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A Competition Law & Economics Analysis of Sherlocking

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 . . .

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 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.

I. Introduction

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.

II. Antitrust Proceedings on Sherlocking: Platform Neutrality and Copycat Competition

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.

TABLE 1: Legislative Initiatives and Proposals to Ban Sherlocking

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.

FIGURE 1: Sherlocking in Digital Markets

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.”

A. Sherlocking and Unconventional Theories of Harm for Digital Markets

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]

III. Sherlocking for Competitive Advantage: Hybrid Business Model, Neutrality Regimes, and Competition on the Merits

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.

IV. Sherlocking to Mimic Business Users’ Products or Services

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.

A. The Welfare Effects of Copying

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.

B. Antitrust Assessment: Competition, Innovation, and Double Standards

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.

V. Conclusion

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.

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Fairness and Ambiguity in EU Competition Policy

ICLE White Paper Abstract The concept of fairness is not foreign to competition law, nor are considerations of fairness new to it. Persistent uncertainty regarding what constitutes fairness . . .

Abstract

The concept of fairness is not foreign to competition law, nor are considerations of fairness new to it. Persistent uncertainty regarding what constitutes fairness has, however, traditionally counseled against its application as a standalone legal standard. Indeed, antitrust enforcers often have been reluctant to define even what constitutes unfair terms and conditions. Nonetheless, amid a swell of accusations of undue corporate power and market concentration in the digital economy, debates about fairness have recently taken center stage in the policy debate—particularly in Europe, where several recent regulatory interventions have been touted as promoting fairness in digital markets. This paper argues that policymakers are attracted to “fairness” remedies precisely because the term’s meaning is so ambiguous, thus granting them more discretion and room for intervention.

Introduction

In public debates over the emerging ubiquity of digital markets and platform-business models, the concept of “fairness” has been elevated into a guiding principle of competition-law enforcement. Dissatisfied with the ways that profits are allocated in digital-services markets and decrying what they see as undue corporate power and market concentration, interlocutors in such debates have invoked fairness as the cure for bigness.

This is particularly apparent in the European Union (EU), where several recent legislative initiatives have been adopted with the stated goal of promoting fairness in the digital economy. A central focus of such initiatives is the “gatekeeping” position enjoyed by a few large online platforms, which purportedly allows them to exert intermediation power over whether and under what terms the platform’s business users can reach their end users. As such, critics of so-called “Big Tech” assert, these platforms represent unavoidable trading partners who can exploit their superior bargaining power by imposing unfair contract terms and conditions. Moreover, since they often occupy a dual role—acting simultaneously as intermediaries and as competitors on their own platforms—they may have incentive to discriminate in favor of their own services or subsidiaries (so-called self-preferencing).[1]

In response to the perceived risks generated by these conflicts of interest and imbalances of bargaining power, policymakers in various jurisdictions around the world have proposed or enacted provisions intended to ensure a level playing field and to neutralize the competitive advantages of large intermediator platforms. According to this line of reasoning, Big Tech firms must be compelled to treat both their rivals and their guests on the platform fairly.

Fairness has therefore become part of the larger debate on the role of competition law in the digital economy, with some militating for more aggressive intervention to ensure fairness and questioning whether the consumer welfare standard should remain the lodestar of antitrust law. Because it eschews many other potential goals of competition law, the argument goes, the consumer welfare standard systematically biases antitrust toward underenforcement,[2] with some even labeling it a “distraction” or a “catch phrase.”[3] Rather than the efficiency-oriented approach favored by the Chicago School, the ostensibly holistic approach that has earned support among progressives would combine competition law with other fields of law in order to take into account such broad social interests and ethical goals as labor protection, wealth inequality, and environmental sustainability.[4]

Considerations of fairness are not, however, new to competition law.[5] The history of antitrust law in the United States, for example, demonstrates that U.S. lawmakers and jurists have long had a profound concern for economic liberty as a notion embedded in the nation’s conception of freedom.[6] After all, “[i]f efficiency is so important in antitrust, then why doesn’t that word, ‘efficiency,’ appear anywhere in the antitrust statutes?”[7] Indeed, antitrust has been described as a body of law designed to promote economic justice, fairness, and opportunity.[8] Therefore, the purpose of antitrust law is to protect the competitive process in service of both prosperity and freedom. Rather than a myopic focus on promoting efficiency, antitrust economics should be concerned with ensuring that competition may flourish among a significant number of rivals in free and open markets.[9] And at the heart of the competitive process is the guarantee that “everyone participating in the open market—consumers, farmers, workers, or anyone else” has the opportunity to choose freely among alternative offers.[10]

This is also evident in the EU, where competition law has always reflected various social, political, and ethical objectives, even as the so-called “more economic approach” was adopted in the late 1990s.[11] Moreover, the goal of ensuring equal opportunity in the marketplace by guaranteeing a level playing field among firms has been incorporated in EU antitrust law, reflecting the influence of the philosophy of Ordoliberalism and the Freiburg School of economic thought.[12] From this perspective, fairness would include the protection of economic freedom, rivalry, the competitive process, and small- and medium-size firms.[13]

Nonetheless, it should not be overlooked that the rise of the Chicago School approach, which affirms the need to anchor antitrust enforcement in objective criteria, was itself a response to the limitations and drawbacks of prioritizing various noneconomic goals in competition law. Precisely because “fairness” is so difficult to both define and delineate, it has traditionally proven unsuitable as a standalone legal standard.[14] The same doubts are raised today by some U.S. scholars regarding the possibility of replacing the consumer welfare standard with what has been called the “competitive process test.”[15]

Like considerations of distribution or justice, debates about fairness are inevitably bedeviled by the existence of many differing and sometimes contradictory definitions, rendering the term’s content undefined and incomplete.[16] Despite its many appealing features in the abstract, fairness is a subjective and vague moral concept and, hence, essentially useless as a decision-making tool. Behavioral economics has provided evidence that fairness motives do affect many people’s behavior and can restrict the actions of profit-seeking firms, while simultaneously confirming that notions of fairness can vary widely among individuals.[17] As a result, it is inherently unclear what benchmark should be applied to measure fairness. This poses a serious challenge for legal certainty, as actors cannot predict ex ante whether a practice will be sanctioned for having trespassed the unfairness threshold. Accordingly, policymakers have been invited to give no weight to fairness in choosing legal rules, but rather to assess policies entirely on the basis of their effects on individuals’ well-being.[18]

As notions of fairness have taken a central place in recent EU regulatory interventions, it is worth investigating whether a clear and enforceable definition has been provided (and, in this case, whether the content of fairness has been specified as a rule or as a standard) or whether the vagueness and ambiguity associated with the term’s meaning can be exploited to grant policymakers convenient procedural shortcuts. Indeed, an unmeasurable goal will tend to be irresistibly attractive to enforcement agencies, as it can mean anything they want it to. This paper aims to demonstrate that the revival of fairness considerations in competition law functions primarily to offer policymakers greater latitude to intervene, relieving them of the burden of economic analysis and allowing them to pursue political ends. Chief among the latter is restoring what the U.S. neo-Brandeisian movement considers the original mission of antitrust law: namely, to ensure a more democratic distribution of power and to protect “small dealers and worthy men.”[19] Rather than being used to assess whether practices are anti-competitive, fairness is used to correct market outcomes.

Similar concerns have been raised about a new policy statement issued recently by the U.S. Federal Trade Commission (FTC) regarding the scope of the agency’s authority to prohibit unfair methods of competition (UMC) under the Section 5 of the FTC Act.[20] The FTC points to the legislative record to argue that Section 5 was enacted to protect “smaller, weaker business organizations from the oppressive and unfair competition of their more powerful rivals.”[21] Against the declared aim of “reactivating Section 5,”[22] Commissioner Christine S. Wilson noted in her dissent that, by preferring a “near-per se approach” that discounts or ignores both the business rationales that may underly challenged conduct and the potential efficiencies that such conduct may generate, the policy statement reflects a “repudiation of the consumer welfare standard and the rule of reason” and resembles the work of an academic or a think tank fellow who “dreams of banning unpopular conduct and remaking the economy.”[23]

This paper is structured as follows. Section I describes how fairness considerations lie at the core of European Commissioner for Competition Margrethe Vestager’s political mandate. Section II examines how the notion of unfairness has been applied in EU antitrust case law. Section III analyzes the use of fairness as a rationale for recent EU legislative initiatives in the digital economy. Section IV illustrates that these initiatives do not provide a meaningful contribution to the application of fairness, either as a standard or as a rule. Section V concludes.

I.        The Vestager Mandate: Fairness as Political Signaling

As has been widely noted, fairness has emerged as a guiding principle of EU competition policy during Commissioner Vestager’s previous and current terms.[24] She has referred to fairness in numerous speeches, characterizing her political mandate as one of advocating vigorously for antitrust rules to uphold notions of fairness. But rather than articulate a substantive standard of fairness that could be applied consistently in antitrust enforcement, Vestager has weaponized the notion of fairness as political signaling.

Among Vestager’s pronouncements on the subject are that “competition policy also reflects an idea of what society should be like” and that this is “the idea of a Europe that works fairly for everyone.”[25] She has contended that “when competition works, we end up with a market that treats people more fairly.”[26] Moreover, Vestager concludes that “fair markets are just what competition is about”[27] and “we all have a responsibility to help build a fairer society.”[28]  As the power of digital platforms has grown, Vestager says, “it’s become increasingly clear that we need something more, to keep that power in check, and to keep our digital world open and fair.”[29]

The Europe envisaged by the founders of the Treaty of Rome is, she argues, “one that would bring prosperity and fairness, not just to a few, but to all Europeans.”[30] While some of the commissioner’s speeches invoke fairness primarily in the context of competition giving consumers the power to demand a “fair deal”[31] by ensuring that “their choices and preferences count,”[32] others imply that firms have a responsibility to run their businesses “in a way that is fair to your competitors, fair to your business partners.”[33]

Taken as a whole, her various invocations of fairness frame antitrust law not as economic policy, but as a kind of morality play.[34] Addressing her speeches to the “people,” Vestager emphasizes competition law’s fundamental role in building a fair society. [35]

People don’t just want to be told that open markets make us better off. They want to know that they benefit everyone, not just the powerful few. And that is exactly what competition enforcement is about … public authorities are here to defend the interests of individuals, not just to take care of big corporations. And that everyone, however rich or powerful, has to play by the rules.[36]

II.      EU Antitrust Enforcement: Fairness as a Standard

The notion of fairness is not foreign to EU competition law. The Preamble to the Treaty on the Functioning of the European Union (TFEU) includes a reference to “fair competition.” Its antitrust provisions, while prohibiting restrictive agreements and practices, creates an exception for those that grant consumers a “fair share” of procompetitive benefits (Article 101). The provisions also prohibit abuses of dominant position that impose “unfair purchase or selling prices” or other “unfair trading conditions” (Article 102). Moreover, Vestager has argued that state-aid rules, which prevent member states from granting companies a selective advantage, likewise reflect the notion of fairness within “the ordinary meaning of the word.”[37]

In general, these provisions endorse a standard-based approach to fairness that specifies the content of the law ex post, rather than a rule-based approach that introduces more specific legal commands ex ante.[38] Because fairness remains undefined and its meaning is disputed, the standard is hard to operationalize.

A.      Unfair Terms and Excessive Pricing

While only a handful of judgments and decisions by the European Court of Justice (CJEU) and the European Commission analyze the notion of unfairness, what these typically share is a focus on clauses that either were not functional to achieve the purpose of the agreement or that unjustifiably restricted the freedom of the parties.[39] The relationship between unfairness and the absence of a functional relationship between the contract’s purpose and challenged contractual clauses was highlighted in Tetra Pak II[40] and Duales System Deutschland (DSD).[41] It can be inferred from some of the Commission’s other decisions that unfairness may been associated with opaque contractual conditions that render a dominant firm’s counterparties weaker, particularly when those counterparties are unable to understand the terms of the commercial offer in question.[42]

Recent years have seen a revival of cases concerning “unfair prices,” particularly in cases concerned with drug pricing or the collection of  royalties.[43] But rather than establish the meaning of fairness, courts and competition authorities have tended toward a rule-based approach to identify unfair prices, developing alternative measures rooted in economic reasoning.[44] Indeed, since United Brands, the CJEU has evaluated whether a price is unfair by  determining whether it has a reasonable relation to the economic value of the product.[45] For example, in SABAM, the CJEU confirmed that the royalty rate requested by a collective society should bear relation to the economic value of the copyright work.[46] But courts and antitrust authorities have also struggled to apply the test set out by the CJEU in United Brands to assess whether prices are unfair.[47] As acknowledged in AKKA-LAA, “there is no single adequate method” to evaluate unfair-pricing cases.[48] Given this, Advocate General Nils Wahl has argued that a price charged by a dominant undertaking should be deemed abusive only when no rational economic explanation (other than a firm possessing the capacity and willingness to use its market power) can be found for why it is so high.[49]

B.      Margin Squeeze

Unfair-pricing practices have also been investigated in the context of the margin-squeeze strategy, which is a standalone abuse under EU competition law on grounds that it undermines equality of opportunity between economic operators.[50] Rather than refusing to supply, a vertically integrated dominant firm may instead charge a price for a product on the upstream market that would not allow an equally efficient competitor to compete profitably on a lasting basis with the price the dominant firm charges on the downstream market. A margin squeeze exists if the difference between the retail prices charged by a dominant undertaking and the wholesale prices it charges its competitors for comparable services is negative, or insufficient to cover the product-specific costs to the dominant operator of providing its own retail services to end-users.[51] Accordingly, the unfair spread between the upstream price and the retail price is deemed exclusionary when it squeezes rivals’ margins on the retail market, thereby undermining their ability to compete on equal terms. The dominant player is therefore required to leave its rivals a fair margin between the wholesale and retail prices.[52]

C.      FRAND-Encumbered SEPs

The notion of fairness has also been raised in the context of standard-essential patents (SEPs), whose holders are subject to fair, reasonable, and non-discriminatory (FRAND) licensing obligations.[53] The process of developing standards can create opportunities for companies to engage in anticompetitive behavior where such standards give rise to holdup problems involving the strategic use of patents. The claim is that SEPs confer market power because the standardization process leads to the exclusion of alternative technologies. As a consequence, SEP owners enjoy ex post monopoly power that could enable them to charge excessively high royalty rates in their licensing agreements or to constructively refuse to license their patents.

To address these concerns, standard-setting organizations (SSOs) typically require SEPs holders to submit FRAND commitments. The goal is to make SEPs available at a price equivalent to what patents would have been worth in the market prior to the time they were declared essential.

It is a matter of debate, however, whether FRAND commitments can effectively prevent SEP owners from imposing excessive royalty obligations on licensees. In fact, there are no generally agreed-upon tests to determine whether a particular license does or does not satisfy a FRAND commitment. There is also little consensus regarding the legal effects of FRAND commitments, such as whether they imply a waiver of the general law of remedies (more precisely, injunctive relief and other extraordinary remedies). Such broad uncertainty has prompted a wave of litigation around the globe in recent decades.

While some SSOs and courts have moved toward a rule-based approach to define fair/reasonable rates and to develop methods for the valuation of FRAND royalties, the CJEU in Huawei[54] endorsed a hybrid approach.[55] Indeed, rather than define the meaning of FRAND (which remains left to a standard-based approach), the CJEU imposed a procedural framework for good-faith SEP-licensing negotiations. The framework identifies the steps that patent holders and implementers must follow in negotiating FRAND royalties, with the threats of antitrust liability and patent enforcement as levers to steer the parties toward a mutually agreeable level. Nonetheless, none of these approaches has thus far proven effective in reducing either uncertainty or litigation.

D.     Abuse of Economic Dependence

Over the years, several EU member states have adopted provisions related to the abuse of economic dependence (also known as relative market power or superior bargaining power), creating yet another context in which the unfairness of terms and conditions may be implicated.[56] Rules forbidding the abuse of economic dependence reflect concerns about the asymmetry of economic power in business-to-business relationships, which is considered a potential source of unfair-trading practices.

Although abuse of economic dependence is not regulated at the EU level, national-level legislation is authorized by Article 3(2) of the Regulation 1/2003 on the implementation of competition rules, which allows member states to adopt and apply stricter laws prohibiting or sanctioning unilateral conduct.[57] Recital 8 of the regulation refers specifically to national provisions that prohibit or impose sanctions on abusive behavior toward economically dependent undertakings.

Economic dependence is typically the result of significant switching costs that may lock a party into a business relationship and prevent it from finding equivalent alternative solutions. Therefore, evaluations of economic dependence include examining the amount of relationship-specific investment the dependent firm has undertaken (i.e., investments required to support its trading relationship), which may expose weak parties to holdup, as well as whether the counterparty should be considered an unavoidable trading partner because of its exclusive control over an essential input.

