyright was acceptable. Indeed, copyright enforcement for illegal reproduction has continued apace, even when using new technologies capable of noninfringing uses.[28] At the same time, the government did not create a new regulatory and licensing regime to govern the technology, despite the fact that it was a known vector for some illicit activity.
Note, the Sony case is also important for its fair-use analysis, and is widely cited for the proposition that so-called “time shifting” is permissible. That is not central to our point here, particularly as there is no analogue to fair use proposed in the AI context. But even here, it represents how the law adapts to develop doctrines that excuse conduct that would otherwise be a violation. In the case of copyright, unauthorized reproduction is infringement, period.[29] Fair use is raised as an affirmative defense[30] to excuse some unauthorized reproduction because courts have long recognized that, when viewed case-by-case, application of legal rules need to be tailored to make room for unexpected fact patterns where acts that would otherwise be considered violations yield some larger social benefit.
We are not suggesting the development of a fair-use doctrine for AI, but are instead insisting that AI accountability and regulation must be consistent with the case-by-case approach that has characterized the common law for centuries. Toward that end, it would be best for law relevant to AI to emerge through that same bottom-up, case-by-case process. To the extent that any new legislation is passed, it should be incremental and principles-based, thereby permitting the emergence of law that best fits particular circumstances and does not conflict with other principles of common law.
By contrast, there are instances where the law has recognized that certain technologies are more likely to be used for criminal purposes and should be strictly regulated. For example, many jurisdictions have made possession of certain kinds of weapons—e.g., nunchaku, shuriken “throwing stars,” and switchblade knives—per se illegal, despite possible legal uses (such as martial-arts training).[31] Similarly, although there is a strong Second Amendment protection for firearms in the United States, it is illegal for a felon to possess a firearm.[32] The reason these prohibitions developed is because it was deemed that possession of these devices in most contexts had no other possible use than the violation of the law. But these sorts of technologies are the exception, not the rule. Many chemicals that can be easily used as poisons are nonetheless available as, e.g., cleaning agents or fertilizers.
Nonetheless, some advocate regulating AI by placing new technologies into various broad categories of risk, each with their own attendant rules. For example, as proposed by the European Commission, the EU’s AI Act would regulate the use of AI systems that ostensibly pose risks to health, safety, and fundamental rights.[33] The proposal defines AI systems broadly to include essentially any software, and sorts them into three risk levels: unacceptable, high, and limited risk.[34] Unacceptable-risk systems are prohibited outright, while high-risk systems are subject to strict requirements, including mandatory conformity assessments.[35] Limited-risk systems face certain requirements related to adequate documentation and transparency.[36]
The AI Act defines AI so broadly that it would apply even to ordinary general-purpose software, as well as software that uses machine learning but does not pose significant risks.[37] The plain terms of the AI Act could be read to encompass common office applications, spam filters, and recommendation engines, thus potentially imposing considerable compliance burdens on businesses for their use of software that provides benefits dramatically greater than any expected costs.[38] A recently proposed amendment would “ban the use of facial recognition in public spaces, predictive policing tools, and to impose transparency measures on generative AI applications OpenAI’s ChatGPT.”[39]
This approach constitutes a hodge-podge of top-down tech policing and one-off regulations. The AI Act starts with the presumption that regulators can design an abstract, high-level set of categories that capture the risk from “AI” and then proceeds to force arbitrary definitions of particular “AI” implementations into those categories. This approach may get some things right and some things wrong, but none of what good it does will be with principled consistency. For example, it might be the case that “predictive policing” is a problem that merits per se prohibition, but is it really an AI problem? What happens if the police get exceptionally good at using publicly available data and spreadsheets to approximate 80% of what they are able to do with AI? Or even just 50% efficacy? Is it the use of AI that is a harm, or is it the practice itself?
Similarly, a requirement that firms expose the sources on which they train their algorithms might be good in some contexts, but useless or harmful in others.[40] Certainly, it can make sense when thinking about current publicly available generative tools that create images and video, and have no ability to point to a license or permission for their training data. Such cases have a high likelihood of copyright infringement. But should every firm be expected to do this? Surely there will be many cases where firms use their own internal data, or data not subject to property-rights protection at all, but where exposing those sources reveals sensitive internal information, like know-how or other trade secrets. In those cases, a transparency obligation could have a chilling effect.
By contrast, it seems hard to believe that every use of public facial recognition should be banned. For instance, what if local authorities had limited access to facial recognition to find lost children or victims of trafficking?
More broadly, a strict transparency requirement could essentially make advanced machine-learning techniques illegal. By their nature, machine-learning systems and applications that employ LLMs make inferences and predictions that are, very often, not replicable.[41] That is, by their very nature they are not reviewable in a way that would be easily explained to a human in a transparency review. This means that strong transparency obligations could make it legally untenable to employ those techniques.
The broad risk-based approach taken by the AI Act faces difficult enforcement hurdles as well, as demonstrated by the EU’s proposal to essentially ban the open-source community from providing access to generative models.[42] In other words, not only do the proposed amendments seek to prohibit large companies such as OpenAI, Google, Anthropic, Amazon, Microsoft, and IBM from offering API access to generative AI models, but they would also prohibit open-source developers and distributors such as GitHub from doing the same.[43] Moreover, the prohibitions have extraterritorial effects; for example, the EU might seek to impose large fines on U.S. companies for permitting access to their models in the United States, on grounds that those models could be imported into the EU by third parties.[44] These provisions reflect not only an attempt to control the distribution of AI technology but also the wider implications that such attempts would essentially require steering worldwide innovation down a narrow, heavily regulated path.