It is worth noting that recent legislative initiatives signal a willingness by EU member states to rely on abuse-of-economic-dependence claims to tackle digital platforms’ purportedly unfair conduct and trading relationship with business users. In 2020, Belgium approved an amendment to its Code of Economic Law to insert a provision on abuse of economic dependence,[58] with lawmakers making specific reference to the perceived legislative gap concerning digital platforms. In 2021, alongside its new antitrust tool focused on firms of “paramount significance for competition across markets,” the German Bundestag extended its economic-dependence provision to target firms acting as “intermediaries on multi-sided markets,” insofar as business users are significantly dependent on their intermediary services to access supply and sales markets such that sufficient and reasonable alternatives do not exist.[59] Finally, in 2022, the Italian Annual Competition Law included a specific provision introducing a rebuttable presumption of economic dependence when a firm uses intermediation services provided by a digital platform that play a “key role” in reaching end users or suppliers due to network effects or the availability of data.[60]

E.      Summary of Findings

There are two primary takeaways from this brief overview of fairness in EU antitrust law. First, despite some references in the TFEU, antitrust enforcers have traditionally been reluctant to engage with the unfairness of terms and conditions. Uncertainty regarding the definition and legal boundaries of fairness make it challenging to use as an actionable standard for the evaluation of anticompetitive behavior. Second, if recent case law is suggestive of how attitudes about the use of fairness in antitrust are evolving, courts and competition authorities likely will continue to prefer that fairness be anchored in specific economic values or a detailed code of conduct (i.e., switching to a rule-based approach), rather than relying on political or moral considerations. The ongoing disputes over how to assess whether prices are excessive, as well as determining “fair” royalties for SEPs, suggest that questions about the scope and nature of unfair conduct cannot be usefully resolved by references to “the ordinary meaning of the word.”

Moreover, while fairness is explicitly mentioned in exploitative-abuse cases, Article 102 TFEU makes no reference to fairness as a benchmark for such cases. In this regard, the CJEU’s Servizio Elettrico Nazionale ruling affirmed the effects-based approach the court would take to assessing the abusive nature of unfair practices.[61] Notably, the CJEU definitively stated that competition law is not intended to protect the existing structure of the market, but rather that the ultimate goal of antitrust intervention is the protection of consumer welfare.[62] Accordingly, as the court previously found in Intel, not every exclusionary effect is necessarily detrimental to competition.[63] Competition on the merits may, by definition, mean that less-efficient competitors who are less attractive to consumers in terms of price, choice, quality, or innovation may be marginalized or forced to exit the market.[64]

III.    EU Competition Policy in Digital Markets: Fairness as a Rule?

The preceding overview of EU antitrust enforcement demonstrates that, despite recent political interest in the subject of fairness, authorities and courts continue to struggle to apply it as a substantive standard. Commissioner Vestager’s fairness agenda nonetheless permeates several recent legislative initiatives to regulate the digital economy through specific rules, rather than a general standard.

A common feature of these interventions is their preoccupation with the intermediation (or bottleneck) power that some large online platforms may wield vis-à-vis business users, to the extent that they may be unavoidable trading partners in a wide range of contexts. As a result, proponents argue, the interventions are needed to ensure a level playing field and to prevent unfair behavior to the detriment of business users.

A.      Platform-to-Business Regulation

In 2019, the EU adopted the regulation on promoting fairness and transparency for business users of online intermediation services (P2B Regulation).[65] Its aim was to lay down rules to ensure that digital intermediation platforms and search engines grant appropriate transparency, fairness, and effective redress to business users and corporate websites, respectively.[66] According to the P2B Regulation, online intermediation services can be “crucial” for the commercial success of firms who use such services to reach consumers. Given that dependence, such platforms often have superior bargaining power that enables them to behave unilaterally in ways that can be unfair, harmful to the legitimate interests of their business users, and also, indirectly, to consumers.[67]

While fairness is referenced in the P2B Regulation’s formal title, its provisions are more concerned with enhanced transparency, rather than forbidding or prescribing specific conduct. Nonetheless,  the regulation left open the potential for further measures if its provisions proved insufficient to adequately address imbalances and unfair commercial practices in the sector.[68] A few months after the P2B Regulation was promulgated, the European Commission unveiled in a communication to the European Parliament its view for the circumstances under which further legislative intervention would be needed.[69] Since platforms that act as “private gatekeepers to markets, customers and information” may jeopardize the fairness and openness of markets, and “competition policy alone cannot address all the systemic problems that may arise in the platform economy,” the Commission noted that additional rules may still be needed to ensure contestability, fairness, and innovation in digital markets, as well as the possibility of market entry.[70] Notably, the Commission’s declared policy goal was to ensure “a level playing field for businesses,” which it argued “is more important than ever” in the digital era.[71]

B.      Digital Markets Act

It was against this backdrop that the European Commission proposed the Digital Markets Act (DMA),[72] with the goal of ensuring “contestability and fairness” for digital markets.[73] In the Commission’s view, the distinctive characteristics of digital services (i.e., the presence of strong economies of scale, indirect network effects, economies of scope due to the role of data as a critical input, and conglomerate effects, along with consumers’ behavioral biases and single-homing tendency) generate significant barriers to entry that confer gatekeeping power on certain large platforms.[74]

The Commission warned that this situation would lead to “serious imbalances in bargaining power and, consequently, to unfair practices and conditions” both for business users and for platforms’ end users, to the detriment of prices, quality, “fair competition,” choice, and innovation in the market.[75] Moreover, gatekeepers frequently play a dual role, being simultaneously operators of a marketplace and sellers of their own products and services in competition with rival sellers.[76] Therefore, the Commission contended, rules are needed to prevent gatekeepers from unfairly benefitting and to impose on them a special responsibility to ensure a level playing field, which de facto amounts to the introduction of a platform-neutrality regime.[77]

Implicit in the DMA is the presumption that market processes are often incapable of ensuring “fair economic outcomes” with regard to core platform services,[78] apparently requiring a rethinking of competition policy. Under this view, competition law is deemed unfit to effectively address challenges posed by gatekeepers that are not necessarily dominant in competition-law terms.[79] Indeed, antitrust is limited to certain examples of market power (e.g., dominance on specific markets) and of anti-competitive behavior.[80] Further, its enforcement occurs ex post and requires an extensive investigation on a case-by-case basis of what are often very complex facts.[81]

The DMA therefore aims to protect a different legal interest from antitrust rules. Rather than protect undistorted competition on any given market, as defined in competition law terms, the DMA seeks to ensure that markets where gatekeepers are present are and remain “contestable and fair,” independent of the actual, likely, or presumed effects of gatekeeper conduct.[82] As a result, it introduces a set of ex ante obligations for online platforms designated as gatekeepers, thereby effectively relieving enforcers of the responsibility to define relevant markets, prove dominance, and measure market effects.

Despite that proclaimed protection of a different legal interest, however, there is no indication that the DMA’s promotion of fairness and contestability differs from the substance and scope of competition law.[83] The draft DMA didn’t define either fairness or contestability, nor did it indicate how the obligations it would impose on digital gatekeepers was intended to deliver each objective. The final version fills part of this gap, including a definition of these goals. With regard to contestability, the DMA targets practices that increase barriers to entry or expansion in digital markets and imposes obligations that tend to lower these barriers.[84] Therefore, contestability relates to firms’ ability to “effectively overcome barriers to entry and expansion and challenge the gatekeeper on the merits of their products and services.”[85] With respect to fairness, the obligations seek to address the “imbalance between the rights and obligations of business users” that allows gatekeepers to obtain a “disproportionate advantage” by appropriating the benefits of market participants’ contributions.[86] Indeed, “[d]ue to their gateway position and superior bargaining power, it is possible that gatekeepers engage in behaviour that does not allow others to capture fully the benefits of their own contributions, and unilaterally set unbalanced conditions for the use of their core platform services or services provided together with, or in support of, their core platform services.”[87]

Nonetheless, the DMA also considers fairness to be “intertwined” with contestability.[88] “The lack of, or weak, contestability for a certain service can enable a gatekeeper to engage in unfair practices. Similarly, unfair practices by a gatekeeper can reduce the possibility for business users or others to contest the gatekeeper’s position.”[89] Therefore, an obligation may address both. Unfortunately, because the DMA does not index the obligations based on the specific goal they purportedly advance, it also does not clarify which obligations are intended to safeguard contestability and/or promote fairness. This is despite the fact that the title of the DMA’s Chapter III refers to practices of gatekeepers that limit contestability “or” are unfair.[90]

The confusion between the two policy goals is confirmed in several passages of the text, which refer indiscriminately to contestability “and” fairness.[91] In line with the definition of contestability and fairness provided in the DMA, the table below summarizes the obligations according to protected interests and principal beneficiaries.

The vast majority of the DMA’s provisions seek to promote contestability. Most are clearly described in this way, including explicit references to terms such as contestability, switching, multi-homing, and barriers to entry and expansion.[92] Two of the provisions instead introduce pure transparency obligations. Although they are described as functional to promote contestability and fairness,[93] they do not appear to either affect the imbalance of bargaining power or lower barriers to entry and expansion.

An interesting case is provided by the ban on “sherlocking” (i.e., the use of business users’ data to compete against them), which apparently does not belong to any of the proclaimed goals. Indeed, even if the prohibition is justified to prevent gatekeepers from unfairly benefitting from their dual role,[94] the characterization of the conduct in question does not match the definition of fairness provided in Recital 33.

The goal of fairness is almost always confused (rectius, “intertwined”) with contestability. Indeed, some provisions are justified on grounds that the imposition of contractual terms and conditions by gatekeepers may limit inter-platform contestability.[95] Other provisions are deemed necessary to promote multi-homing and to prevent reinforcing business users’ dependence on gatekeepers’ core platform services.[96] Further, to ensure a “fair commercial environment” and to protect the contestability of the digital sector, the DMA considers it important to safeguard the right to raise concerns about unfair practices by gatekeepers.[97] Moreover, the DMA contends that, since certain services are “crucial” for business users, gatekeepers should not be allowed to leverage their position against their dependent business users and therefore “the freedom of the business user to choose alternative services” should be protected.[98] Finally, the law suggests that some practices should be prohibited because they give gatekeepers a means to capture and lock in new business users and end users, thus raising barriers to entry.[99]

Thus, there is significant definitional overlap between contestability and fairness under the DMA. Further, while Recital 33 links the notion of fairness to the imbalance between business users’ rights and obligations, some provisions also protect end users against unfair practices.[100] The law also embraces fairness as a notion applicable to both contractual terms and market outcomes. Indeed, in order to justify intervention that exceeds traditional antitrust rules, the DMA states that market processes are often incapable of ensuring “fair economic outcomes” with regard to core platform services.[101] In other words, rather than concern itself with specific practices, the DMA’s approach to fairness starts with a presumption that the outcome is unfair and regulates some practices to redress this.

Article 6(12) represents the only provision clearly addressed at ensuring just fairness as defined in Recital 33. Indeed, describing the FRAND access obligation, Recital 62 includes several keywords from that definition, stating that pricing or other general-access conditions should be considered unfair if they lead to an “imbalance of rights and obligations” imposed on business users or confer a “disproportionate advantage” on the gatekeeper. But “fairness” in such circumstances acts as a standard rather than a rule. To avoid the scenario already illustrated with regard to SEPs, Recital 62 provides some benchmarks to determine the fairness of general-access conditions.

Article 5(3) forbids parity clauses, also known as most-favored nation (MFN) agreements or across-platform parity agreements (APPAs). The provision bans both the broad and narrow versions of such clauses, thereby prohibiting gatekeepers from restricting business users’ ability to offer products or services under more favorable conditions through other online intermediation services or through direct online sales channels. The DMA maintains that, while the broad version of the parity clause may limit inter-platform contestability, its narrow version would unfairly restrain business users’ freedom to use direct online sales channels.[102]

To the extent that the rationale for the ban is to protect weak business parties against the superior bargaining power exerted by digital intermediaries, the potential effects of broad and narrow MFNs differ significantly. While broad parity clauses are more likely to produce net anti-competitive effects, efficiency justifications related to the protection of platforms’ investments against the risk of free riding usually prevail in case of narrow parity clauses. Indeed, the original DMA proposal only forbade broad MFNs, as the European Commission has traditionally endorsed a case-by-case analysis of their effects under competition law.[103] The more lenient approach toward narrow MFNs is seen in the new guidelines on vertical restraints, where it is stated that narrow retail-parity obligations are more likely to fulfil the conditions of Article 101(3) TFEU than across-platform retail parity obligations “primarily because their restrictive effects are generally less severe and therefore more likely to be outweighed by efficiencies” and “[m]oreover, the risk of free riding by sellers of goods or services via their direct sales channels may be higher, in particular because the seller incurs no platform commission costs on its direct sales.”[104]

By banning narrow MFNs, the final version of the DMA disregards these efficiency justifications. A more fulsome notion of fairness would be concerned not only with gatekeepers’ disproportionate advantage, but also with the risk of free riding by business users, which may reduce the incentive to invest in platform development.[105] Indeed, relying on the definition provided in Recital 33, this could be a case where fairness may even be invoked by a gatekeeper against business users, because the former may be unable to fully capture the benefits of its own investment.

C.      Data Act

Ambiguity about the notion of fairness also characterizes the proposed Data Act.[106] On the one hand, the proposal pursues the goal of “fairness in the allocation of value from data” among actors in the data economy.[107] This concern stems from the observation that the value of data is concentrated in the hands of relatively few large companies, while the data produced by connected products or related services are an important input for aftermarket, ancillary, and other services.[108] Given this, the Data Act attempts to facilitate access to and use of data by consumers and businesses, while preserving incentives to invest in ways of generating value from data. On the other hand, to ensure fairness in the underpinning data-processing services and infrastructure, the proposal seeks “fairer and more competitive markets” for data-processing services, such as cloud-computing services.[109]

Moreover, such objectives include operationalizing rules to ensure “fairness in data sharing contracts.”[110] Notably, to prevent the exploitation of contractual imbalances that hinder fair data-access and use for small or medium-sized enterprises (SMEs),[111] Chapter IV of the Data Act addresses unfair contractual terms in data-sharing contracts in situations where a contractual term is imposed unilaterally by one party on a SME. The proposal justifies this requirement by assuming that SMEs will typically be in a weaker bargaining position, without meaningful ability to negotiate the conditions for access to data. They are thus often left with no other choice but to accept take-it-or-leave-it contractual terms.[112]

Terms imposed unilaterally on SMEs are subject to an unfairness test,[113] where a contractual term is considered unfair if it is of such a nature that its use grossly deviates from good commercial practice, contrary to good faith and fair dealing.[114] But given how vague and broad concepts such as “gross deviation from good commercial practices” or “contrary to good faith and fair dealing” are, the unfairness test may simply serve to generate further uncertainty, which could be heightened by potential differing interpretations at the national level.

Therefore, rather than outline specific rules, the proposed Data Act opts for a standard-based approach and provides a yardstick to interpret the unfairness test.[115] Article 13 includes a list of terms that are always considered unfair and another list of terms that are presumed to be unfair. If a contractual term is not included in these lists, the general unfairness provision applies. Moreover, model contractual terms recommended by the Commission may assist commercial parties in concluding contracts based on fair terms.

Some terms considered unfair by the Data Act are clearly inspired by the abuse-of-economic-dependence standard.[116] Given the implicit parallel between data dependence and economic dependence, the exclusion of SMEs from the scope of application of Article 13 is not justified.[117] Indeed, abuse-of-economic-dependence cases involve scrutinizing the unfairness of terms and conditions due to the imbalance of bargaining power between business parties, regardless of the size of the players involved. Moreover, in the case of data-sharing contracts, such imbalance would be generated by data dependence, which may also emerge when SMEs exert control over certain data.

In summary, to achieve a greater balance in the distribution of the economic value from data among actors, the fairness of both contractual terms and market outcomes are addressed in the Data Act. The creation of a cross-sectoral governance framework for data access and use aims to ensure contractual fairness by rebalancing the bargaining power of SMEs vis-à-vis large players in data sharing contracts.[118] As a result, fairer and more competitive market outcomes shall be promoted in aftermarkets and in data processing services.[119]

D.     Summary of Findings

Recent EU legislative efforts motivated by the objective of promoting fairness in digital markets have thus far appeared to confirm traditional doubts about the possibility of relying on it as a suitable tool to assess anti-competitiveness.

If fairness has proven to be unsuitable to serve as a substantive standard in EU competition-law enforcement, the shift towards a rule-based approach does not seem to provide a significant improvement. Fairness represents a vague overarching goal. The envisaged black and white rules do not plainly address fairness, which instead is still essentially treated according to a standard-based approach. Moreover, the lack of clarity about the meaning of the term and the boundaries of its scope remains a relevant and thorny issue.

Indeed, the recent initiatives apply fundamentally different concepts of fairness. While the P2B Regulation treats fairness as de facto equivalent to transparency rules, the DMA defines it as referring to an imbalance in bargaining power that prevents a fair share of value among all players that contribute to a platform ecosystem. That definition notwithstanding, almost all of the DMA’s obligations putatively intended to promote fairness are, in effect, addressed at promoting contestability. Furthermore, the only provision clearly aimed at ensuring fairness as defined in the DMA relies on a standard-based approach. In a similar vein, the proposed Data Act treats fairness as a standard, introducing contractual protections based solely on the size of the players (i.e., SMEs) and providing a yardstick to apply the unfairness test.