None of the foregoing is to suggest that it is impossible for AI to be misused. Where it is misused, there should be actionable legal consequences. For example, if a real-estate developer intentionally used AI tools to screen out individuals on the basis of protected characteristics from purchasing homes, that should be actionable. If a criminal found a novel way to use Chat GPT to commit fraud, that should be actionable. If generative AI is used to create “deep fakes” that further some criminal plot, that should be actionable. But in all those cases, it is not the AI itself that is the relevant unit of legal analysis, but the action of the criminal and the harm he causes.
To try to build a regulatory framework that makes it impossible for bad actors to misuse AI will be ultimately fruitless. Bad actors will always find ways to misuse tools, and heavy-handed regulatory requirements (or even strong suggestions of such) might chill the development of useful tools that could generate an enormous amount of social welfare.
A major complication in parsing the wisdom of potential AI regulation is that the technology remains largely in development. Indeed, this is the impetus for many of the calls to “do something” before it is “too late.”[45] The fear that some express is that, unless a wise regulator intervenes in the development process, the technology will inevitably develop in ways that yield more harm than good.[46]
But trying to regulate AI in accordance with the precautionary principle would almost certainly stifle development and dampen the tremendous, but unknowable, good that would emerge as these technologies mature and we find unique uses for them. Moreover, precautionary regulation, even in high-risk industries like nuclear power, can lead to net harms to social welfare.[47]
It is important here to distinguish two broad categories of concern about AI. First, there is the generalized concern about AGI, expressed as fear that we are inadvertently creating a super intelligence with the power to snuff out human life at its whim. We reject this fear as a legitimate basis for new regulatory frameworks, although we concede that it is theoretically possible that this presumption may need to be revisited as AI technologies progress. None of the technologies currently under consideration are anywhere close to AGI. They are essentially just advanced prediction engines, whether the predictions concern text or pixels.[48] It seems highly unlikely that we will accidentally stumble onto AGI by plugging a few thousand prediction engines into one another.
There are more realistic concerns that these very impressive technologies will be misused to further discrimination and crime, or will have such a disruptive impact on areas like employment that they will quickly generate tremendous harms. When contemplating harms that could occur, however, it is also necessary to recognize that many significant benefits could also be generated. Moreover, as with earlier technologies, economic disruptions will provide both challenges and opportunities. It is easy to see the immediate effect on the jobs of content writers, for instance, posed by ChatGPT, but less easy to measure the benefits that will be realized by firms that can deploy this technology to “in-source” tasks.
Firms often face what is called the “make-or-buy” decision. A firm that decides to purchase the services of an outside designer or copywriter has determined that doing so is more efficient than developing that talent in-house. But the fact that many firms employ a particular mix of outsourced and in-house talent to fulfill their business needs does not suggest a universally optimal solution to the make-or-buy problem. All we can do is describe how, under current conditions, firms solve this problem.
AI will surely augment the basis on which firms deal with the make-or-buy decision. Pre-AI, it might have made sense to outsource a good deal of work that was not core to a firm’s mission. Post-AI, it might be the case that the firm can afford to hire additional workers who can utilize AI tools to more quickly and affordably manage the work that had been previously outsourced. Thus, the ability of AI tools to shift the make-or-buy decision, in itself, says nothing about the net welfare effects to society. Arguments could very well be made for either side. If history is any guide, however, it appears likely that AI tools will allow firms to do more with less, while also enabling more individuals to start new businesses with less upfront expense.
Moreover, by freeing capital from easily automated tasks, existing firms and new entrepreneurs could better focus on their core business missions. Excess investments previously made in supporting, for example, the creation of marketing content could be repurposed into R&D-intensive work. Simplistic static analyses of the substitution power of AI tools will almost surely mislead us, and make us neglect the larger social welfare that could be gained from organizations improving their efficiency with AI tools.
Economists have consistently found that dynamic competition—characterized by firms vying to deliver novel and enhanced products and services to consumers—contributes significantly more to economic growth than static competition, where technology is held constant, and firms essentially compete solely on price. As Joseph Schumpeter noted:
[I]t is not [price] competition which counts but the competition from the new commodity, the new technology, the new source of supply, the new type of organization…. This kind of competition is as much more effective than the other as a bombardment is in comparison with forcing a door, and so much more important that it becomes a matter of comparative indifference whether competition in the ordinary sense functions more or less promptly; the powerful lever that in the long run expands output and brings down prices is in any case made of other stuff.[49]
Technological advancements yield substantial welfare benefits for consumers, and there is a comprehensive body of scholarly work substantiating the contributions of technological innovation to economic growth and societal welfare. [50] There is also compelling evidence that technological progress engenders extensive spillovers not fully appropriated by the innovators.[51] Business-model innovations—such as advancements in organization, production, marketing, or distribution—can similarly result in extensive welfare gains.[52]
AI tools obviously are delivering a new kind of technological capability for firms and individuals. The disruptions they will bring will similarly spur business-model innovation as firms scramble to find innovative ways to capitalize on the technology. The potential economic dislocations can, in many cases, amount to reconstitution: a person who was a freelance content writer can be shifted to a different position that manages the output of generative AI and provides human edits to ensure that content makes sense and is based in fact. In many other cases, the dislocations will likely lead to increased opportunities for workers of all sorts.
With this in mind, policymakers need to consider how to identify those laws and regulations that are most likely to foster this innovation, while also enabling courts and regulators to adequately deal with potential harms. Although it is difficult to prescribe particular policies to boost innovation, there is strong evidence about what sorts of policies should be avoided. Most importantly, regulation of AI should avoid inadvertently destroying those technologies.[53] As Adam Thierer has argued, “if public policy is guided at every turn by the fear of hypothetical worst-case scenarios and the precautionary mindset, then innovation becomes less likely.”[54]
Thus, policymakers must be cautious to avoid unduly restricting the range of AI tools that compete for consumer acceptance. Key to fostering investment and innovation is not merely the endorsement of technological advancement, but advocacy for policies that empower innovators to execute and commercialize their technology.
By contrast, consider again the way that some EU lawmakers want to treat “high risk” algorithms under the AI Act. According to recently proposed amendments, if a “high risk” algorithm learns something beyond what its developers expect it to learn, the algorithm would need to undergo a conformity assessment.[55]
One of the prime strengths of AI tools is their capacity for unexpected discoveries, offering potential insights and solutions that might not have been anticipated by human developers. As the Royal Society has observed:
Machine learning is a branch of AI that enables computer systems to perform specific tasks intelligently. Traditional approaches to programming rely on hardcoded rules, which set out how to solve a problem, step-by-step. In contrast, machine learning systems are set a task, and given a large amount of data to use as examples (and non-examples) of how this task can be achieved, or from which to detect patterns. The system then learns how best to achieve the desired output.[56]
By labeling unexpected behavior as inherently risky and necessitating regulatory review, we risk stifling this serendipitous aspect of AI technologies, potentially curtailing their capacity for innovation. It could contribute to a climate of regulatory caution that hampers swift progress in discovering the full potential and utility of AI tools.
In a recent hearing of the U.S. Senate Judiciary Committee, OpenAI CEO Sam Altman suggested that the United States needs a central “AI regulator.”[57] As a general matter, we expect this would be unnecessarily duplicative. As we have repeatedly emphasized, the right approach to regulating AI is not the establishment of an overarching regulatory framework, but a careful examination of how AI technologies will variously interact with different parts of the existing legal system. We are not alone in this; former Special Assistant to the President for Technology and Competition Policy Tim Wu recently opined that federal agencies would be well-advised to rely on existing law and enhance that law where necessary in order to catch unexpected situations that may arise from the use of AI tools.[58]
As Judge Easterbrook famously wrote in the context of what was then called “cyberspace,” we do not need a special law for AI any more than we need a “law of the horse.”[59]
More broadly, there are risks to competition that attend creating a centralized regulator for a new technology like AI. As an established player in the AI market, OpenAI might favor a strong central regulator because of the potential that such an agency could act in ways that hinder the viability of new entrants.[60] In short, an incumbent often can gain by raising its rivals’ regulatory costs, or by manipulating the relationship between its industry’s average and marginal costs. This dynamic can create strong strategic incentives for industry incumbents to promote regulation.
Economists and courts have long studied actions that generate or amplify market dominance by placing competitors at a disadvantage, especially by raising rivals’ costs.[61] There exist numerous strategies to put competitors at a disadvantage or push them out of the market without needing to compete on price. While antitrust action focuses on private actors and their ability to raises rival’s costs, it is well-accepted that “lobbying legislatures or regulatory agencies to create regulations that disadvantage rivals” has similar effects.[62]
Suppose a new regulation costs $1 million in annual compliance costs. Only companies that are sufficiently large and profitable will be able to cover those costs, which keeps out newcomers and smaller competitors. This effect of keeping out smaller competitors by raising their costs may more than offset the regulatory burden on the incumbent. New entrants typically produce on a smaller scale, and therefore find it more difficult to spread increased costs over a large number of units. This makes it harder for them to compete with established firms like OpenAI, which can absorb these costs more easily due to their larger scale of production.
This type of cost increase can often look benign. In the United Mine Workers vs. Pennington[63] case, a coal corporation was alleged to have conspired with the union representing its workforce to establish higher wage rates. How could higher wages be anticompetitive? This seemingly contradictory conclusion came from University of California at Berkeley economist Oliver Williamson, who interpreted the action to be an effort to maximize profits by raising entry barriers.[64] Using a model with a dominant incumbent and a fringe of other competitors, he demonstrated that wage-rate increases could lead to profit maximization if they escalated the fringe’s costs more than they did the dominant firm’s costs. Intuitively, while the dominant firm is dominant, the market price is determined by the marginal producers and the dominant company’s price is determined by the prices of its competitors. If a regulation raises the competitors’ per-unit costs by $2, the dominant company will be able to raise its price by as much as $2 per unit. Even if the regulation hurts the dominant firm, so long as its price increase exceeds its additional cost, the dominant firm can profit from the regulation.
As a result, while regulations might increase costs for OpenAI, they also serve to protect it from potential competition by raising the barriers to entry. In this sense, regulation can be seen as a strategic tool for incumbent firms to maintain or strengthen their market position. None of this analysis rests on OpenAI explicitly wanting to raise its rivals’ costs. That is just the competitive implication of such regulations. Thus, while there may be many benign reasons for a firm like OpenAI to call for regulation in good faith, the ultimate lesson presented by the economics of regulation should counsel caution when imposing strong centralized regulations on a nascent industry.