IV.    Fairness as a Blanket License for Regulatory Intervention

Alongside the apparent difficulties in operationalizing fairness as either a standard or a rule, in practice, the lines separating fairness in the process from the outcomes of competition are inevitably blurred.[120] After all, Commissioner Vestager has not hidden her dissatisfaction with current market outcomes, showing an inclination to evaluate market structure as a proxy for fairness. Despite the efforts to describe efficiency and fairness as converging objectives for competition-policy enforcers, she implicitly acknowledged the trade-off between these goals.[121] Notably, Vestager argued that “[i]t’s true that competition, by its very nature, involves winners and losers. But as long as the social market economy is working properly, the efficiency gains that accrue from this process can be fairly and justly shared across all stakeholders.”

It is hard to deny the fundamental contradiction between defending efficient markets and promoting distributive justice. It is also difficult to reconcile Vestager’s message with the CJEU’s well-established principle that exclusionary effects do not necessarily undermine competition.[122] Indeed, rather than interpret fairness as equality of initial opportunities, Vestager explicitly refers to the fairness of market outcomes.

From this perspective, it would be more coherent to state that the reason why there is no clash between efficiency and fairness is because they perform different functions. While the former acts as a substantive standard for antitrust enforcement, the latter is a mere aspiration that has proven useful for political signaling.

It is not surprising that the recent push to revive fairness considerations in digital markets has originated outside the competition-law framework. Such policy choices implicitly acknowledge the impossibility of using fairness as an alternative standard to competition on the merits in antitrust law. As recently recalled by the CJEU, the ultimate goal of antitrust intervention is the protection of consumer welfare, rather than any particular market structure. The exclusion of as-efficient competitors is key to triggering antitrust liability for competition foreclosure. Therefore, for those who pursue the political agenda of building a fairer society,[123] it is necessary to bypass competition law, arguing—as the DMA does—that it is unfit to address the new challenges posed by digital gatekeepers. Indeed, in the setting of per se regulation, fairness can be invoked to justify more discretion, disregarding economic analysis and demonstration of the anticompetitive effects of conduct.

Against this background, the definition of fairness envisaged by the DMA (as protection against the asymmetric negotiating power of digital gatekeepers vis-à-vis business users to ensure an adequate sharing of the surplus) appears insufficient to provide the much-needed limits to its scope of application. This particular flavor of distributive justice may, indeed, favor regulatory capture, justifying interventions that actually reflect rent-seeking strategies aimed at shielding some legacy players from competition at the expense of consumers.

This is apparently the case with some EU policy initiatives such as the directive on copyright in the Digital Single Market.[124] In line with the proclaimed purpose of achieving “a well-functioning and fair marketplace for copyright,”[125] the directive grants to publishers a right to control the reproduction of digital summaries of press publications, which currently are often offered by information-service providers.[126] The new right aims to address the value gap dispute between digital platforms and news publishers, as the former are accused of capturing a huge share of the advertising revenue that might otherwise go to the latter by free riding on the investments made in producing news content. The argument is that these platforms take advantage of the value created by publishers when they distribute content that they do not produce and for which they do not bear the costs.[127]

Notably, because of publishers’ reliance on some Big Tech platforms for traffic (i.e., Google and Facebook), the latter are deemed to exert substantial bargaining power, which makes it difficult for publishers to negotiate on an equal footing.[128] Accordingly, it has been argued that a harmonized legal protection is needed to put publishers in better negotiating position in their contractual relations with large online platforms.

The European reform has not, however, been guided by an evidence-led approach. Indeed, there is no empirical evidence to support the free-riding narrative.[129] It relies merely on evidence of the crisis in the newspaper industry, without proof of the claim that digital infomediaries negatively impact legacy publishers by displacing online traffic. Looking at the previous ancillary-rights solutions at the national level (i.e., in Germany and Spain), empirical results show no evidence of a substitution effect, but rather demonstrate the existence of a market-expansion effect. This therefore proves that online news aggregators complement newspaper websites and may benefit them in terms of increased traffic and more advertising revenue. Such aggregators allow consumers to discover news outlets’ content that they would not otherwise be aware of, while reducing search times and enabling readers to consume more news.[130]

In a similar vein, as part of the 2030 digital-policy program,[131] the Commission and other European institutions appear set to deliver another legislative initiative that would force some large online platforms to contribute to the cost of telecommunications infrastructure.[132] Indeed, telecom operators claim that internet-traffic markets are unbalanced, arguing that just a few large online companies generate a significant portion of all network traffic, but they do not adequately contribute to the development of such networks[133]. As the argument goes, while network operators bear massive investments to ensure connectivity, digital platforms free ride on the infrastructure that carries their services.

Moreover, strong competition in the retail telecommunications market and regulatory interventions on the wholesale level have contributed to declining profit margins for telecom firms’ traditional retail revenue streams. Therefore, telecom operators argue that their costs of capital are higher than their returns on capital. Finally, network operators complain that they are not in a position to negotiate fair terms with these platforms due to their strong market positions, asymmetric bargaining power, and the lack of a level regulatory playing field. Hence, they argue, a legislative intervention is needed to address such imbalances and ensure a fair share of network usage costs are financed by large online content providers.[134]

Following this path, the EU Council has recently supported the view expressed in the European Declaration on Digital Rights and Principles for the Digital Decade that it is necessary to develop adequate frameworks so that “all market actors benefiting from the digital transformation assume their social responsibilities and make a fair and proportionate contribution to the costs of public goods, services and infrastructures, for the benefit of all Europeans.”[135]

The arguments advanced by telecom operators to support introducing a network-fee payment scheme would amount to a sending-party-network-pays system. Such proposals are not new, and they have already been rejected. As the Body of European Regulators for Electronic Communications (BEREC) noted 10 years ago, such proposals overlook that it is the success of content providers that lies at the heart of increases in demand for broadband access.[136] Indeed, requests for data flows stem not from content providers. but from internet consumers, from whom internet service providers already derive revenues.[137] From this perspective, both sides of the market (content providers and end users) already contribute to paying for Internet connectivity.[138] Further, “[t]his model has enabled a high level of innovation, growth in Internet connectivity, and the development of a vast array of content and applications, to the ultimate benefit of the end user.”[139]

Moreover, by charging Big Tech firms, the proposal may clash with the legal obligation of equal treatment that ensues from the Net Neutrality Regulation,[140] which has been justified under the opposite view that is it broadband providers who enjoy endemic market power as terminating-access monopolies, and hence should be precluded from discriminating against some traffic.[141] From this perspective, it would be difficult to justify an intervention intended to restore fairness in the relationship between network operators and content providers on the premise that the former suffers from an asymmetry of bargaining power without repealing the Net Neutrality Regulation.

BEREC recently affirmed its view in a preliminary assessment of the mechanism of direct compensation to telecom operators.[142] Changes in the traffic patterns do not modify the underlying assumptions regarding the sending-party-network-pays charging regime, therefore “the 2012 conclusions are still valid.”[143] The sending-party-network-pays model, BEREC argues, would provide ISPs “the ability to exploit the termination monopoly” and such a significant change could be of “significant harm to the internet ecosystem.”[144] Further, BEREC questioned the assumption that an increase in traffic directly translates into higher costs, noting that the costs of internet-network upgrades necessary to handle an increased traffic volume are very low relative to total network costs, while upgrades come with a significant increase in capacity.[145] Moreover, BEREC once again found no evidence of free riding along the value chain[146]: the IP-interconnection ecosystem is still largely competitive and the costs of internet connectivity are typically covered and paid for by ISP customers.

V.      Conclusion

Like the sirens’ music in the Odyssey, fairness exerts an irresistible allure. By evoking principles of equity and justice, fairness makes it hard for anyone to disagree with the pursuit of a goal that would make not just markets, but the whole society better off. As Homer warned, however, the rhetoric may be deceptive and designed to distract from the proper path. We see such risk in the call for fairness to serve as the guiding principle of EU competition policy in digital markets.

The experience of EU competition-law enforcement is illustrative of the difficulties inherent in relying on fairness as an applicable standard. It also underscores why enforcers have traditionally been reluctant to do so. Indeed, attempts to evaluate the unfairness of prices have required courts and competition authorities to identify economic values, while the struggle in finding agreement on the economic definition of what is fair has generated a wave of litigation in the SEP-licensing scenario. Therefore, while seeking refuge in the “ordinary meaning of the word” is apparently useless, envisaging an economic proxy for fairness is particularly challenging.

Despite this background, the EU institutions have embarked on a mission to appoint fairness as the lodestar of policy in digital markets. The DMA offers one definition of fairness, while all the other initiatives (P2B Regulation, the proposed Data Act, the Copyright Directive, and the ongoing discussion on the cost of telecom infrastructure) are likewise moved to address imbalances in bargaining power that do not guarantee that surplus will be adequately shared among market participants. On closer inspection, however, the initiatives are not fully consistent with any particular definition. The notion of fairness is often merged with contestability and is invoked to protect a wide range of stakeholders (business users, end users, rivals, or just small players), even when there is no evidence of disproportionate advantage for large online companies. Moreover, rather than being translated into specific rules, fairness is still primarily promoted according to a standard-based approach.

The revival of fairness considerations appears motivated primarily by policymakers’ desire to be free of any significant procedural constraints. An analogous policy trend can be seen among U.S. authorities, who likewise question the role of efficiency in antitrust enforcement and call for a “return to fairness.”[147] In the name of fairness, various business practice, strategies, and contractual terms can be evaluated without incurring the burden of economic analysis. And even the market structure can be questioned.

Fairness has the power to transform policymakers into judges, deciding what is right and who is worthy, which is a temptation that would require the sagacious foresight of Ulysses.

[1] Giuseppe Colangelo, Antitrust Unchained: The EU’s Case Against Self-Preferencing, International Center for Law & Economics (Oct. 7, 2022) ICLE White Paper, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4227839.

[2] Jonathan Kanter, Remarks at New York City Bar Association’s Milton Handler Lecture, U.S. Justice Department (May 18, 2022) https://www.justice.gov/opa/speech/assistant-attorney-general-jonathan-kanter-delivers-remarks-new-york-city-bar-association.

[3] Ibid.

[4] See, e.g., Amelia Miazad, Prosocial Antitrust, 73 Hastings Law J. 1637 (2022); Dina I. Waked, Antitrust as Public Interest Law: Redistribution, Equity and Social Justice, 65 Antitrust Bull. 87 (Feb. 28, 2020); Ioannis Lianos, Polycentric Competition Law, 71 Curr Leg Probl 161 (Dec. 1, 2018); Lina M. Khan & Sandeep Vaheesan, Market Power and Inequality: The Antitrust Counterrevolution and its Discontents, 11 Harv. L. & Pol’y Rev. 235 (2017). See also Margrethe Vestager, Fairness and Competition Policy, European Commission (Oct. 10, 2022), https://ec.europa.eu/commission/presscorner/detail/en/SPEECH_22_6067, arguing that properly functioning markets become an instrument of social change and progress as, e.g., “keeping markets open to smaller players and new entrants benefits female entrepreneurs and entrepreneurs with a migrant background.”

[5] Eleanor M. Fox, The Battle for the Soul of Antitrust, 75 Cal. L. Rev. 917 (May 1987).

[6] Kanter, supra note 2; See also Alvaro M. Bedoya, Returning to Fairness, Federal Trade Commission, 2 (Sep. 22, 2022), available at https://www.ftc.gov/system/files/ftc_gov/pdf/returning_to_fairness_prepared_remarks_commissioner_alvaro_bedoya.pdf, noting that “when Congress convened in 1890 to debate the Sherman Act, they did not talk about efficiency.”; See also Waked, supra note 4, framing antitrust as public-interest law and arguing that a sole focus on efficiency goals is inconsistent with the history of antitrust; For analysis of the conceptual links among competition, competition law, and democracy in the EU and the United States, see Elias Deutscher, The Competition-Democracy Nexus Unpacked—Competition Law, Republican Liberty, and Democracy, Yearbook of European Law (forthcoming), arguing that the idea of a competition-democracy nexus can only be explained through the republican conception of liberty as nondomination; In a similar vein, see Oisin Suttle, The Puzzle of Competitive Fairness, 21 PPE 190 (Mar. 7, 2022), distinguishing competitive fairness from equality of opportunity, sporting fairness (e.g., a level playing field), and economic efficiency, and arguing that competitive fairness is justified under the republican ideal of nondomination, namely the status of being a free agent protected from subjection to arbitrary interference.

[7] Bedoya, supra note 6, 8.

[8] See, e.g., Louis B. Schwartz, “Justice” and Other Non-Economic Goals of Antitrust, 127 Univ PA Law Rev 1076 (1979); John J. Flynn, Antitrust Jurisprudence: A Symposium on the Economic, Political and Social Goals of Antitrust Policy, 125 Univ PA Law Rev 1182 (1977).

[9] Eleanor M. Fox, Modernization of Antitrust: A New Equilibrium, 66 Cornell L. Rev. 1140 (August 1981).

[10] Kanter, supra note 2; See also Bedoya, supra note 6, 5, stating that “[w]hen antitrust was guided by fairness, these farmers’ families were part of a thriving middle class across rural America. After the shift to efficiency, their livelihoods began to disappear.”

[11] See Anu Bradford, Adam S. Chilton, & Filippo Maria Lancieri, The Chicago School’s Limited Influence on International Antitrust, 87 U Chi L Rev 297 (2020), arguing that the influence of the Chicago School has been more limited outside the United States.

[12] Niamh Dunne, Fairness and the Challenge of Making Markets Work Better, 84 Mod Law Rev 230, 236 (March 2021).

[13] Christian Ahlborn & Jorge Padilla, From Fairness to Welfare: Implications for the Assessment of Unilateral Conduct Under EC Competition Law, in Claus-Dieter Ehlermann & Mel Marquis (eds.), European Competition Law Annual 2007: A Reformed Approach to Article 82 EC (Hart Publishing, 2008), 55, 61-62; See also Vestager, supra note 4, stating that “[f]airness is what motivated us to take a look at the working conditions of the solo self-employed. … And fairness is what we considered first in our design of the Temporary Crisis Framework – avoiding subsidy races while ensuring those most affected by the crisis can receive the support they need.”

[14] See, e.g., Dunne, supra note 12, 237; Maurits Dolmans & Wanjie Lin, How to Avoid a Fairness Paradox in EU Competition Law, in Damien Gerard, Assimakis Komninos, & Denis Waelbroeck (eds.), Fairness in EU Competition Policy: Significance and Implications, GCLC Annual Conference Series, Bruylant (2020), 27-76; Francesco Ducci & Michael Trebilcock, The Revival of Fairness Discourse in Competition Policy, 64 Antitrust Bull. 79 (Feb. 12, 2019); Harri Kalimo & Klaudia Majcher, The Concept of Fairness: Linking EU Competition and Data Protection Law in the Digital Marketplace, 42 Eur. Law Rev. 210 (2017).

[15] See Einer Elhauge, Should The Competitive Process Test Replace The Consumer Welfare Standard?, ProMarket (May 24, 2022), https://www.promarket.org/2022/05/24/should-the-competitive-process-test-replace-the-consumer-welfare-standard; Herbert Hovenkamp, The Slogans and Goals of Antitrust Law, Faculty Scholarship at Penn Carey Law. 2853, (Jun. 2, 2022) https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4121866.

[16] See Bart J. Wilson, Contra Private Fairness, 71 Am J Econ Sociol 407 (April 2012), arguing that the understanding and use of the term “fair” in economics can be described as muddled, at best.

[17] Daniel Kahneman, Jack L. Knetsch, & Richard Thaler, Fairness as a Constraint on Profit Seeking: Entitlements in the Market, 76 Am Econ Rev 728 (September 1986); See also Ernst Fehr & Klaus M. Schmidt, A Theory of Fairness, Competition, and Cooperation, 114 Q J Econ 817 (August 1999).

[18] Louis Kaplow & Steven Shavell, Fairness Versus Welfare, Harvard University Press (2002).

[19] United States v. Trans-Mo. Freight Ass’n, 166 U.S. 290, 323 (1897); See Bedoya, supra note 6, 2, arguing that “today, it is axiomatic that antitrust does not protect small business. And that the lodestar of antitrust is not fairness, but efficiency” (emphasis in original); See also Margrethe Vestager, The Road to a Better Digital Future, European Commission (Sep. 22, 2022), https://ec.europa.eu/commission/presscorner/detail/en/SPEECH_22_5763, welcoming the Digital Markets Act because it will empower the EU “to make sure large digital platforms do not squeeze out small businesses.”

[20] Policy Statement Regarding the Scope of Unfair Methods of Competition Under Section 5 of the Federal Trade Commission Act, U.S. Federal Trade Commission (Nov. 10, 2022), https://www.ftc.gov/legal-library/browse/policy-statement-regarding-scope-unfair-methods-competition-under-section-5-federal-trade-commission.

[21] Ibid., footnotes 15, 18, and 21.

[22] Lina M. Khan, Rebecca Kelly Slaughter, Alvaro M. Bedoya, On the Adoption of the Statement of Enforcement Policy Regarding Unfair Methods of Competition Under Section 5 of the FTC Act, U.S. Federal Trade Commission (Nov. 10, 2022), 1, https://www.ftc.gov/legal-library/browse/cases-proceedings/public-statements/statement-of-chair-khan-commissioners-slaughter-bedoya-on-policy-statement-regarding-section-5.