Are there ways in which accountability mechanisms are unlikely to further, and might even frustrate, the development of trustworthy AI? Are there accountability mechanisms that unduly impact AI innovation and the competitiveness of U.S. developers?[65]
We are not alone in the belief that imposing a licensing regime would present just such a barrier to innovation.[66] In the recent Senate hearings, the idea of a central regulator was endorsed as means to create and administer a licensing regime.[67] Perhaps in some narrow applications of particular AI technologies, there could be specific contexts in which licensing is appropriate (e.g., in providing military weapons), but broadly speaking, we believe this is inadvisable. Owing to the highly diverse nature of AI technologies, trying to license AI development is a fraught exercise, as NTIA itself acknowledges:
A developer training an AI tool on a customer’s data may not be able to tell how that data was collected or organized, making it difficult for the developer to assure the AI system. Alternatively, the customer may use the tool in ways the developer did not foresee or intend, creating risks for the developer wanting to manage downstream use of the tool. When responsibility along this chain of AI system development and deployment is fractured, auditors must decide whose data and which relevant models to analyze, whose decisions to examine, how nested actions fit together, and what is within the audit’s frame.[68]
Rather than design a single regulation to cover AI, ostensibly administered through a single licensing regime, NTIA should acknowledge the broad set of industries currently seeking to employ a diverse range of AI products that differ in fundamental ways. The implications of AI deployment in health care, for instance, vastly differ from those in transportation. A centralized AI regulator might struggle to comprehend the nuances and intricacies of each distinct industry, thus potentially leading to ineffective or inappropriate licensing requirements.
Analogies have been drawn between AI and sectors like railroads and nuclear power, which have dedicated regulators.[69] These sectors, however, are more homogenous and discrete than the AI industry (if such an industry even exists, apart from the software industry more generally). AI is much closer to a general-purpose tool, like chemicals or combustion engines. We do not enact central regulators to license every aspect of the development and use of chemicals, but instead allow different agencies to treat their use differently as is appropriate for the context. For example, the Occupational Safety and Health Administration (OSHA) will regulate employee exposure to dangerous substances encountered in the workplace, while various consumer-protection boards will regulate the adulteration of goods.
The notion of licensing implies that companies would need to obtain permission prior to commercializing a particular piece of code. This could introduce undesirable latency into the process of bringing AI technologies to market (or, indeed, even of correcting errors in already-deployed products). Given the expansive potential to integrate AI technologies into diverse products and services, this delay could significantly impede technological progress and innovation. Given the strong global interest in the subject, such delays threaten to leave the United States behind its more energetic competitors in the race for AI innovation.
As in other consumer-protection regimes, a better approach would be to eschew licensing and instead create product-centric and harm-centric frameworks that other sectoral regulators or competition authorities could incorporate into their tailored rules for goods and services.
For instance, safety standards for medical devices should be upheld, irrespective of whether AI is involved. This product-centric regulatory approach would ensure that the desired outcomes of safety, quality, and effectiveness are achieved without stymieing innovation. With their deep industry knowledge and experience, sectoral regulators will generally be better positioned to address the unique challenges and considerations posed by AI technology deployed within their spheres of influence.
NTIA alludes to one of the risks of an overaggregated regulator when it notes that:
For some trustworthy AI goals, it will be difficult to harmonize standards across jurisdictions or within a standard- setting body, particularly if the goal involves contested moral and ethical judgements. In some contexts, not deploying AI systems at all will be the means to achieve the stated goals.[70]
Indeed, the institutional incentives that drive bureaucratic decision making often converge on this solution of preventing unexpected behavior by regulated entities.[71] But at what cost? If a regulator is unable to imagine how to negotiate the complicated tradeoffs among interested parties across all AI-infused technologies, it will act to slow or prevent the technology from coming to market. This will make us all worse off, and will only strengthen the position of our competitors on the world stage.
NTIA notes that:
According to NIST, ‘‘trustworthy AI’’ systems are, among other things, ‘‘valid and reliable, safe, secure and resilient, accountable and transparent, explainable and interpretable, privacy-enhanced, and fair with their harmful bias managed.’’[72]
And in the section titled “Accountability Inputs and Transparency,” NTIA asks a series of questions designed to probe what can be considered a realistic transparency obligation for developers and deployers of AI systems. We urge NTIA to resist the idea that AI systems be “explainable,” for the reasons set forth herein.
One of the significant challenges in AI accountability is making AI systems explainable to users. It is crucial to acknowledge that providing a clear explanation of how an AI model—such as an LLM or a diffusion model—arrives at a specific output is an inherently complex task, and may not be possible at all. As the UK Royal Society has noted in its paper on AI explainability:
Much of the recent excitement about advances in AI has come as a result of advances in statistical techniques. These approaches – including machine learning – often leverage vast amounts of data and complex algorithms to identify patterns and make predictions. This complexity, coupled with the statistical nature of the relationships between inputs that the system constructs, renders them difficult to understand, even for expert users, including the system developers. [73]
These models are designed with intricate architectures and often rely on vast troves of data to arrive at outputs, which can make it nearly impossible to reverse-engineer the process. Due to these complexities, it may be unfeasible to make AI fully explainable to users. Moreover, users themselves often do not value explainability, and may be largely content with a “black box” system when it consistently provides accurate results.[74]
Instead, to the extent that regulators demand visibility into AIs, the focus should be on the transparency of the AI-development process, system inputs, and the general guidelines for AI that developers use in preparing their models. Ultimately, we suspect that, even here, such measures will do little to resolve the inherent complexity in understanding how AI tools produce their outputs.
In a more limited sense, we should consider the utility in transparency of AI-infused technology for most products and consumers. NTIA asks:
Given the likely integration of generative AI tools such as large language models (e.g., ChatGPT) or other general-purpose AI or foundational models into downstream products, how can AI accountability mechanisms inform people about how such tools are operating and/or whether the tools comply with standards for trustworthy AI?[75]
As we note above, the proper level of analysis for AI technologies is the product into which they are incorporated. But even there, we need to ask whether it matters to an end user whether a product they are using relies on ChatGPT or a different algorithm for predictively generating text. If the product malfunctions, what matters is the malfunction and the accountability for the product. Most users do not really care whether a developer writes a program using C++ or Java, and neither should they explicitly care whether he incorporates a generative AI algorithm to predict text, or uses some other method of statistical analysis. The presence of an AI component becomes analytically necessary when diagnosing how something went wrong, but ex ante, it is likely irrelevant from a consumer’s perspective.