[23] Christine S. Wilson, Dissenting Statement Regarding the Policy Statement Regarding the Scope of Unfair Methods of Competition Under Section 5 of the Federal Trade Commission Act, U.S. Federal Trade Commission (Nov. 10, 2022), 1-3,  https://www.ftc.gov/legal-library/browse/cases-proceedings/public-statements/dissenting-statement-of-commissioner-wilson-on-policy-statement-regarding-section-5, also arguing that “[t]he only crystal-clear aspect of the Policy Statement pertains to the process following invocation of an adjective: after labeling conduct ‘facially unfair,’ the Commission plans to skip an in-depth examination of the conduct, its justifications, and its potential consequences.”

[24] See, e.g., Konstantinos Stylianou & Marios Iacovides, The Goals of EU Competition Law: A Comprehensive Empirical Investigation, Leg Stud (forthcoming), reporting the various goals mentioned in speeches by EU commissioners during their terms in office; Dunne, supra note 12, 238, noting that Vestager invoked fairness in 85% of speeches in her first term in office.

[25] Margrethe Vestager, Fair Markets in a Digital World, European Commission (Mar. 9, 2018), https://wayback.archive-it.org/12090/20191129214609/https://ec.europa.eu/commission/commissioners/2014-2019/vestager/announcements/fair-markets-digital-world_en.

[26] Ibid.

[27] Ibid.

[28] Margrethe Vestager, Competition and Fairness in a Digital Society, European Commission (Nov. 22, 2018) https://perma.cc/VF53-2ULV.

[29] Margrethe Vestager, Competition in a Digital Age, European Commission (Mar. 17, 2021), https://ec.europa.eu/commission/commissioners/2019-2024/vestager/announcements/competition-digital-age_en.

[30] Margrethe Vestager, What Is Competition For?, European Commission (Nov. 4, 2021), https://ec.europa.eu/commission/commissioners/2019-2024/vestager/announcements/speech-evp-margrethe-vestager-danish-competition-and-consumer-authority-2021-competition-day-what_en.

[31] See, e.g., Margrethe Vestager, Fairness and Competition, European Commission (Jan. 25, 2018), https://perma.cc/XXC2-7P7J; Margrethe Vestager, Making the Decisions that Count for Consumers, European Commission (May 31, 2018) https://perma.cc/BU47-D95T.

[32] Vestager, supra note 25.

[33] Margrethe Vestager, A Responsibility to Be Fair, European Commission (Sep. 3, 2018), https://perma.cc/AC36-B4KS.

[34] Thibault Schrepel, Antitrust Without Romance, 13 N. Y. Univ. J. Law Lib. 326 (May 4, 2020); As noted by Dolmans & Lin, supra note 14, 38, fairness, “with its moral overtones, confers a rhetorical flourish and sense of intrinsic righteousness when used to describe an act or situation.”; However, see Sandra Marco Colino, The Antitrust F Word: Fairness Considerations in Competition Law, 5 J. Bus. Law 329, 343 (2019), arguing that “[i]t makes little sense to defend a competition policy that develops with its back purposefully turned to the attainment of moral and social justice.”; For a more balanced reading, see Johannes Laitenberger, Fairness in EU Competition Law Enforcement, European Commission (Jun. 20, 2018) https://ec.europa.eu/competition/speeches/text/sp2018_10_en.pdf, arguing that “while ‘fairness’ is a guiding principle, it is not an instrument that competition enforcers can use off the shelf to go about their work in detail. In each and every case the Commission looks into, it must dig for evidence; conduct rigorous economic analysis; and check findings against the law and the guidance provided by the European Courts.”

[35] Margrethe Vestager, Competition for a Fairer Society, European American Chamber of Commerce (Sep. 29, 2016) https://eaccny.com/news/chapternews/eu-commissioner-margrethe-vestager-competition-for-a-fairer-society; see also Margrethe Vestager, Antitrust for the Digital Age, European Commission (Sep. 16, 2022) https://ec.europa.eu/commission/presscorner/detail/en/SPEECH_22_5590, arguing that the power that large platforms wield “is not just an issue for fair competition; it is an issue for our very democracies” and that the most important goal of competition policy is to make markets work for people; Margrethe Vestager, Keynote at the Making Markets Work for People Conference, European Commission (Oct. 27, 2022) https://ec.europa.eu/commission/presscorner/detail/en/SPEECH_22_6445, stating that “[t]he only policy goal for markets is to serve the people.”; on the social rationale of competition law, see Damien Gerard, Fairness in EU Competition Policy: Significance and Implications, 9 J. Eur. Compet 211 (2018).

[36] Vestager, supra note 4, stating that “[w]e are on the side of the people, sometimes when no one else is.”; in a similar vein, on the U.S. side, see Bedoya, supra note 6, 9, describing antitrust as a way to protect “people living paycheck to paycheck” (“For me, that’s what antitrust is about: your groceries, your prescriptions, your paycheck. I want to make sure the Commission is helping the people who need it the most.”); see also Ariel Ezrachi & Maurice E. Stucke, The Fight over Antitrust’s Soul, 9 J. Eur. Compet 1 (2018), arguing that “[u]ltimately the divide is over the soul of antitrust: Is antitrust solely about promoting some form of economic efficiency (or as cynics argue, the interests of the powerful who hide behind a narrow utilitarian approach) or the welfare of the powerless (the majority of citizens who feel increasingly disenfranchised by big government and big business)?”; see also Adi Ayal, Fairness in Antitrust: Protecting the Strong from the Weak, Hart (2016).

[37] Vestager, supra note 28; see also @vestager, Twitter (Nov 8, 2022, 4:39 AM) https://twitter.com/vestager/status/1589915517833412610, featuring Vestager’s reaction to the European Court of Justice’s (CJEU) judgment annulling the Commission’s decision that found Luxembourg had granted selective tax advantages to Fiat in Fiat Chrysler Finance Europe v. Commission.

[38] There is an extensive literature devoted to investigating the tradeoffs between rules and standards: see, e.g., Daniel A. Crane, Rules Versus Standards in Antitrust Adjudication, 64 Wash. Lee Law Rev. 49 (2007); Louis Kaplow, Rules Versus Standards: An Economic Analysis, 42 Duke L.J. 557 (1992); Isaac Ehrlich & Richard A. Posner, An Economic Analysis Of Legal Rulemaking, 3 J. Leg. Stud. 257 (January 1974).

[39] See, e.g., CJEU, Case C-127/73, Belgische Radio en Televisie and Société Belge des Auteurs, Compositeurs et Editeurs v. SV SABAM and NV Fonior (Mar. 27, 1974), EU:C:1974:25, para. 15, holding that an exploitative abuse may occur when “the fact that an undertaking entrusted with the exploitation of copyrights and occupying a dominant position … imposes on its members obligations which are not absolutely necessary for the attainment of its object and which thus encroach unfairly upon a member’s freedom to exercise his copyright.”

[40] European Commission, Case IV/31.043, Tetra Pak II (Jul. 24, 1991), paras. 105-108, (1992) OJ L 72/1.

[41] European Commission, Case COMP D3/34493, DSD (Apr. 20, 2001), para. 112, (2001) OJ L 166/1; affirmed in GC, Case T-151/01, DerGrünePunkt – Duales System DeutschlandGmbH v. European Commission (May 24, 2007), EU:T:2007:154 and CJEU, Case C-385/07 P (Jul. 16, 2009), EU:C:2009:456.

[42] See European Commission, Case COMP/E-2/36.041/PO, Michelin (Michelin II) (Jun. 20, 2001), paras. 220-221 and 223-224, (2002) OJ L143/1, arguing that a discount program was unfair because it “placed [Michelin’s dealers] in a situation of uncertainty and insecurity,” because “it is difficult to see how [Michelin’s dealers] would of their own accord have opted to place themselves in such an unfavourable position in business terms,” and because Michelin’s retailers were not in a position to carry out “a reliable evaluation of their cost prices and therefore [could not] freely determine their commercial strategy.”

[43] Opinion of Advocate General Pitruzzella, Case C-372/19, Belgische Vereniging van Auteurs, Componisten en Uitgevers CVBA (SABAM) v. Weareone.World BVBA, Wecandance NV (Jul. 16, 2020), EU:C:2020:598, para. 21; see also Marco Botta, Sanctioning Unfair Pricing Under Art. 102(a) TFEU: Yes, We Can!, 17 Eur. Compet. J. 156 (2021); for an overview of recent case law, see Giovanni Pitruzzella, Recent CJEU Case Law on Excessive Pricing Cases, in The Interaction of Competition Law and Sector Regulation: Emerging Trends at the National and EU Level (Marco Botta, Giorgio Monti, and Pier Luigi Parcu, eds.), Elgar 2022, 169; Margherita Colangelo, Excessive Pricing In Pharmaceutical Markets: Recent Cases in Italy and in the EU, ibid., 210.

[44] Dolmans & Lin, supra note 14, 59-60; see also Botta, supra note 43, arguing that, since the imposition of excessive prices by a dominant firm directly harms consumer welfare, the resurgence of excessive-pricing cases is linked to the role of consumer’s welfare standard in EU competition policy.

[45] CJEU, Case C-27/76, United Brands Company and United Brands Continental BV v. Commission of the European Communities (Feb. 14, 1978) EU:C:1978:22.

[46] CJEU, Case C-372/19, Belgische Vereniging van Auteurs, Componisten en Uitgevers CVBA (SABAM) v. Weareone.World BVBA, Wecandance NV (Nov. 25, 2020), EU:C:2020:959.

[47] United Brands, supra note 45, para. 252, holding that the questions to be determined are “whether the differences between the costs actually incurred and the price actually charged is excessive, and, if the answer to this question is in the affirmative, whether a price has been imposed which is either unfair in itself or when compared to competing products.”

[48] CJEU, Case C-177/16, Autortiesi?bu un Komunice?s?ana?s Konsulta?ciju Ag?entu?ra v. Latvijas Autoru Apvieni?ba v Konkurences Padome (Sep. 14, 2017), EU:C:2017:689, para. 49.

[49] Opinion of Advocate General Wahl, Case C-177/16 (Apr. 6, 2017), EU:C:2017:286, para. 131.

[50] See European Commission, Guidance on the Commission’s enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings, (2009) OJ C 45/7, para. 80; CJEU, 14 October 2010, Case C-280/08 P, Deutsche Telekom AG v. European Commission, EU:C:2010:603; CJEU, 17 February 2011, Case C-52/09, Konkurrensverket v. TeliaSonera Sverige AB, EU:C:2011:83; CJEU, 10 July 2014, Case C?295/12 P, Telefónica SA and Telefónica de España SAU v. European Commission, EU:C:2014:2062; CJEU, 25 March 2021, Case C-165/19 P, Slovak Telekom a.s. v. Commission, EU:C:2021:239.

[51] However, in Teliasonera (supra note 50), the CJEU found that there can be an exclusionary abuse even where the margin level of input purchasers is positive (so-called positive margin squeeze theory), being enough that rivals’ margins are insufficient, for instance because they must operate at artificially reduced levels of profitability.

[52] On the US side, rejecting margin squeeze as a stand-alone offense, the Supreme Court in Pacific Bell Tel. Co. v. linkLine, 555 U.S. 438 (2009) argued that it is nearly impossible for courts to determine the fairness of rivals’ margins and quoted Town of Concord v. Boston Edison Co., 915 F. 2d 17, 25 (1st Cir. 1990) asking “how is a judge or jury to determine a ‘fair price?’ Is it the price charged by other suppliers of the primary product? None exist. Is it the price that competition ‘would have set’ were the primary level not monopo­lized? How can the court determine this price without examining costs and demands, indeed without acting like a rate-setting regulatory agency, the rate-setting proceedings of which often last for several years? Further, how is the court to decide the proper size of the price ‘gap?’ Must it be large enough for all inde­pendent competing firms to make a ‘living profit,’ no matter how inefficient they may be? . . . And how should the court respond when costs or demands change over time, as they inevitably will?”

[53] For an overview, see Oscar Borgogno & Giuseppe Colangelo, Disentangling the FRAND Conundrum, DEEP-IN Research Paper (2019), https://ssrn.com/abstract=3498995.

[54] CJEU, Case C-170/13, Huawei Technologies Ltd. v. ZTE Corp. (Jul. 16, 2015), EU:C:2015:477.

[55] Nicolas Petit & Amandine Le?onard, FRAND Royalties: Relus v Standards? Chi.-Kent J. Intell. Prop. (forthcoming).

[56] For an overview, see Giuseppe Colangelo, The European Digital Markets Act and Antitrust Enforcement: A Liaison Dangereuse, 47Eur. Law Rev. 597 (July 2022); see also Inge Graef, Differentiated Treatment in Platform-to-Business Relations: EU Competition Law and Economic Dependence, 38 Yearbook of European Law 448 (2019), suggesting giving a stronger role to economic dependence both within and outside EU competition law.

[57] Council Regulation (EC) No. 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty, [2003] OJ L 1/1.

[58] Belgian Royal Decree of 31 July 2020 amending books I and IV of the Code of economic law as concerns the abuse of economic dependence, Article 4.

[59] GWB Digitalization Act, 18 January 2021, Section 20.

[60] Italian Annual Competition Law, 5 August 2022, No. 118, Article 33.

[61] CJEU, Case C-377/20, Servizio Elettrico Nazionale SpA v. Autorità Garante della Concorrenza e del Mercato (May 12, 2022), EU:C:2022:379.

[62] Ibid., para. 46.

[63] CJEU, Case C-413/14 P, Intel v. Commission (Sep. 6, 2017), EU:C:2017:632, paras. 133-134. The same principle has been affirmed in discrimination and margin-squeeze cases, such as CJEU, C?525/16, MEO v. Autoridade da Concorrência (Apr. 19, 2018), EU:C:2018:270 and CJEU, Case C-209/10, Post Danmark A/S v. Konkurrencerådet (Mar. 27, 2012), EU:C:2012:172, respectively.

[64] CJEU, Intel, supra note 63, para. 73; see Alfonso Lamadrid de Pablo, Competition Law as Fairness, 8 J. Eur. Compet 147 (Feb. 15, 2017), arguing that the notion of merit-based competition implicitly carries in it a sense of fairness, understood as equality of opportunity; see also Alberto Pera, Fairness, Competition on the Merits and Article 102, 18 Eur. Compet. J. 229 (April 2022).

[65] Regulation (EU) 2019/1150 of the European Parliament and of the Council of 20 June 2019 on promoting fairness and transparency for business users of online intermediation services, [2019] OJ L 186/57.

[66] Ibid., Article 1(1).

[67] Ibid., Recital 2.

[68] Ibid., Recital 49.

[69] European Commission, Shaping Europe’s Digital Future, COM(2020) 67 final.

[70] Ibid., 8-9.

[71] Ibid., 8.

[72] 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.

[73] Ibid., Recital 7.

[74] Ibid., Recital 2.

[75] Ibid., Recitals 2 and 4.

[76] Ibid., Recitals 46, 47, 51, 56, and 57.

[77] Colangelo, supra note 60; see also Oscar Borgogno & Giuseppe Colangelo, Platform and Device Neutrality Regime: The New Competition Rulebook for App Stores?, 67 Antitrust Bull. 451 (2022).

[78] DMA, supra note 72, Recital 5.

[79] Ibid.

[80] Ibid.

[81] Ibid.

[82] Ibid., Recital 11.

[83] Pinar Akman, Regulating Competition in Digital Platform Markets: A Critical Assessment of the Framework and Approach of the EU Digital Markets Act, 47 Eur. Law Rev. 85 (Mar. 30, 2022); Colangelo, supra note 60; Heike Schweitzer, The Art to Make Gatekeeper Positions Contestable and the Challenge to Know What Is Fair: A Discussion of the Digital Markets Act Proposal, 3 ZEuP 503 (May 7, 2021).

[84] DMA, supra note 72, Recital 32. See also Article 12(5).

[85] Ibid..

[86] Ibid., Recital 33 and Article 12(5); see also Recital 62 providing some benchmarks that can serve as a yardstick to determine the fairness of general access conditions (i.e., prices charged or conditions imposed for the same or similar services by other providers of software application stores; prices charged or conditions imposed by the provider of the software application store for different related or similar services or to different types of end users; prices charged or conditions imposed by the provider of the software application store for the same service in different geographic regions; prices charged or conditions imposed by the provider of the software application store for the same service the gatekeeper provides to itself).

[87] Ibid.; see also Monopolkomission, Recommendations for an Effective and Efficient Digital Markets Act, (2021) 15, https://www.monopolkommission.de/en/reports/special-reports/special-reports-on-own-initiative/372-sr-82-dma.html, recommending that the DMA objective of fairness should address the economic dependence of business users vis-a?-vis a gatekeeper, and hence the asymmetric negotiating power favoring the gatekeeper; see also Gregory S. Crawford, Jacques Cre?mer, David Dinielli, Amelia Fletcher, Paul Heidhues, Monika Schnitzer, Fiona M. Scott Morton, & Katja Seim, Fairness and Contestability in the Digital Markets Act, Yale Digital Regulation Project, Policy Discussion Paper No. 3 (2021), 4-10, https://tobin.yale.edu/sites/default/files/Digital%20Regulation%20Project%20Papers/Digital%20Regulation%20Project%20-%20Fairness%20and%20Contestability%20-%20Discussion%20Paper%20No%203.pdf, supporting the interpretation of fairness with respect to surplus sharing. According to the authors, since a platform ecosystem is a co-creation of the platform itself and its users, regulation should correct the distortion related to unfair outcomes when users are not rewarded for their contribution to the success of the platform.

[88] DMA, supra note 72, Recital 34.

[89] Ibid.; see also Recital 16 referring to “unfair practices weaking contestability.”; see, instead, Monopolkomission, supra note 87, 16, suggesting to clearly distinguish the objectives pursued by the DMA, which should be understood such that only ecosystem-related questions of contestability are addressed by the DMA when it comes to the intersection of exclusion and fairness with exploitation of business users.

[90] See also DMA, supra note 72, Articles 12(1, 3, 4, and 5), 19(1), 41(3 and 4), and Recitals 15, 69, 77, 79, 93.

[91] Ibid., Articles 1(1 and 5), 18(2), 40(7), 53 (2 and 3), and Recitals 8, 11, 28, 31, 42, 45, 50, 58, 67, 73, 75, 97, 104, 106.

[92] Ibid., Recital 36 regarding Article 5(2), Recital 50 regarding Article 6(4), Recital 51 regarding Article 6(5), Recital 53 regarding Article 6(6), Recital 59 regarding Article 6(9), Recital 61 regarding Article 6(11), Recital 64 regarding Article 7.

[93] Ibid., Recital 45 regarding Article 5(9-10) and Recital 58 regarding Article 6(8).

[94] Ibid., Recital 46; see also European Commission, 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 (Nov. 10, 2020), https://ec.europa.eu/commission/presscorner/detail/en/ip_20_2077.

[95] DMA, supra note 72, Recital 39 regarding Article 5(3).

[96] Ibid., Recital 40 regarding Article 5(4).

[97] Ibid., Recital 42 regarding Article 5(6).

[98] Ibid., Recital 43 regarding Article 5(7).

[99] Ibid., Recital 44 regarding Article 5(8).

[100] Ibid., Articles 5(6), 5(8), and 6(13); see also Recital 2 referring to the impact on “the fairness of the commercial relationship between [gatekeepers] and their business users and end users.”

[101] Ibid., Recital 5; see also Recital 42 referring to “fair commercial environment.”

[102] Ibid., Recital 39.

[103] Commission Staff Working Document accompanying the Report from the Commission to the Council and the European Parliament Final Report on the E-commerce Sector Inquiry, SWD(2017) 154 final. Conversely, in Germany, the Federal Supreme Court has supported the Bundeskartellamt’s strict approach against narrow price parity clauses used. See Bundesgerichtshof, Case KVR 54/20, Booking.com (May 18, 2021).

[104] European Commission, Guidelines on Vertical Restraints (2022) OJ C 248/1, para. 374.

[105] Ibid., para. 372.

[106] European Commission, Proposal for a Regulation of the European Parliament and of the Council on Harmonised Rules on Fair Access and Use of Data (Data Act), COM(2022) 68 final; see also Giuseppe Colangelo, European Proposal for a Data Act – A First Assessment, CERRE Assessment Paper (Aug. 30, 2022) https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4199565.

[107] Data Act, supra note 106, Explanatory Memorandum, 2.

[108] Ibid., Recital 6 and Explanatory Memorandum, 1.

[109] European Commission, Inception Impact Assessment – Data Act, Ares (2021) 3527151, 1, https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/13045-Data-Act-amended-rules-on-the-legal-protection-of-databases_en,1-2.

[110] Data Act, supra note 106, Explanatory Memorandum, 3.

[111] Ibid., Recital 5.

[112] Ibid., Recital 51 and Explanatory Memorandum, 13

[113] Ibid., Recital 52

[114] Ibid., Article 13(2).

[115] Ibid., Recital 55.

[116] See, e.g., ibid., Article 13(4)(e), according to which a contractual term is presumed unfair if its object or effect is to enable the party that unilaterally imposed the term to terminate the contract with unreasonably short notice, taking into consideration the reasonable possibilities of the other contracting party to switch to an alternative and comparable service and the financial detriment caused by such termination.

[117] Colangelo, supra note 106.

[118] European Commission, supra note 109, 2.

[119] Ibid..

[120] Dunne, supra note 12, 239; see also Massimo Motta, Competition Policy: Theory and Practice, Cambridge University Press, 2004, 26, distinguishing between ex ante equity, which is consistent with competition policy and implies equal initial opportunities of firms in the marketplace, and ex post equity representing equal outcomes of market competition.

[121] Vestager, supra note 4.

[122] CJEU, supra notes 61 and 63; see also Opinion of Advocate General Rantos, Case C?377/20, Servizio Elettrico Nazionale SpA v. Autorità Garante della Concorrenza e del Mercato (Dec. 9, 2021), EU:C:2021:998, para. 45, arguing that if any conduct having an exclusionary effect were automatically classed as anticompetitive, antitrust would become a means for protecting less-capable, less-efficient undertakings and would in no way protect more meritorious undertakings that can serve as a stimulus to a market’s competitiveness.

[123] Vestager, supra note 28.

[124] Directive (EU) 2019/790 of 17 April 2019 on copyright and related rights in the Digital Single Market and amending Directives 96/9/EC and 2001/29/EC, [2019] OJ L 130/92.

[125] Ibid., Recital 3.

[126] Ibid., Article 15.

[127] See Giuseppe Colangelo, Enforcing Copyright Through Antitrust? The Strange Case of News Publishers Against Digital Platforms, 10 J. Antitrust Enforc 133 (Jun. 22, 2022).

[128] Directive 2019/790, supra note 124, Recitals 54 and 55; see also European Commission, Impact Assessment on the Modernisation of EU Copyright Rules, SWD(2016) 301 final, §5.3.1, arguing that the gap in the current EU rules “further weakens the bargaining power of publishers in relation to large online service providers.”

[129] Ibid.; see also Lionel Bently, Martin Kretschmer, Tobias Dudenbostel, Maria Del Carmen Calatrava Moreno, & Alfred Radauer, Strengthening the Position of Press Publishers and Authors and Performers in the Copyright Directive, European Parliament (September 2017) http://www.europarl.europa.eu/RegData/etudes/STUD/2017/596810/IPOL_STU(2017)596810_EN.pdf.

[130] See, e.g., Susan Athey, Markus Mobius, & Jeno Pal, The Impact of Aggregators on Internet News Consumption, NBER Working Paper No. 28746 (2021), http://www.nber.org/papers/w28746; Joan Calzada & Ricard Gil, What Do News Aggregators Do?, 39 Mark. Sci. 134 (2020); Joint Research Centre for the European Commission, Online News Aggregation and Neighbouring Rights for News Publishers, (2017) https://www.asktheeu.org/en/request/4776/response/15356/attach/6/Doc1.pdf.

[131] See European Commission, 2030 Digital Compass: the European Way for the Digital Decade, COM/2021/118 final; and European Commission, Proposal for a Decision of the European Parliament  and of the Council Establishing the 2030 Policy Programme “Path to the Digital Decade,” (2021) https://data.consilium.europa.eu/doc/document/ST-11900-2021-INIT/en/pdf.

[132] See the public statements released in May 2022 by Commissioners Margrethe Vestager (https://www.reuters.com/business/media-telecom/eus-vestager-assessing-if-tech-giants-should-share-telecoms-network-costs-2022-05-02) and Thierry Breton (https://www.euractiv.com/section/digital/news/commission-to-make-online-platforms-contribute-to-digital-infrastructure).

[133] Axon Partners Group Consulting, Europe’s Internet Ecosystem: Socio-Economic Benefits of a Fairer Balance Between Tech Giants and Telecom Operators, (2022) Report prepared for the European Telecommunications Network Operators’ Association (ETNO), https://etno.eu/downloads/reports/europes%20internet%20ecosystem.%20socio-economic%20benefits%20of%20a%20fairer%20balance%20between%20tech%20giants%20and%20telecom%20operators%20by%20axon%20for%20etno.pdf; see also Frontier Economics, Estimating OTT Traffic-Related Costs on European Telecommunications Networks, (2022) A report for Deutsche Telekom, Orange, Telefonica, & Vodafone, https://www.telekom.com/resource/blob/1003588/384180d6e69de08dd368cb0a9febf646/dl-frontier- g4-ott-report-stc-data.pdf.

[134] See also the appeal published by the CEOs of Telefo?nica, Deutsche Telekom, Vodafone and Orange, United Appeal of the Four Major European Telecommunications Companies (2022), https://www.telekom.com/en/company/details/united-appeal-of-the-four-major-european-telecommunications-companies-646166; and, more recently, the statement released by several CEOs, CEO Statement on the Role of Connectivity in Addressing Current EU Challenges (2022), https://etno.eu//downloads/news/ceo%20statement_sept.2022_26.9.pdf.

[135] European Commission, European Declaration on Digital Rights and Principles for the Digital Decade, COM(2022) 28 final, 3; see also European Council, 2030 Policy Programme ‘Path to the Digital Decade’: The Council Adopts Its Position (2022), https://www.consilium.europa.eu/en/press/press-releases/2022/05/11/programme-d-action-a-l-horizon-2030-la-voie-a-suivre-pour-la-decennie-numerique-le-conseil-adopte-sa-position.

[136] Body of European Regulators for Electronic Communications, BEREC’s Comments on the ETNO Proposal for ITU/WCIT or Similar Initiatives Along These Lines, BoR(12) 120 (2012), 3, https://www.berec.europa.eu/en/document-categories/berec/others/berecs-comments-on-the-etno-proposal-for-ituwcit-or-similar-initiatives-along-these-lines; see also Body of European Regulators for Electronic Communications, Report on IP-Interconnection practices in the Context of Net Neutrality, BoR (17) 184 (2017), https://www.berec.europa.eu/en/document-categories/berec/reports/berec-report-on-ip-interconnection-practices-in-the-context-of-net-neutrality, finding the internet-protocol-interconnection market to be competitive.

[137] See former Commissioner Neelie Kroes, Adapt or Die: What I Would Do if I Ran a Telecom Company (2014), https://ec.europa.eu/commission/presscorner/detail/de/SPEECH_14_647, arguing that the current situation of European telcos is not the fault of OTTs, given that the latter are the ones driving digital demand: “[EU homes] are demanding greater and greater bandwidth, faster and faster speeds, and are prepared to pay for it. But how many of them would do that, if there were no over the top services? If there were no Facebook, no YouTube, no Netflix, no Spotify?”

[138] Body of European Regulators for Electronic Communications, supra note 136, 4. Concerns about side effects on consumers of the possible introduction of a network infrastructure fee have been raised  by the European consumer organisation BEUC, Connectivity Infrastructure and the Open Internet, (2022) https://www.beuc.eu/sites/default/files/2022-09/BEUC-X-2022-096_Connectivity_Infrastructure-and-the_open_internet.pdf; see also the open letter signed by 34 civil-society organisations from 17 countries (https://epicenter.works/sites/default/files/2022_06-nn-open_letter_cso_0.pdf) arguing that nothing has changed that would merit a different response to the proposals that have been already discussed over the past 10 years and that charging content and application providers for the use of internet infrastructure would undermine and conflict with core net-neutrality protections; see also David Abecassis, Michael Kende, & Guniz Kama, IP Interconnection on the Internet: A European Perspective for 2022, (2022) https://www.analysysmason.com/consulting-redirect/reports/ip-interconnection-european-perspective-2022, finding no evidence for significant changes to the way interconnection works on the internet and arguing that the approach advocated by proponents of network-usage fees would involve complexity and regulatory costs, and risks being detrimental to consumers and businesses in Europe; futhermore, see David Abecassis, Michael Kende, Shahan Osman, Ryan Spence, & Natalie Choi, The Impact of Tech Companies’ Network Investment on the Economics of Broadband ISPs (2022), https://www.analysysmason.com/internet-content-application-providers-infrastructure-investment-2022, reporting significant investments undertaken by content and application providers in Internet infrastructure.

[139] Body of European Regulators for Electronic Communications, supra note 136, 4. In the next months, the BEREC is expected to assess again the impact of the potential sending party network pays principle the on Internet ecosystem: see Body of European Regulators for Electronic Communications, Work Programme 2023, BoR (22) 143 (2022), 26-27, https://www.berec.europa.eu/en/document-categories/berec/berec-strategies-and-work-programmes/draft-berec-work-programme-2023.

[140] Regulation (EU) 2015/2120 laying down measures concerning open internet access and amending Directive 2002/22/EC on universal service and users’ rights relating to electronic communications networks and services and Regulation (EU) No 531/2012 on roaming on public mobile communications networks within the Union, (2015) OJ L 310/1.

[141] For a summary of the net-neutrality debate, see Giuseppe Colangelo & Valerio Torti, Offering Zero-Rated Content in the Shadow of Net Neutrality, 5 M&CLR 41 (2021); see also Tobias Kretschmer, In Pursuit of Fairness? Infrastructure Investment in Digital Markets, (2022) https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4230863, arguing that the policy solution at issue would fall short of the principles of efficient risk allocation, time consistency, and net neutrality, and might seem like arbitrarily targeting a group of (largely U.S.-based) firms while letting (at least partly European) newcomers and/or smaller firms enjoy the same externalities at no cost. Indeed, the author notes that a transfer from Big Tech to telecom-infrastructure providers would be equivalent to a tax on success, since it would be based on ex post estimates of benefits from prior investments. Further, a direct and unrestricted transfer may not ensure sufficient infrastructure investment in the future, as it is not conditional on future behavior, but rather it would serve as a windfall profit for past (imprudent) behavior that can finance any kind of activity by telecom-infrastructure providers. Finally, a fair distribution of investment financing would require all complementors to the basic service to pay a share of future investments proportional to the expected benefit from the investments to be undertaken.

[142] Body of European Regulators for Electronic Communications, BEREC preliminary assessment of the underlying assumptions of payments from large CAPs to ISPs, BoR (22) 137 (2022).

[143] Ibid., 4-5.

[144] Ibid., 5.

[145] Ibid., 7-8.

[146] Ibid., 11-14.

[147] Bedoya, supra note 6, 8.

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Antitrust & Consumer Protection

The FTC Knows It When It Sees It

TOTM When Congress created the Federal Trade Commission (FTC) in 1914, it charged the agency with condemning “unfair methods of competition.” That’s not the language Congress used in . . .

When Congress created the Federal Trade Commission (FTC) in 1914, it charged the agency with condemning “unfair methods of competition.” That’s not the language Congress used in writing America’s primary antitrust statute, the Sherman Act, which prohibits “monopoliz[ation]” and “restraint[s] of trade.”

Read the full piece here.

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Antitrust & Consumer Protection

The Antitrust Assault on Ad Tech: A Law & Economics Critique

ICLE White Paper For years, regulators and competition watchdogs have expressed concern about competition in the digital advertising business. They note that digital advertising appears to be dominated by a few dominant firms, such as Google, Facebook, and—to a lesser extent—Amazon.

Executive Summary

For years, regulators and competition watchdogs have expressed concern about competition in the digital advertising business. They note that digital advertising appears to be dominated by a few dominant firms, such as Google, Facebook, and—to a lesser extent—Amazon. Some claim that this dominance allows these firms—and Google, in particular—to engage in anticompetitive conduct to extend their market power and to earn supercompetitive profit at the expense of advertisers, publishers, and consumers. This paper investigates the digital advertising market and assesses some of these claims. We conclude based on the information that is publicly available that many of the most significant claims made against Google’s advertising technology (ad tech) business are based on a misunderstanding of U.S. antitrust law, or of the details of the  ad tech market itself.

Digital advertising provides the economic underpinning for much of the Internet. Targeted digital advertising on independent websites is often facilitated by intermediaries that match advertisers and websites automatically, displaying ads to users for whom they are most relevant. This intermediation has advanced enormously over the past three decades. Some now allege, however, that the digital advertising market is monopolized by its largest participant: Google.

In particular, a lawsuit filed in December 2020 by the State of Texas and nine other U.S. states (later joined by five more states in March 2021) alleges anticompetitive conduct related to Google’s online display-advertising business. It has been reported that the U.S. Justice Department (DOJ) may bring a similar lawsuit before the end of 2022.

Moreover, a bipartisan group of U.S. senators introduced the Competition and Transparency in Digital Advertising Act in May 2022. If passed by Congress and signed into law, the bill would require some of the largest Internet firms—such as Google, Facebook, and Amazon—to break up their digital advertising businesses. A summary of the bill claims that Google is the “leading or dominant” firm in “every part” of the ad tech “stack” and that it uses this dominance to “extract monopoly rents” from advertisers and publishers.

Our paper focuses on the open-display digital advertising business. Display ads are designed to be visually engaging, combining text, images, and a hyperlink to a website. These are distinct from search ads, which are text ads displayed along with organic Internet search results. Most of today’s digital display advertising appears on heavily trafficked owned-and-operated sites such as TikTok, Instagram, YouTube, and Amazon, in which the company providing the advertising space is the same company that operates the platforms that place the ads. In contrast, open-display space is supplied by independent publishers—such as The New York Times (nytimes.com), MLB.com, or The Weather Channel (weather.com)—and is usually facilitated by intermediaries.