Thus, it may be the case that a more fruitful avenue for NTIA to pursue would be to examine how a strict-liability or product-liability legal regime might be developed for AI. These sorts of legal frameworks put the onus on AI developers to ensure that their products behave appropriately. Such legal frameworks also provide consumers with reassurance that they have recourse if and when they are harmed by a product that contains AI technology. Indeed, it could very well be the case that overemphasizing “trust” in AI systems could end up misleading users in important contexts.[76] This would strengthen the case for a predictable liability regime.
The phenomenon of generating false depictions of individuals using advanced AI techniques—commonly called “deepfakes”—is undeniably concerning, particularly when it can be used to create detrimental false public statements,[77] facilitate fraud,[78] or create nonconsensual pornography.[79] But while deepfakes use modern technological tools, they are merely the most recent iteration of the age-old problem of forgery. Importantly, existing law already equips us with the tools needed to address the challenges posed by deepfakes, rendering many recent legislative proposals at the state level both unnecessary and potentially counterproductive. Consider one of the leading proposals offered by New York State.[80]
Existing laws in New York and at the federal level provide remedies for individuals aggrieved by deepfakes, and they do so within a legal system that has already worked to incorporate the context of these harms, as well as the restrictions of the First Amendment and related defenses. For example, defamation laws can be applied where a deepfake falsely suggests an individual has posed for an explicit photograph or video.[81] New York law also acknowledges the tort of intentional infliction of emotional distress, which likely could be applied to the unauthorized use of a person’s likeness in explicit content.[82] In addition, the tort of unjust enrichment can be brought to bear where appropriate, as can the Lanham Act §43(a), which prohibits false advertising and implied false endorsements.[83] Furthermore, victims may hold copyright in the photograph or video used in a deepfake, presenting grounds for an infringement action.[84]
Thus, while advanced deepfakes are new, the harms they can cause and the law’s ability to address those harms is not novel. Legislation that attempts to carve out new categories of harms in these situations are, at best, reinventing the wheel and, at worst, risk creating confusing tensions in the existing legal system.
NTIA asks if “the lack of a federal law focused on AI systems [is] a barrier to effective AI accountability?”[85] In short, no, this is not a barrier, so long as the legal system is allowed to evolve to incorporate the novel challenges raised by AI technologies.
As noted in the previous section, there is a need to develop standards, both legal and technical. As we are in the early days of AI technology, the exact contours of the various legal changes that might be needed to incorporate AI tools into existing law remain unclear. At this point, we would urge NTIA—to the extent that it wants to pursue regulatory, licensing, transparency, and other similar obligations—to develop a series of workshops through which leading technology and legal experts could confer on developing a vision for how such legal changes would work in practice.
By gathering stakeholders and fostering an ongoing dialogue, NTIA can help to create a collaborative environment in which organizations can share knowledge, experiences, and innovations to address AI accountability and its associated challenges. By promoting industry collaboration, NTIA could also help build a foundation of trust and cooperation among organizations involved in AI development and deployment. This, in turn, will facilitate the establishment of standards and best practices that address specific concerns, while mitigating the risk of overregulation that could stifle innovation and progress. In this capacity, NTIA should focus on encouraging the development of context-specific best practices that prioritize the containment of identifiable harms. By fostering a collaborative atmosphere, the agency can support a dynamic and adaptive AI ecosystem that is capable of addressing evolving challenges while safeguarding the societal benefits of AI advancements.
In addressing AI accountability, it is essential for NTIA to adopt a harm-focused framework that targets the negative impacts of AI systems rather than the technology itself. This approach would recognize that AI technology can have diverse applications, with consequences that will depend on the context in which they are used. By prioritizing the mitigation of specific harms, NTIA can ensure that regulations are tailored to address real-world outcomes and provide a more targeted and effective regulatory response.
A harm-focused framework also acknowledges that different AI technologies pose differing levels of risk and potential for misuse. NTIA can play a proactive role in guiding the creation of policies that reflect these nuances, striking a balance between encouraging innovation and ensuring the responsible development and use of AI. By centering the discussion on actual harms and their causes, NTIA can foster meaningful dialogue among stakeholders and facilitate the development of industry best practices designed to minimize negative consequences.
Moreover, this approach ensures that AI accountability policies are consistent with existing laws and regulations, as it emphasizes the need to assess AI-related harms within the context of the broader legal landscape. By aligning AI accountability measures with other established regulatory frameworks, the NTIA can provide clear guidance to AI developers and users, while avoiding redundancy and conflicting regulations. Ultimately, a harm-focused framework allows the NTIA to better address the unique challenges posed by AI technology and foster an assurance ecosystem that prioritizes safety, ethics, and legal compliance without stifling innovation.
Another risk of the current AI hysteria is that fatigue will set in, and the public will become numbed to potential harms. Overall, this may shrink the public’s appetite for the kinds of legal changes that will be needed to address those actual harms that do emerge. News headlines that push doomsday rhetoric and a community of experts all too eager to respond to the market incentives for apocalyptic projections only exacerbate the risk of that outcome. A recent one-line letter, signed by AI scientists and other notable figures, highlights the problem:
Mitigating the risk of extinction from AI should be a global priority alongside other societal-scale risks such as pandemics and nuclear war.[86]
Novel harms absolutely will emerge from products that employ AI, as has been the case for every new technology. The introduction of automobiles created new risks of harm from high-speed auto-related deaths, for example. But rhetoric about AI being an existential risk on the level of a pandemic or nuclear war is irresponsible.