This paper begins with an overview of digital advertising. The market’s history is one of dynamic innovation, with many new developments arising to solve problems created by previous innovations, address new innovations, and respond to market developments. The market’s structure has changed dramatically as advertisers, publishers, and consumers have responded to new technologies. These changes and innovations all must balance the competing demands of advertisers, publishers, and consumers to maximize the total value of the advertising platform. Thus, any antitrust evaluation of digital advertising must consider whether the market’s structure and the conduct of its participants may be procompetitive responses to prior market changes, as well as the extent to which the overall market structure may mitigate superficially problematic elements within it.

Of particular importance, digital advertising intermediaries that are vertically integrated into some or all components of the digital advertising “stack” of services use the prices charged to each side of the market to optimize overall use of the platform. As a result, pricing in these markets operates differently than pricing in traditional markets: pricing on one side of the platform is often used to subsidize participation on another side of the market, increasing the value to all sides combined. Consequently, pricing (or other terms of exchange) on one side of the market may appear to diverge from the competitive level when viewed for that side alone. While one side of the market may pay superficially higher fees, this cost can be offset by the benefits from increased participation on the other side of the market. In this way, using subsidies to increase participation on another side of the market creates valuable network effects for the side of the market facing the higher fees.

In the second half of the paper, we address some of the specific allegations of anticompetitive structures and conduct made in the Texas Complaint and by critics of the digital advertising industry. We conclude that a flawed premise underlies many of these allegations. It is a version of the “big is bad” argument, in which conduct by dominant incumbent firms that makes competition more difficult for certain competitors is viewed as inherently anticompetitive—even if the conduct confers benefits on users. Under this approach, the largest firms are seen as acting anticompetitively if they do not share their innovations or reveal their business processes to competing firms. As a result, creating new and innovative products, lowering prices, reducing costs through vertical integration, and enhancing interoperability among existing products is miscast as anticompetitive conduct.

In contrast, we note that U.S. antitrust law is intended to foster innovation that creates benefits for consumers, including innovation by incumbents. The law does not proscribe efficiency-enhancing unilateral conduct on the grounds that it might also inconvenience competitors, or that there is some other arrangement that could be “even more” competitive.

Moreover, U.S. antitrust law does not second guess unilateral conduct simply because it may hinder rivals. Any such conduct would first have to be shown to be anticompetitive—that is, to harm consumers or competition, not merely certain competitors. In multisided markets, this means finding not simply that some firms on one side of the market are harmed, but that the combined net effect of challenged conduct across all sides of the market is harmful. The Texas Complaint, however, is built on the alleged harm of reduced revenue to publishers, without considering the corresponding benefit of lower prices to advertisers (and the consumers of advertised products and services).

Based on the information publicly available, we conclude that many of the most significant claims made against Google’s ad tech business are based on a misunderstanding of U.S. antitrust law, or of the details of the ad tech market itself. Although we cannot be sure how the Texas et al v. Google case will develop once its allegations are fleshed out into full arguments, many of its claims and assumptions appear wrongheaded. If the court rules in favor of these, the result will be to condemn procompetitive conduct and potentially to impose costly, inefficient remedies that function as a drag on innovation.

Legislators, too, who may be concerned about Google’s conduct and tempted to impose regulatory requirements on tech companies should bear in minds the risk of the “Nirvana fallacy,” in which real-life conduct is compared against a hypothetical “competition-maximizing” benchmark and anything that falls short is deemed worthy of intervention. That fanciful approach would pervert businesses’ incentives to innovate and compete and would make an unobtainable “perfect” that exists only in the minds of some economists and lawyers the enemy of a “good” that exists in the market.

Introduction

For years, regulators and competition watchdogs have expressed concern about competition in the digital advertising business. They note that digital advertising appears to be dominated by a few exceptionally large firms, such as Google, Facebook, and—to a lesser extent—Amazon. Some claim that this dominance allows these firms—and Google, in particular—to engage in anticompetitive conduct to extend their market power and to earn supercompetitive profits at the expense of advertisers, publishers, and consumers. This paper investigates the digital advertising market and assesses some of these claims. We conclude, based on the information that is publicly available, that many of the most significant claims made against Google’s advertising technology (ad tech) business are based on a misunderstanding of U.S. antitrust law, or of the details of the ad tech market itself.

Digital advertising provides the economic backbone for much of the Internet. By providing websites and apps a means to monetize their products without having to charge user fees, advertising enables access to entertaining and informative content without payment. Targeted advertising allows companies to inform potential customers of new products, giving new entrants a way to compete with popular incumbents, while effective targeting avoids wasting the time of those who aren’t likely to be interested. Advertising can endow products with new characteristics in customers’ minds and make consumers aware of product features they may not have known about.

Advertising on independent websites is often facilitated by intermediaries that match advertisers and websites automatically, targeting ads at the users to whom they are most relevant. This intermediation has advanced enormously over the past three decades. Some now allege, however, that the digital-advertising market is monopolized by its largest participant: Google. These allegations originate from various sources, including policy discussions, lawsuits, draft legislation, and academic reports.

In particular, a lawsuit filed in December 2020 by the State of Texas and nine other U.S. states (later joined by five more states in March 2021) alleges, among other things, anticompetitive conduct related to Google’s online display-advertising business.[1] This action is one of three currently pending lawsuits brought against Google by government antitrust enforcers in the United States; the other two relate to Google’s distribution agreements and search design.[2] It has been reported that the U.S. Department of Justice (DOJ) may bring a similar lawsuit before the end of 2022.[3] Along similar lines, the European Commission opened an investigation into Google’s display-advertising services in June 2021[4] and the German competition authority has published a report regarding its inquiry into non-search advertising.[5] Among other things, the European Commission is investigating whether Google “has made it harder for rival online advertising services to compete in the so-called ad tech stack.”[6]

These ongoing cases follow regulatory reports and hearings examining the market, including a year-long study by the United Kingdom’s Competition and Markets Authority (CMA). The CMA investigation of digital advertising (including search and social-media advertising) has thus far produced recommendations for a code of conduct and “pro-competitive interventions” into the market, as well as a new regulatory body to oversee these measures.[7] The Australian Competition and Consumer Commission is also conducting its own study of the digital advertising market,[8] and both houses of the U.S. Congress have held hearings on the market in recent years.[9] In October 2020, the Democratic majority staff of the U.S. House Judiciary Committee’s Subcommittee on Antitrust, Commercial, and Administrative Law issued a report that recommended, among other things, regulation for the display advertising market.[10]

The digital  advertising industry has also drawn the attention of legislators. In May 2022, a bipartisan group of U.S. senators introduced a bill that would require some of the largest Internet firms to break up their digital advertising businesses.[11] Dubbed the Competition and Transparency in Digital Advertising Act (CTDAA), the measure was introduced by Sen. Mike Lee (R-Utah) and co-sponsored by Sens. Amy Klobuchar (D-Minn.), Ted Cruz (R-Texas), and Richard Blumenthal (D-Conn.). Sen. Lee’s summary of the CTDAA identifies several allegations against the largest firms in the digital advertising business, with an emphasis on Google.[12] The summary claims that Google is the “leading or dominant” firm in “every part” of the “ad tech stack” and that it “exploits” conflicts of interest to “extract monopoly rents” from advertisers and publishers. Because of these monopoly rents, consumers are harmed in the form of higher prices for advertised goods and services and lower quality of online content, according to Lee’s press release.[13]

A 2020 paper published by the Omidyar Network—itself based on an interim CMA report produced during the authority’s then-pending investigation[14]—alleged anticompetitive practices within Google’s display advertising business and laid out a “roadmap” for a prospective antitrust case.[15] Other legal and economic consultants have also voiced concerns about Google’s role in the digital advertising industry.[16] These critiques were published before the Texas Complaint and provide more detail underlying the allegations and arguments described in the Texas Complaint. For that reason and because it may influence further lawsuits and regulatory interventions in the digital advertising market, including the DOJ’s, we also evaluate several of the Roadmap’s findings and conclusions.

This paper investigates the digital advertising market and assesses the aforementioned claims that it is uncompetitive. It explains some of the complex dynamics that underpin this market, thereby shedding light on the weaknesses and deficiencies in many of the arguments made about it, particularly those behind the Texas Complaint. This analysis is relevant to the entire Internet and to the wider economy, not just to Google and the display-advertising market. Many of the allegations made in the Texas Complaint would, if upheld by a court, have profound implications for antitrust law by establishing precedents that successful platforms effectively have a legal duty to act as essential facilities for their competitors; that efficiency-enhancing innovation by incumbent platforms is anticompetitive (particularly when it is not shared with competitors); and that courts or regulators can impose remedies that put these duties into effect without consideration of the harmful tradeoffs and unforeseen consequences that could themselves constrain competition and innovation. Such an approach would severely affect not only Google and the ad tech industry, but also businesses operating in unrelated markets and industries.

We begin with an overview and history of digital advertising. It is a history of dynamic innovation, with many new developments arising to solve problems created by previous innovations, address new innovations, and respond to market developments. These innovations must balance the competing demands of advertisers and publishers. The market’s structure has changed dramatically as advertisers, publishers, and consumers have responded to recent technologies. Because of this dynamism, we argue that it is a mistake to conclude that market structure and firm conduct at some specific point in time was ideal or better from a competition point of view, or that deviations from that paradigm represent a problem for competition enforcers to correct.

In the second half of the paper, we address some of the specific allegations of anticompetitive structures and conduct made in the Texas Complaint and by critics of the digital advertising industry. We conclude that a flawed premise underlies many of these allegations. Fundamentally, the allegations stem from an assertion that conduct engaged in by dominant, incumbent firms that makes competition more difficult for competitors is anticompetitive—even if the conduct confers benefits on users. This often amounts to a claim that the largest firms are acting anticompetitively by innovating and developing their business processes and products in ways that create benefits for one or more digital advertising constituents and for the advertising ecosystem more generally, including by creating new and innovative products, lowering prices, reducing costs through vertical integration, and enhancing interoperability between existing products.

I. Overview of the Digital Advertising Industry

For many people, digital ads are “just there.” They appear on one’s Facebook timeline, get inserted into one’s Twitter feed, or show up in the middle of an online news article. Unseen to most users is a complex stack of services that match advertisers with advertising space, using real-time auctions and other algorithms to deliver ads targeted to produce a user response, such as buying a product, supporting a cause, or visiting another website.

In this section we explain that digital advertising is just one small part of a much broader advertising and marketing industry. We provide a concise history of how the business evolved from simple banner ads to highly targeted display ads. Through this evolution, digital advertising has become a multisided market where intermediaries must balance the demands of advertisers, publishers, and users to maximize the total value of the advertising platform. Because of this balancing, it is a mistake for policymakers and regulators to focus only on a single set of users or a single segment of the stack of digital advertising services.

A.   Digital advertising is part of a broader advertising and marketing market

The Texas Complaint alleges that Google has market power in six distinct product markets, each of which the states claim to be nationwide in geographic scope. Four of these distinct product markets involve intermediation in the sale of “open” display ads on third-party websites and two involve intermediation in the sale of “in-app” display ads on mobile devices.[17] As we note in our earlier paper, it is likely that the states allege overly narrow product-market definitions.[18] In particular, structure and conduct viewed within a broader digital advertising market, overall advertising market, or marketing market indicates than no single firm has significant market power.

Digital advertising comprises about half of U.S. advertising revenues (Figure 1), while advertising itself accounts for about half of marketing activities. Marketing includes advertising, as well as events, sales promotion, direct marketing, telemarketing, product placement, and merchandising. Within digital advertising, advertisers have a broad set of options about where and how to run ads, including:

  • Search ads, in which the ad is displayed as a search-engine result (e.g., Google, Bing, DuckDuckGo);
  • Display ads on a site owned and operated by the firm that sells the ad space (e.g., Facebook, YouTube, Amazon Marketplace);
  • “Open” display ads on a third party’s site (e.g., The New York Times, Dallas Morning News, Runner’s World); or
  • “In-app” display ads served on mobile apps.

While total advertising spending in the United States has increased by about 15% since 2009, as a share of the economy spending has been relatively flat at slightly less than 1% of GDP.[19] As mentioned, about half of total U.S. advertising dollars go to digital channels, up from approximately 10% a decade ago. Approximately 30% of ad spending goes to TV and less than one-quarter goes to radio, newspapers, magazines, billboards, and other “offline” forms of media.[20]

Figure 1: U.S. Advertising Spending Over Time

Source: Benedict Evans, News by the Ton

It is well-understood that television broadcasters and cable networks compete with digital services.[21] And they do so on virtually all dimensions: for user attention, for labor, for content and other inputs—and for advertising. The same is true of competition for advertising among digital publications, newspapers, radio, magazines, video games, music streaming, and podcasts. The fact that offline and online advertising—to say nothing of marketing more broadly—employ distinct processes does not consign them to separate markets. Indeed, it is widely accepted that online advertising has drawn advertisers from offline markets, as previous technological innovations drew advertisers from other channels before them.[22] Moreover, while there is evidence that, in some cases, offline and online advertising may be complements as well as substitutes,[23] the distinction between these cases is becoming less and less meaningful as the revolution in measuring the effectiveness of advertising has changed how marketers approach different levels of what is known as the marketing “funnel.”[24] For example, economist David Evans’ review of the literature concludes that digital advertising is a segment of the broader advertising business in which different forms of advertising compete and complement each other:

Advertisers base decisions about the level and allocation of their budgets on formal or informal analyses of the rate of return on investment. For these ad campaigns, the different advertising methods can be substitutes to the extent they provide alternative ways of delivering messages to an audience, and complements to the extent they can reinforce each other.[25]

Economists Avi Goldfarb and Catherine Tucker demonstrate that display-advertising pricing is sensitive to the availability of offline alternatives.[26] Although advertising technology and both supplier and consumer preferences continue to evolve, the weight of evidence suggests a far more unified and integrated economically relevant market between offline and online advertising than their common semantic separation would suggest:

We believe our studies refute the hypothesis that online and offline advertising markets operate independently and suggest a default position of substitution. Online and offline advertising markets appear to be closely related. That said, it is important not to draw any firm conclusions based on historical behavior.[27]

In summary, there is evidence that open-display and in-app ads compete with search ads, while digital ads compete with offline advertising. Thus, courts and regulators should be skeptical of overly narrow market definitions focused on only small slices of a much larger relevant market for advertising.

B.   A simplified description of digital display advertising

The combination of software and processes that facilitate digital advertising transactions is known as the “ad tech stack.” The stack consists of several software components to match advertisers with publishers.

Advertiser ad servers are used by advertisers and media agencies to store ads, deliver them to publishers, track their activity, and assess their effectiveness (by, for example, tracking conversions). Demand-side platforms (DSPs) automate the purchase of advertising inventory by collecting bids in real-time auctions from multiple advertiser ad servers. DSP bids are based on the advertiser’s objectives, data about the final user, and data on impressions or conversions. Publisher ad servers manage publishers’ inventory and determine whether and where to serve a particular ad on a publisher’s site. Supply-side platforms (SSPs) automate the sale of publishers’ inventory, typically through real-time auctions involving multiple DSPs.

In general, the process of buying and selling digital ads through open-display auctions works as follows (Figure 2):

  1. When a user opens a webpage (or uses an app), the publisher’s ad server sends a bid request to SSPs for the advertising impressions available on that page for that user.
  2. The SSPs send bid requests to multiple DSPs for the ad impressions.
  3. DSPs evaluate the advertising opportunity based on user data and the objectives of their advertisers’ campaigns and send bids to the SSPs.
  4. SSPs rank the bids received based on price and other priorities set by the publisher. The SSPs send their winning bids to the publisher.
  5. The publisher ad server compares bids received from SSPs, along with any pre-existing direct deals between the publisher and specific advertisers and decides which ad to serve on the page.

Figure 2: A Simplified View of the Digital Advertising Stack

Source: OECD, CMA

While this process applies to most programmatic transactions, there are many variations. For example, there are diverse ways in which SSPs are contacted and asked to submit their bids. To the extent that a publisher and advertiser have a pre-existing, direct agreement, there are differences in how these arrangements are handled and integrated with deals arranged through automated platforms. The specific approach used to match ads with ad inventory will reflect a balance among different sides of a multisided market. One approach might increase the prices received by sellers (publishers) but expose buyers (advertisers) to increased risk of overpayment. Other methods might reduce risks to advertisers, but also reduce the prices received by publishers.

C.   A brief history of digital advertising

This history of the digital advertising market is a history of iterative innovation, with new developments and services arising to solve problems created by previous innovations and to respond to changing market conditions. At the heart of these innovations is an attempt to balance the competing demands of advertisers, publishers, and consumers. Given that this is a dynamic market, it would be mistaken to conclude that the market structure at some specific point was the “correct” one from a competition point of view. Moreover, it would be a mistake to conclude that deviations from some previous “ideal” world present a problem that can be corrected by disruptive regulation.

Digital advertising originally worked similarly to conventional print and broadcast advertising. Online publishers would negotiate with advertisers (or their ad agencies) to sell ad space on their websites, giving relevant advertisers information about their readership gathered through market research. All users would see the same ads. The resulting system was poorly targeted, inefficient, and carried high fixed costs, including the cost of things like market research and the transaction costs of publishers hiring sales teams and advertisers hiring ad agencies to do business with one another. Inevitably, these fixed costs meant that only larger publishers and larger advertisers could engage in the online market profitably.

In 1993, O’Reilly & Associates Inc. introduced its Global Network Navigator (GNN) magazine and other ad-supported online publications, which first rolled out clickable ads. O’Reilly is credited with the first attempt to create an “advertising medium” on the Internet.[28] The price of ads ranged from $500 for a one-page business profile to $5,000 for up to 25 pages about the company placing the ad.[29] A year later, Wired magazine’s digital affiliate HotWired ran what later became known as the web’s first banner ads. The ad—for AT&T’s “You Will” campaign—cost $30,000 for a three-month dedicated placement in a section of HotWired’s site.[30]

The first step toward automating this process came with the introduction of ad-server software on both the publisher and advertiser sides, which allowed each side to automate parts of the ad-placement process. Ad servers allowed publishers to automatically describe the type of content on their pages, which in turn allowed advertisers to place ads tailored to that content. An article about hiking could automatically indicate to a department store to place ads selling walking boots, for instance. It also allowed the publisher to sell to many advertisers without having to transact directly with any of them. Ad servers also allowed advertisers to browse and manage campaigns across a large, aggregated number of publishing sites, instead of having to interact with sales teams one by one. This process was, however, still negotiated directly, and often left publishers with unused “remnant” advertising space that they had not been able to sell.

To solve this problem, ad networks entered the market. These functioned as intermediaries between advertisers’ and publishers’ ad servers, aggregating unsold remnant ad space and allowing advertisers to buy that space en masse without having to deal directly with each publisher. Ad networks did not replace direct sales, but they allowed for residual space to be bought and sold more easily, increasing the amount of ad inventory available and lowering the fixed costs to use it. This, in turn, made the market feasible for smaller publishers, who would otherwise be unable to attract direct deals to sell ad space, and for advertisers to conduct large-scale ad campaigns across many publishers (including small ones).

In 1995, GNN was acquired by AOL.[31] That same year, marketing-communications agency Poppe Tyson spun off its Internet advertising division as DoubleClick, with the objective of “responding to advertisers’ need to be able to buy millions of impressions on the Internet without having to buy from hundreds of different sites.”[32] The company created “subnets” of publishers to target specific categories of consumers.[33]

Also in 1995, ad agency WebConnect, the first ad network, began to collaborate with its clients to identify the websites that their ideal consumers visit. WebConnect then placed ads on the websites where they were more likely to be seen by the audience most relevant to their clients. The company also produced a tool to prevent “ad fatigue,” which occurs when users are repeatedly shown the same ad.[34]

In 1998, GoTo.com, which was renamed Overture in 2001, launched its ad-supported search engine.[35] Search result rankings were based on an open-market bidding process. Advertisers on GoTo were informed of the amounts other advertisers were bidding for a click-through within the results for a given search term, and any advertiser could increase its bid to obtain a higher ranking, a process GoTo described as “pay for performance.”[36] One of GoTo’s key innovations was linking advertising pricing to click-throughs, rather than to page views.[37]

To drive home just how efficient these ads could be, [GoTo.com’s founder Bill Gross] came up with an audacious pricing scheme. Instead of paying for page-views—an old-media model that had come to dominate the Web—advertisers would pay only when people actually clicked on their ads. And their placement on the GoTo.com results page would be determined through an auction, so that more desirable keywords would command higher prices, while less common keywords could be had for as little as a penny per click. As a search engine, GoTo.com had nothing on Google. But as a way of making money on searches, it was ingenious.[38]

During the dot-com boom of the late 1990s, banner ads spread throughout the Internet, though growth was tempered by user complaints that the ads slowed page loading.[39] The dotcom bust wiped out many of the firms that were the biggest buyers of digital banner ads. In response, Wired predicted that digital advertising would undergo a “facelift.”[40]

Old media revenues will wither as mainstream advertisers storm the Net. Instead of stuffing junk mail into the mailbox outside your house, they’ll send it directly to your inbox. And companies get smarter, choosing sites that take better aim at their quarry, er, potential customers.

“It’s very much a targeted medium,” Robin Neilfield, co-founder of NetPlus Marketing. “You have to analyze the content on a site, you can’t just buy based on demographics.”[41]

Because ad networks were not comprehensive—they did not carry the entire inventory of the Internet—publishers began to use yield managers (later known as SSPs) to compare bids for their ad space and to decide which to accept. SSPs effectively allowed publishers to aggregate demand from a larger number of ad networks, which themselves aggregated demand from advertisers. This process allowed ad space to be more easily commoditized, with an SSP helping to identify an ad space’s relevance to potential advertisers.

As indirect sales became possible, ad exchanges emerged to sell ad space using real-time auctions. Ad space could be tagged according to characteristics like audience type, relevance to the advertiser, and/or prominence and quality of the ad, with bids gauged accordingly.

Finally, DSPs on the advertiser side allowed advertisers to engage with many ad networks and ad exchanges at one time. These also allowed advertisers to track campaigns and measure performance of different ads with different publishers, and to adjust their campaigns accordingly. Most ad exchanges now have DSP functionality built in.

In 2000, Google introduced a new self-service advertising product called AdWords (now Google Ads) that allowed businesses to purchase text ads on search-results pages. At the time it was reported that AdWords was designed to attract small-to-midsize advertisers with budgets of $5,000 or less.[42] AdWords differed from GoTo/Overture in a major way. GoTo/Overture placed ads within search results, with results ranked by bid. In contrast, AdWords placed ads separate from search results with pricing based on pageviews.[43] In this way, Google could display ads without compromising the relevance of search results. In 2002, it launched AdWords Select, its pay-per-click, auction-based search-advertising product.[44]

In 2003, Google acquired Applied Semantics, whose AdSense display advertising product allowed it to sell targeted ads on third-party websites.[45] With AdSense, the display-ad server was able to read text on a publisher’s site and serve relevant ads, considering factors like the user’s geographic location, age, demographics, and the search made.[46] AdSense was the forerunner of programmatic display advertising, the process of automating the buying and selling of ad inventory in real time through an automated bidding system. In 2005, Google introduced the Quality Score model, which considers an ad’s click-through rate, as well as the bid price, in placing ads.[47]

YouTube was launched in 2005 and acquired by Google the following year, when the company also introduced video ads. In 2007, Google acquired DoubleClick.[48]

Around 2015, “header bidding” began to roll out, with publishers Meredith Corp. and Townhall Media as two of largest early adopters.[49] Before header bidding, it was difficult for every demand-side partner to submit a bid for every ad request. As a result, publishers relied on approaches such as “ad waterfalls”[50] to try to get the most from each partner. Because of the way ad waterfalls are configured (based on historical, not real-time, data), publishers believed ad waterfalling led to winning bids that were below what some bidders might be willing to pay.[51] Client-side[52] header bidding was adopted as a way to increase real-time price competition among multiple SSPs, leading to higher returns for publishers and a more efficient allocation of ad space to advertisers.

Despite the widespread adoption of header bidding—as of the second quarter of 2021, about two-thirds of publishers were using it[53]—the technology has its own challenges. For example, the addition of extra code on the webpage, which client-side header bidding requires, can slow down the publisher’s website, driving away users.[54]

As an alternative to client-side header bidding, server-side header bidding was introduced. Prebid launched in 2015 as an independent and open-source option. Google released Open Bidding in April 2016 and Amazon introduced Transparent Ad Marketplace (“TAM”) at the end of 2016. In these alternatives, the auction among SSPs takes place in a remote server controlled by a third party (the provider of the server-side header-bidding solution) instead of in the user’s browser. This helps to improve site-load speed. On the other hand, this solution leads to less revenue for publishers and reduces the availability of data to advertisers and publishers.[55]

Over the past decade, the price of digital advertising has fallen steadily, while output has risen. U.S. digital-ad spending grew from $26 billion in 2010 to $189 billion in 2021, an average annual increase of 20%.[56] Over the same period, the Producer Price Index for Internet-advertising sales declined by an annual average of 4%.[57] The rise in spending in the face of falling prices indicates that the number of ads bought and sold increased by approximately 25% annually. The combination of increasing quantity, decreasing cost, and increasing total revenues are consistent with a growing and increasingly competitive market, rather than one of rising concentration and reduced competition.

D.   Digital advertising is a multisided market

The digital advertising market can be thought of as a complex multi-step and multisided market that involves three key parties—advertisers, publishers, and intermediaries—and is aimed at a fourth: consumers. In contrast, critics of the current structure of and conduct in the digital advertising industry have characterized it as a “straightforward and traditional” market in which publishers supply an inventory of ad space and advertisers are buyers of the ad space.[58] In this simplistic account of the market, for a given supply of inventory, publishers would seek to maximize the price received per ad, while advertisers would seek to minimize the price paid per ad. Targeting of ads would be based on the demographics of a publisher’s readership or the content of the publication, rather than the individual characteristics of each reader. In general, this is how the market initially operated before the introduction of clickable ads. But even this simple formulation is quite complex. Advertisers expect to maximize the return on their investment in advertising. Even at a low price, advertising expenditures would be wasted if that investment were not converted to increased sales of the advertiser’s product or service.

The invention of clickable ads with which users could interact changed the objective function of digital advertising. Publisher revenues and advertising costs became linked to individual consumers acting on an ad by, for example, clicking on it. Rather than paying or receiving a price-per-ad based on the size of a publication’s user base, advertising expenditures became a function of a price-per-click (or other action) and the number of clicks. This meant that the rewards for relevance—as well as the complexities of determining relevance—were greater because some viewers might be persuaded to act there and then.

In this multisided market, ad intermediaries must balance the interests of at least three constituencies: (1) advertisers creating ads and placing them; (2) publishers defining inventory and displaying ads; and (3) users consuming published content who view and act on ads. Intermediaries in these markets often benefit from network effects, through which the value of the platform to each user depends in part on the number and quality of other users on the platform.[59]

The quality and relevance of users is assessed by collecting information on the users as they browse the web. This information can include which ads they have viewed and clicked in the past, their geographical location, as well as their demographics, financial situation, and topics of interest. Broadly speaking, a larger network with diverse users provides more information and is better able to target ads to relevant users, benefiting advertisers, publishers, and consumers.

Network effects are not always positive, however, nor are they always captured by the platform that facilitates them.[60] While access to consumer data can help to improve the quality of the ads displayed—and increase the value of those ads to advertisers and publishers—claims that such access provides increasing returns to scale are not borne out by the burgeoning empirical literature on the topic. Summarizing these empirical findings, economist Catherine Tucker concludes that “empirically there is little evidence of economies of scale and scope in digital data in the instances where one would expect to find them.”[61]

Intermediaries in multisided markets often face difficult optimization problems caused by the interrelated demands of participants on different sides of the market, each group of whom benefits from the existence and size of the other, but whose interests conflict across many margins.[62] This highlights the key distinction between “straightforward and traditional” markets and multisided markets.

Ad tech intermediaries that are vertically integrated into some or all components of the ad tech stack use prices charged to each side of the market to optimize overall use of the platform. As a result, pricing in these markets operates differently than pricing in traditional markets. Pricing on one side of the platform is often used to subsidize participation on another side of the market, increasing the value to all sides combined. Consequently, pricing (or other terms of exchange) may appear to one side of the market to diverge from the competitive level when viewed for that side alone. While one side of the market may pay higher fees, this cost can be offset by the benefits from increased participation on the other side of the market. Thus, using subsidies to increase participation on another side of the market creates valuable network benefits for the side of the market facing the higher fees.

For example, among the criticisms of digital advertising business practices is the use of “second-price auctions” rather than “first-price auctions.”[63] First-price auctions are those most familiar to people: multiple bidders offer prices, and the highest bidder wins the auction and pays an amount equal to her winning bid. In a second-price auction, the highest bidder wins the auction but pays an amount based on the next-highest bid. In markets with many bidders possessing the same information, first-price auctions and second-price auctions would be expected to produce the same amount of revenue under the well-known auction-theory concept of revenue equivalence.[64]

The choice of auction approach reflects the tensions between different sides of the market in a multisided market. On the one hand, under certain circumstances, a first-price auction tends to increase the prices received by sellers (here, publishers), but exposes buyers (here, advertisers) to an increased risk of overpayment.[65] On the other hand, under certain conditions, a second-price auction reduces risks to advertisers, but also reduces the prices received by publishers.[66] It would be expected that an ad tech intermediary would balance these competing interests to maximize total revenues flowing through the ad tech stack, to maximize its profitability. In such a multisided market, it would be a mistake to focus only on one side of the market and ignore the effects that decisions such as this have on the other participants.

The extent to which ad tech intermediaries—in particular, vertically integrated services like Google’s—act to optimize the overall value of the platform is critical to understanding how these markets work. It also highlights how misleading it can be to assume that these processes can be analyzed as “straightforward and traditional” markets.

II. Antitrust Primer: Effective Competition Is not an Antitrust Offense

A flawed premise underlies much of the Texas Complaint, the Omidyar Network’s Roadmap report, and the CTDAA legislation. Fundamentally, most of the charges that each of these level against Google and Facebook’s ad tech businesses derive from an assertion that conduct engaged in by dominant incumbent firms that makes competition more difficult for competitors is anticompetitive—even if the conduct confers benefits on users. This often amounts to a claim that the largest firms are acting anticompetitively by innovating and developing their business processes and products in ways that create benefits for one or more digital advertising constituents and for the advertising ecosystem more generally. These include creating new and innovative products, lowering prices, reducing costs through vertical integration, and enhancing interoperability between existing products, among other things.

This approach entails an argument—made explicit in the Texas Complaint and the Omidyar Roadmap—that Google harms competition by creating obstacles for rivals without offsetting “incremental efficiencies.”67F[67] According to the report, this means that, even if Google’s practices produce benefits for such constituents as advertisers, publishers, or consumers, they could possibly be reimagined to create even more competition or achieve the same benefits in ways that better prop up rivals. According to the Roadmap, the practices should therefore be condemned as anticompetitive.68F[68]

But that is not how the law—or the economics—works. Such an approach converts manifestly beneficial aspects of Google’s ad tech business into anticompetitive defects, essentially arguing that successful competition creates barriers to entry that merit correction through antitrust enforcement. The CTDAA takes this argument a step further by imposing “best interests,” “best execution,” and “transparency” obligations on large firms and mandating divesture of parts of the largest firms to facilitate more entry by competitors. This approach turns U.S. antitrust law (and basic economics) on its head. As some of the most famous words of U.S. antitrust jurisprudence have it:

A market may, for example, be so limited that it is impossible to produce at all and meet the cost of production except by a plant large enough to supply the whole demand. Or there may be changes in taste or in cost which drive out all but one purveyor. A single producer may be the survivor out of a group of active competitors, merely by virtue of his superior skill, foresight and industry. In such cases a strong argument can be made that, although, the result may expose the public to the evils of monopoly, the Act does not mean to condemn the resultant of those very forces which it is its prime object to foster: finis opus coronat. The successful competitor, having been urged to compete, must not be turned upon when he wins.69F[69]

U.S. antitrust law is intended to foster innovation that creates benefits for consumers, including innovation by incumbents. The law does not proscribe efficiency-enhancing unilateral conduct on the grounds that it might also inconvenience competitors, or that there is some other arrangement that could be “even more” competitive. Under U.S. antitrust law, firms are “under no duty to help [competitors] survive or expand.”70F[70]

To be sure, the arguments are couched in terms of anticompetitive effect rather than being described merely as commercial disagreements over the distribution of profits. But these effects are simply inferred, based on assumptions that Google and Facebook’s vertically integrated business models entail an inherent ability and incentive to harm rivals. For example, Google is alleged to be able to surreptitiously derive benefits from display advertisers by “leveraging” its search-advertising capabilities,71F[71] or by “withholding YouTube inventory,”72F[72] rather than altruistically opening it up to rival ad networks, or by using its access to data to improve its products without sharing that data with competitors.

All these charges may be true, but none is inherently anticompetitive. Under U.S. law, companies are not obligated to deal with rivals and certainly are not obligated to do so on rivals’ preferred terms.73F[73] In the Texas Complaint, for example, the court, citing Charych v. Siriusware, noted, “[D]efendants were under no obligation to develop an interface that was compatible with plaintiffs’ product.”74F[74] As long ago as 1919, the U.S. Supreme Court held that “[i]n the absence of any purpose to create or maintain a monopoly, 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.”75F[75] More recently (in 2004) the Court held:

Firms may acquire monopoly power by establishing an infrastructure that renders them uniquely suited to serve their customers. Compelling such firms to share the source of their advantage is in some tension with the underlying purpose of antitrust law, since it may lessen the incentive for the monopolist, the rival, or both to invest in those economically beneficial facilities.76F[76]

Moreover, U.S. antitrust law does not second guess unilateral conduct simply because it may hinder rivals. Any such conduct would first have to be shown to be anticompetitive—that is, to harm consumers or competition, not merely certain competitors.77F[77] In two-sided markets, this means finding not simply that some firms on one side of the market were harmed, but rather that the combined net effect of challenged conduct across all sides of the market was harmful.78F[78]

In the platform context, understanding whether there is harm to competition at all requires an assessment of the effects of conduct on all sides of the platform. “[N]o economic basis exists for establishing a presumption that ‘harm’ on one side of a two-sided platform is sufficient to demonstrate that market output has been restricted, or that consumer welfare has otherwise been harmed.” In fact, “[s]eparating the two markets allows legitimate competitive activities in the market for general purposes to be penalized no matter how output-enhancing such activities may be.”79F[79]

The Texas Complaint, however, is built on the alleged harm of reduced revenue to publishers, without considering the corresponding benefit of lower prices to advertisers, or the net effect on consumers.80F[80]

Beyond that, antitrust law does not condemn conduct on the basis that an enforcer (or a court) is able to identify or hypothesize alternative conduct that might provide similar benefits at lower cost. In alleging that there are ostensibly “better” ways that Google could have pursued its product design, pricing, and terms of dealing, both the Texas Complaint and Omidyar Roadmap do just that—assert that, had the firm only selected a different path, an alternative could have produced even more benefits or an even more competitive structure. This line of thinking seems to be one motivation for the CTDAA’s remedies.