Perhaps one of the most important positions NTIA can assume, therefore, is that of a calm, collected expert agency that helps restrain the worst impulses to regulate AI out of existence due to blind fear.
In essence, the key challenge confronting policymakers lies in navigating the dichotomy of mitigating actual risks presented by AI, while simultaneously safeguarding the substantial benefits it offers. It is undeniable that the evolution of AI will bring about disruption and may provide a conduit for malevolent actors, just as technologies like the printing press and the internet have done in the past. This does not, however, merit taking an overly cautious stance that would suppress the potential benefits of AI.
As we formulate policy, it is crucial to eschew dystopian science-fiction narratives and instead ground our approach in realistic scenarios. The proposition that computer systems, even those as advanced as AI tools, could spell the end of humanity lacks substantial grounding.
The current state of affairs represents a geo-economic competition to harness the benefits of AI in myriad domains. Contrary to fears that AI poses an existential risk, the real danger may well lie in attempts to overly regulate and stifle the technology’s potential. The indiscriminate imposition of regulations could inadvertently thwart AI advancements, resulting in a loss of potential benefits that could be far more detrimental to social welfare.
[1] AI Accountability Policy Request for Comment, Docket No. 230407-0093, 88 FR 22433, National Telecommunications and Information Administration (Apr. 14, 2023) (“RFC”).
[2] Indeed, this approach appears to be the default position of many policymakers around the world. See, e.g., Mikolaj Barczentewicz, EU’s Compromise AI Legislation Remains Fundamentally Flawed, Truth on the Market (Feb. 8, 2022), https://truthonthemarket.com/2022/02/08/eus-compromise-ai-legislation-remains-fundamentally-flawed; The fundamental flaw of this approach is that, while AI techniques use statistics, “statistics also includes areas of study which are not concerned with creating algorithms that can learn from data to make predictions or decisions. While many core concepts in machine learning have their roots in data science and statistics, some of its advanced analytical capabilities do not naturally overlap with these disciplines.” See, Explainable AI: The Basics, The Royal Society (2019) at 7 available at https://royalsociety.org/-/media/policy/projects/explainable-ai/AI-and-interpretability-policy-briefing.pdf (“Royal Society Briefing”).
[3] John P. Holdren, Cass R. Sunstein, & Islam A. Siddiqui, Memorandum for the Heads of Executive Departments and Agencies, Executive Office of the White House (Jun. 9, 2011), available at https://obamawhitehouse.archives.gov/sites/default/files/omb/inforeg/for-agencies/nanotechnology-regulation-and-oversight-principles.pdf.
[4] Id.
[5] Frank H. Easterbrook, Cyberspace and the Law of the Horse, 1996 U. Chi. L. Forum 207 (1996).
[6] LLMs are a type of artificial-intelligence model designed to parse and generate human language at a highly sophisticated level. The deployment of LLMs has driven progress in fields such as conversational AI, automated content creation, and improved language understanding across a multitude of applications, even suggesting that these models might represent an initial step toward the achievement of artificial general intelligence (AGI). See Alejandro Pen?a et al., Leveraging Large Language Models for Topic Classification in the Domain of Public Affairs, arXiv (Jun. 5, 2023), https://arxiv.org/abs/2306.02864v1.
[7] Diffusion models are a type of generative AI built from a hierarchy of denoising autoencoders, which can achieve state-of-the-art results in such tasks as class-conditional image synthesis, super-resolution, inpainting, colorization, and stroke-based synthesis. Unlike other generative models, these likelihood-based models do not exhibit mode collapse and training instabilities. By leveraging parameter sharing, they can model extraordinarily complex distributions of natural images without necessitating billions of parameters, as in autoregressive models. See Robin Rombach et al., High-Resolution Image Synthesis with Latent Diffusion Models, arXiv (Dec. 20, 2021), https://arxiv.org/abs/2112.10752.
[8] Recommender systems are advanced tools currently used across a wide array of applications, including web services, books, e-learning, tourism, movies, music, e-commerce, news, and television programs, where they provide personalized recommendations to users. Despite recent advancements, there is a pressing need for further improvements and research in order to offer more efficient recommendations that can be applied across a broader range of applications. See Deepjyoti Roy & Mala Dutta, A Systematic Review and Research Perspective on Recommender Systems, 9 J. Big Data 59 (2022), available at https://journalofbigdata.springeropen.com/counter/pdf/10.1186/s40537-022-00592-5.pdf.
[9] AGI refers to hypothetical future AI systems that possess the ability to understand or learn any intellectual task that a human being can do. While the realization of AGI remains uncertain, it is distinct from the more specialized AI systems currently in use. For a skeptical take on the possibility of AGI, see Roger Penrose, The Emperor’s New Mind (Oxford Univ. Press 1989).
[10] Samuel D. Warren & Louis D. Brandeis, The Right to Privacy, 4 Harv. L. Rev. 193 (1890).
[11] Id. at 200.
[12] Id. at 193.
[13] Id. at 196-97.
[14] Notably, courts do try to place a value on emotional distress and related harms. But because these sorts of violations are deeply personal, attempts to quantify such harms in monetary terms are rarely satisfactory to the parties involved.
[15] Martin Giles, Bounty Hunters Tracked People Secretly Using US Phone Giants’ Location Data, MIT Tech. Rev. (Feb. 7, 2019), https://www.technologyreview.com/2019/02/07/137550/bounty-hunters-tracked-people-secretly-using-us-phone-giants-location-data.
[16] See, e.g., Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417, 439 (1984) (The Supreme Court imported the doctrine of “substantial noninfringing uses” into copyright law from patent law).
[17] A notable example is how the Patriot Act, written to combat terrorism, was ultimately used to take down a sitting governor in a prostitution scandal. See Noam Biale, Eliot Spitzer: From Steamroller to Steamrolled, ACLU, Oct. 29, 2007, https://www.aclu.org/news/national-security/eliot-spitzer-steamroller-steamrolled.
[18] RFC at 22437.
[19] Id. at 22433.
[20] Id. at 22436.
[21] Indeed, the RFC acknowledges that, even as some groups are developing techniques to evaluate AI systems for bias or disparate impact, “It should be recognized that for some features of trustworthy AI, consensus standards may be difficult or impossible to create.” RFC at 22437. Arguably, this problem is inherent to constructing an overaggregated regulator, particularly one that will be asked to consulting a broad public on standards and rulemaking.
[22] Id. at 22439.
[23] Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S.at 417.
[25] Id.
[26] Id. at 456.
[27] Id.
[28] See, e.g., Defendant Indicted for Camcording Films in Movie Theaters and for Distributing the Films on Computer Networks First Prosecution Under Newly-Enacted Family Entertainment Copyright Act, U.S. Dept of Justice (Aug. 4, 2005), available at https://www.justice.gov/archive/criminal/cybercrime/press-releases/2005/salisburyCharge.htm.
[29] 17 U.S.C. 106.
[30] See 17 U.S.C. 107; Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 590 (1994) (“Since fair use is an affirmative defense, its proponent would have difficulty carrying the burden of demonstrating fair use without favorable evidence about relevant markets.”).
[31] See, e.g., N.Y. Penal Law § 265.01; Wash. Rev. Code Ann. § 9.41.250; Mass. Gen. Laws Ann. ch. 269, § 10(b).
[32] See, e.g., 18 U.S.C.A. § 922(g).
[33] Proposal for a Regulation Laying Down Harmonised Rules on Artificial Intelligence (Artificial Intelligence Act) and Amending Certain Union Legislative Acts, COM/2021/206 final. The latest proposed text of the AI Act is available at https://www.europarl.europa.eu/doceo/document/A-9-2023-0188_EN.html.
[34] Id. at amendment 36 recital 14.
[35] Id.
[37] See e.g., Mikolaj Barczentewicz, supra note 2.
[38] Id.
[39] Foo Yun Chee, Martin Coulter & Supantha Mukherjee, EU Lawmakers’ Committees Agree Tougher Draft AI Rules, Reuters (May 11, 2023), https://www.reuters.com/technology/eu-lawmakers-committees-agree-tougher-draft-ai-rules-2023-05-11.
[40] See infra at notes 71-77 and accompanying text.
[41] Explainable AI: The Basics, supra note 2 at 8.
[42] See e.g., Delos Prime, EU AI Act to Target US Open Source Software, Technomancers.ai (May 13, 2023), https://technomancers.ai/eu-ai-act-to-target-us-open-source-software.
[43] Id.
[44] To be clear, it is not certain how such an extraterritorial effect will be obtained, and this is just a proposed amendment to the law. Likely, there will need to be some form of jurisdictional hook, i.e., that this applies only to firms with an EU presence.
[45] Eliezer Yudkowsky, Pausing AI Developments Isn’t Enough. We Need to Shut it All Down, Time (Mar. 29, 2023), https://time.com/6266923/ai-eliezer-yudkowsky-open-letter-not-enough.
[46] See, e.g., Kiran Stacey, UK Should Play Leading Role on Global AI Guidelines, Sunak to Tell Biden, The Guardian (May 31, 2023), https://www.theguardian.com/technology/2023/may/31/uk-should-play-leading-role-in-developing-ai-global-guidelines-sunak-to-tell-biden.
[47] See, e.g., Matthew J. Neidell, Shinsuke Uchida & Marcella Veronesi, The Unintended Effects from Halting Nuclear Power Production: Evidence from Fukushima Daiichi Accident, NBER Working Paper 26395 (2022), https://www.nber.org/papers/w26395 (Japan abandoning nuclear energy in the wake of the Fukushima disaster led to decreased energy consumption, which in turn led to increased mortality).
[48] See, e.g., Will Knight, Some Glimpse AGI in ChatGPT. Others Call It a Mirage, Wired (Apr. 10, 2023), https://www.wired.com/story/chatgpt-agi-intelligence (“GPT-4, like its predecessors, had been fed massive amounts of text and code and trained to use the statistical patterns in that corpus to predict the words that should be generated in reply to a piece of text input.”)
[49] Joseph A. Schumpeter, Capitalism, Socialism And Democracy 74 (1976).
[50] See, e.g., Jerry Hausman, Valuation of New Goods Under Perfect and Imperfect Competition, in The Economics Of New Goods 209–67 (Bresnahan & Gordon eds., 1997).
[51] William D. Nordhaus, Schumpeterian Profits in the American Economy: Theory and Measurement, NBER Working Paper No. 10433 (Apr. 2004) at 1, http://www.nber.org/papers/w10433 (“We conclude that only a miniscule fraction of the social returns from technological advances over the 1948-2001 period was captured by producers, indicating that most of the benefits of technological change are passed on to consumers rather than captured by producers.”).
[52] See generally Oliver E. Williamson, Markets And Hierarchies, Analysis And Antitrust Implications: A Study In The Economics Of Internal Organization (1975).
[53] See, e.g., Nassim Nicholas Taleb, Antifragile: Things That Gain From Disorder (2012) (“In action, [via negativa] is a recipe for what to avoid, what not to do.”).
[54] Adam Thierer, Permissionless Innovation: The Continuing Case For Comprehensive Technological Freedom (2016).
[55] See, e.g., Artificial Intelligence Act, supra note 33, at amendment 112 recital 66.
[56] Explainable AI: The Basics, supra note 2 at 6.
[57] Cecilia Kang, OpenAI’s Sam Altman Urges A.I. Regulation in Senate Hearing, NY Times (May 16, 2023), https://www.nytimes.com/2023/05/16/technology/openai-altman-artificial-intelligence-regulation.html; see also Mike Solana & Nick Russo, Regulate Me, Daddy, Pirate Wires (May 23, 2023), https://www.piratewires.com/p/regulate-me-daddy.
[58] Cristiano Lima, Biden’s Former Tech Adviser on What Washington is Missing about AI, The Washington Post (May 30, 2023), https://www.washingtonpost.com/politics/2023/05/30/biden-former-tech-adviser-what-washington-is-missing-about-ai.
[59] Frank H. Easterbrook, supra note 5.
[60] See Lima, supra note 58 (“I’m not in favor of an approach that would create heavy compliance costs for market entry and that would sort of regulate more abstract harms.”)
[61] Steven C. Salop & David T. Scheffman, Raising Rivals’ Costs, 73:2 Am. Econ. R. 267, 267–71 (1983), http://www.jstor.org/stable/1816853.
[62] Steven C. Salop & David T. Scheffman, Cost-Raising Strategies, 36:1 J. Indus. Econ. 19 (1987), https://doi.org/10.2307/2098594.
[63] United Mine Workers of Am. v. Pennington, 381 U.S. 657, 661 (1965).
[64] Oliver E. Williamson, Wage Rates as a Barrier to Entry: The Pennington Case in Perspective, 82:1 Q. J. Econ. 85 (1968), https://doi.org/10.2307/1882246.
[65] RFC at 22439.
[66] See, e.g., Lima, supra note 58 (“Licensing regimes are the death of competition in most places they operate”).
[67] Kang, supra note 57; Oversight of A.I.: Rules for Artificial Intelligence: Hearing Before the Subcomm. on Privacy, Technology, and the Law of the S. Comm. on the Judiciary, 118th Cong. (2023) (statement of Sam Altman, at 11), available at https://www.judiciary.senate.gov/download/2023-05-16-testimony-altman.
[68] RFC at 22437.
[69] See, e.g., Transcript: Senate Judiciary Subcommittee Hearing on Oversight of AI, Tech Policy Press (May 16, 2023), https://techpolicy.press/transcript-senate-judiciary-subcommittee-hearing-on-oversight-of-ai (“So what I’m trying to do is make sure that you just can’t go build a nuclear power plant. Hey Bob, what would you like to do today? Let’s go build a nuclear power plant. You have a nuclear regulatory commission that governs how you build a plant and is licensed.”)
[70] RFC at 22438.
[71] See, e.g., Raymond J. March, The FDA and the COVID?19: A Political Economy Perspective, 87(4) S. Econ. J. 1210, 1213-16 (2021), https://www.ncbi.nlm.nih.gov/pmc/articles/PMC8012986 (discussing the political economy that drives incentives of bureaucratic agencies in the context of the FDA’s drug-approval process).
[72] RFC at 22434.
[73] Explainable AI: The Basics, supra, note 2 at 12.
[74] Id. at 20.
[75] Id. at 22439.
[76] Explainable AI: The Basics, supra note 2 at 22. (“Not only is the link between explanations and trust complex, but trust in a system may not always be a desirable outcome. There is a risk that, if a system produces convincing but misleading explanations, users might develop a false sense of confidence or understanding, mistakenly believing it is trustworthy as a result.”)
[77] Kate Conger, Hackers’ Fake Claims of Ukrainian Surrender Aren’t Fooling Anyone. So What’s Their Goal?, NY Times (Apr. 5, 2022), https://www.nytimes.com/2022/04/05/us/politics/ukraine-russia-hackers.html.
[78] Pranshu Verma, They Thought Loved Ones Were Calling for Help. It Was an AI Scam, The Washington Post (Mar. 5, 2023), https://www.washingtonpost.com/technology/2023/03/05/ai-voice-scam.
[79] Video: Deepfake Porn Booms in the Age of A.I., NBC News (Apr. 28, 2023), https://www.nbcnews.com/now/video/deepfake-porn-booms-in-the-age-of-a-i-171726917562.
[80] S5857B, NY State Senate (2018), https://www.nysenate.gov/legislation/bills/2017/s5857/amendment/b.
[81] See, e.g., Rejent v. Liberation Publications, Inc., 197 A.D.2d 240, 244–45 (1994); see also, Leser v. Penido, 62 A.D.3d 510, 510–11 (2009).
[82] See, e.g., Howell v. New York Post Co,. 612 N.E.2d 699 (1993).
[83] See, e.g., Mandarin Trading Ltd. v. Wildenstein, 944 N.E.2d 1104 (2011); 15 U.S.C. §1125(a).
[84] 17 U.S.C. 106.
[85] RFC at 22440.
[86] Statement on AI Risk, Center for AI Safety, https://www.safe.ai/statement-on-ai-risk (last visited Jun. 7, 202).