The reason that the possibility of “better” theoretical arrangements cannot serve as the basis for antitrust intervention is that there are limits to what can be achieved through intervention, not least because of limitations on legislators’ and enforcers’ knowledge about the competitive dynamics of the markets they seek to regulate.81F[81] A practice’s departure from a theoretical competitive benchmark may be inextricably linked to the social benefits it generates. When this is the case, enforcement that requires the practice or product to change in order to adhere to a theoretical standard may end up undermining the benefits of the practice in the first place. That is particularly true in the context of the sort of “vertical foreclosure” arguments leveled against Google in the advertising space, in which it is alleged that the combination of different levels of the ad-supply chain by Google limits the ability of competitors to enter and compete effectively.82F[82] It is surely conceivable that the product improvements conferred by the combination of different functions into a single platform—e.g., greater efficiency, realization of network effects, more effective targeting—could be replicated by a different means that might also facilitate “even more competition.” But such an approach is fraught with the risk of serious and costly error.83F[83]

The alleged cure of tinkering with benefit-producing unilateral conduct by applying an “even more competition” benchmark is worse than the supposed disease. The adjudicator is likely to misapply such a benchmark, deterring the very conduct the law seeks to promote. As then-Judge Stephen Breyer explained in the context of above-cost low pricing (another “defect” that both the Texas Complaint and the Roadmap claim constitutes anticompetitive conduct by Google84F[84]), “the consequence of a mistake” is “to penalize a procompetitive price cut,” conduct that, from an antitrust perspective, is “the most desirable activity.”85F[85] That commentators or enforcers may be able to imagine alternative, theoretically more desirable, conduct is beside the point.

Similarly, subjecting the kinds of product-design decisions at issue in the Google case to refined balancing of benefits and harms would deter innovation. “To weigh the benefits of an improved product design against the resulting injuries to competitors is not just unwise, it is unadministrable. There are no criteria that courts can use to calculate the ‘right’ amount of innovation, which would maximize social gains and minimize competitive injury.”86F[86] Put simply, “no one can determine with any reasonable assurance whether one product is ‘superior’ to another.”87F[87]

For these reasons, a “product improvement by itself does not violate Section 2, even if it is performed by a monopolist and harms competitors as a result.”88F[88] “Any other conclusion would unjustifiably deter the development and introduction of those new technologies so essential to the continued progress of our economy.”89F[89] A benefit-creating product design, even if it hinders rivals, is “necessarily tolerated by the antitrust laws.”90F[90]

Nor does U.S. law condemn a firm’s decision not to share a product improvement with rivals on terms rivals might prefer, even when such sharing might lead to greater competition in the short term. “Compelling” innovators “to share the source of their advantage” with rivals, among other evils, “may lessen the incentive for the monopolist, or rival, or both” to invest in innovation.91F[91] Except in extremely limited circumstances, firms can decide the terms on which they offer their products and services.

Directly rejecting the Roadmap’s suggestion—and the CTDAA’s mandate—of compelling dealings on terms that might produce greater competition, the Supreme Court has decreed that the “Sherman Act . . . does not give judges carte blanche to insist that a monopolist alter its way of doing business whenever some other approach might yield greater competition.”92F[92] Firms are not obliged to go into new lines of business or abandon existing lines to throw lifelines to rivals.93F[93]

The law similarly encourages vertical integration, because it tends to foster innovation-enhancing synergies and lower prices by eliminating double marginalization.94F[94] As the Roadmap elsewhere admits, it is “not in itself uncommon” to see vertical integration result in “fewer and fewer companies,” even “in competitive markets.”95F[95] Thus, vertical integration by internal expansion—even by a monopolist—is presumptively lawful.96F[96] The Roadmap and the CTDAA, however, simply disregard this, instead presumptively condemning vertical integration that hinders rivals by creating efficiencies.97F[97] Again, this is simply not a defensible interpretation of U.S. antitrust law, nor should it be.

III. Allegations Against Google in Digital Display Advertising

Critics of the digital advertising industry—and Google’s role in it—have leveled numerous allegations. These include claims that Google “leverages” its ownership of YouTube to obtain and exert market power in the buying and selling of other digital-display ads. Some claim that Google anticompetitively uses cross-subsidies, charging supercompetitive prices at one end of the ad tech stack to subsidize supra-competitive prices at another end of the stack. It is also alleged that Google has superior information about consumers that it will not provide to competitors, giving Google an anticompetitive advantage. It is claimed that steep entry barriers—some allegedly erected by Google—inhibit entry and allow the company to achieve a supercompetitive “take rate” from its intermediation services. While the lawsuits may provide additional information and data to support these claims, we argue that, with the limited public information available to us, it is not clear that any of them constitute anticompetitive conduct.

A.   ‘Leveraging’ market power in video streaming into the digital open-display market

The Omidyar Roadmap argues that Google, by virtue of its vertical integration throughout the intermediary stack and into the supply side (as the owner of YouTube), has the incentive and ability to derive unwarranted benefits from its display advertising business. It alleges, for example, that, by offering a single interface for placing both search and display ads, “Google leverages its monopoly position in search to coerce advertisers into using Google’s display products.”98F[98] In support it cites the CMA as saying:

Google may also be able to leverage its market power in search into the open display market. Smaller advertisers often choose to single-home to minimize transaction costs. Advertisers that wish to single-home have a strong incentive to use Google Ads as they can use it to access Google search advertising and YouTube inventory as well as the open display market.99F[99]

An earlier version of the Texas Complaint echoed these claims:

Google’s practice of withholding YouTube video inventory from rival ad buying tools… effectively locks single-homing small advertisers into Google’s ad buying tool. In addition, other providers of ad buying tools indicate that it does not make economic sense to try to compete with Google Ads for small advertisers, because they cannot achieve sufficient scale with smaller advertisers who want to buy display, YouTube, and even search ads, through just one tool.100F[100]

And, similarly, the Roadmap also argues that most sources of demand for Google Ads purchase ad space through AdX because Google “designed its exchange in such a way that it operates more efficiently with requests from Google’s own ad server than it does when requests come from rival ad servers.”101F[101]

All these assertions describe efficiency-enhancing behavior as anticompetitive. The report does not allege that Google preferences its own ad exchange in ways that harm advertisers; rather, the company’s products simply work better together (which is not unusual when different software products must interact) and it is thus in advertisers’ best interests for Google to act this way.

U.S. law, rightly, does not consider efficiencies obtained from vertical integration in this way to be anticompetitive. Nor do efficiencies that rivals cannot beat qualify as “barriers to entry.” The alternative—requiring Google to refrain from using the cheapest and/or fastest option available, because doing so makes its product better than all competitors—would mean reduced innovation, higher overall costs, and no benefit to either advertisers or publishers.

Later, the Roadmap makes another similar allegation: that Google “leverages” its ownership of YouTube, and the fact that only Google’s DSP can place ads on YouTube, to give itself an anticompetitive advantage in open-display advertising because rival DSPs are inherently limited by being unable to place ads on YouTube. An earlier version of the Texas Complaint echoed this claim.102F[102]

The Roadmap characterizes this conduct as “a contractual way to deny interoperability,”103F[103] but there is no contractual restraint here. How Google distributes YouTube’s ad inventory is a unilateral distribution decision permitted under U.S. law. And Google’s policy is not unusual in any way: many other websites that carry video advertising—including Hulu, Instagram, and Twitter—self-distribute their own inventory and do not make it available for resale by third parties.104F[104] Google does not have a duty to maximize its competitors’ profits by allowing them to resell YouTube inventory.

Access to YouTube is also not essential to a DSP’s success. Before Google stopped third-party platforms from buying YouTube ad inventory, it reported that only a “small amount” of buying was being done through Google’s AdX, which allowed third-party platforms to bid. At the time, AdExchanger reported that “[b]y ’small amount,’ that reportedly means 5%.”105F[105] A competing DSP, TubeMogul, said that this decision was an “unfortunate development” but “immaterial, since less than 5% of total ad spend through our software in Q2 was directed to YouTube.”106F[106]

This is consistent with the fact that there are several successful DSP competitors that compete with Google, despite not having access to YouTube’s ad inventory. The Trade Desk went public for $1 billion in 2016, processed more than $6.2 billion in transactions in 2021, and had a market cap of more than $25 billion in the first week of August 2022. 107F[107] Other DSPs, like Amazon’s and Xandr (formerly AppNexus), both continue to compete with Google vigorously without access to YouTube inventory, as the Omidyar Roadmap admits in the case of AppNexus.108F[108]

The Roadmap further -alleges that Google’s owned-and-operated properties—including Search, YouTube, Shopping, Flights, and News—confer an anticompetitive advantage because “Google pays no ‘traffic acquisition costs’” for the advertising space on its own sites: “When Google places ads on YouTube, just as when it places ads on its own search results pages, Google pays no ‘traffic acquisition costs’ because it needn’t pay any publisher for access to the ‘eyeballs’ that will see or interact with the ads it helps place.”109F[109]

Google’s parent Alphabet reported that the company’s traffic-acquisition costs were approximately 20% of its revenues in 2021.110F[110] Over the past few years, 40-50% of Alphabet’s expenditures have been on “cost of revenues,”111F[111] and of these, roughly half have involved traffic-acquisition costs.112F[112] Alphabet defines traffic-acquisition costs as (a) “the amounts paid to our distribution partners who make available our search access points and services” and (b) amounts paid for ads displayed on Google Network Members properties. It identifies “distribution partners” as browser providers, mobile carriers, original equipment manufacturers, and software developers.

Contrary to the Roadmap’s insinuations, there is nothing to suggest that these expenditures become less burdensome as a company increases in scale. Indeed, the opposite may be true, if it is more costly to gain access to marginal users than inframarginal ones, consistent with Google’s traffic-acquisition costs increasing over the years as it has grown.113F[113] While Google does not have to pay itself for the use of its own display inventory, there is clearly an opportunity cost to displaying its own inventory rather that of another firm. The claim that the company faces no traffic-acquisition costs for these properties is inaccurate.

The Roadmap’s focus on traffic-acquisition costs also overlooks content-acquisition costs—the payments to content providers from whom Google licenses video and other content for distribution on ad-driven and subscription services such as YouTube and Google Play. While Google does not pay a publisher for access to “eyeballs” on its owned-and-operated properties, it pays substantial and increasing amounts for content on those properties that attract the “eyeballs.”114F[114] Alphabet CFO Ruth Porat indicates, for example, that YouTube pays content creators “a majority of our revenue.”115F[115] Leaving this expense out of the calculation is another example of the over-simplification that characterizes many of the claims that Google’s ad tech business is a simple (and simply anticompetitive) business.

B.   Excess pricing

Where Google’s critics diverge most significantly from the spirit of U.S. antitrust law is in their overriding concern for how advertising revenues are distributed among the recipients of advertisers’ payments: intermediaries (Google) and publishers. The Texas Complaint alleges that Google has a higher “take rate” than competing exchanges,116F[116] is able to increase its take rates without losing market share,117F[117] and “manipulates auctions to increase its take rate.”118F[118] This follows the Roadmap’s speculation—based on the CMA Interim Report—that Google may take a larger cut of advertising spending than its competitors.119F[119] And these allegations echo claims made in another report that Google introduces “hidden” fees that increase the overall cut it takes from ad auctions.120F[120]

First, it should be noted that the basis for these claims in the Roadmap are drawn from the CMA investigation’s interim report, published in December 2019. In the final report, after further investigation, the CMA abandoned this claim. The final report describes the CMA’s analysis of all the billions of Google Ad Manager open auctions related to U.K. web traffic during the period between March 8 and March 14, 2020. This, according to the CMA, allowed it to observe any possible “hidden” fees, as well. The CMA concludes:

Our analysis found that, in transactions where both Google Ads and Ad Manager (AdX) are used, Google’s overall take rate is approximately 30% of advertisers’ spend. This is broadly in line with (or slightly lower than) our aggregate market-wide fee estimate outlined above. We also calculated the margin between the winning bid and the second highest bid in AdX for Google and non-Google DSPs…. We found that Google’s average winning margin was similar to that of non-Google DSPs. Overall, this evidence does not indicate that Google is currently extracting significant hidden fees. As noted below, however, it retains the ability and incentive to do so.121F[121]

This is a crucial finding that severely undermines the allegations that Google extracts excessive or “hidden” fees. It also undermines the claim that there are “missing funds accruing to Google.” While these conclusions do not eliminate the possibility that the industrywide price could itself be above competitive levels (and it remains to be seen whether the plaintiffs states in the Texas case will produce different evidence), they do mean that the best evidence currently available calls into question the charge that Google exploits a lack of interoperability by prioritizing its own products or that it engages in opaque pricing to conceal hidden charges of which its customers are unaware.

More fundamentally, absent evidence of Google deceiving advertisers and publishers to extract above-competitive margins, claims that its prices are “too high” or its revenue sharing “too low” are at odds with established antitrust law. U.S. antitrust law does not attempt to derive “proper” prices and impose these obligations on companies to ensure a “fair” outcome. Absent anticompetitive defects in the process, even monopolists are free to charge monopoly prices. The alternative would be for some agency—a court or a regulator—to regulate pricing and second guess every business decision made by dominant firms.

C.   Cross-subsidies

At the same time, the Roadmap alleges that Google can “charge low prices at one end of the stack, to drive out competitors, while charging high prices at the other to counterbalance any losses.”122F[122] But even if true, this would not be anticompetitive. It is a widely understood feature of platforms that they can shift prices from one side of a multisided market to another to maximize the platform’s total value. For example, a marketplace may make sellers bear the burden of fraud or mis-selling to give assurance to customers, and grow the consumer side of the platform market, just as a ridesharing app may discount rides to attract customers to build a large enough base to induce drivers onto the app.

This is a normal part of platform economics, which has long recognized that offering one side a low, zero, or negative price can be efficient and procompetitive.123F[123] As the U.S. Supreme Court held in Ohio v. American Express, an integrated competitive-effects analysis should look at the overall effect on output, not the effect on one side of the market; the relevant market must include both sides of the platform or the market would not exist at all.124F[124] There is no reason to think that this kind of behavior would generally be classed as “predatory pricing” in the absence of other behavior, such as raising prices after driving out competitors.125F[125]

But neither the Texas Complaint nor the Roadmap allege that Google’s prices were predatory. On the contrary, their sole claim in this respect is that, after being acquired by Google, DoubleClick lowered its prices (by a factor of ten, according to the Roadmap126F[126]), which it then maintained at these lower levels. This price reduction is facially procompetitive, however. It is unusual, to say the least, to describe a price reduction, with no subsequent price rises, as anticompetitive. If less-efficient competitors were unable to compete with these lower prices, that is competition in action. The law does not preclude nonpredatory low prices, nor even predatory prices without recoupment.127F[127] Sustained price reductions are one of the primary goals of antitrust.

Moreover, the source of the Roadmap’s claim that these price reductions were done “to drive out competitors” was, notably, a company that was not actually driven out of business by these price reductions. The source was an ad server, Smart, which claimed that Google’s price reductions “made the provision of publisher ad server difficult to sustain as a standalone business. This was the main reason why Smart felt the need to expand into the provision of SSP services.”128F[128] A competitor of Google’s responding to price reductions by broadening its own offerings is, again, procompetitive, not anticompetitive.

D.   Data gathering and integration

The Texas Complaint and the Roadmap describe several pro-privacy measures Google has adopted or plans to adopt as being detrimental to its competitors, including the decision to disable third-party cookies (which allow digital advertising companies to track users across the web to serve them relevant targeted ads) on the Chrome browser.129F[129] The Complaint argues that this shift benefits Google to the detriment of other ad tech companies, because (it says) Google, but not its competitors, has other data sources it can use to target ads at users.130F[130] In the same vein, the Roadmap points to Google’s decision not to share with advertisers raw data that it compiles about users.131F[131]

The Complaint ignores regulatory causes of these changes altogether, and the Roadmap dismisses the suggestion that they may be driven by the European General Data Protection Regulation (GDPR), on the basis that “data sharing here in the U.S., where we have no privacy regulatory scheme akin to that which is in place in Europe” has also been curtailed.132F[132] Both forget data-privacy laws in U.S. states, such as the California Consumer Privacy Act (CCPA). And, even if that weren’t the case, the claim that GDPR would have no effect outside Europe ignores that companies may find it easier to comply with such laws by changing their practices globally, rather than on a country-by-country or state-by-state basis.133F[133] Many companies have done this: Microsoft, for example, announced in November 2019 that it would “honor California’s new privacy rights throughout the United States.”134F[134]

Both also ignore the possibility that these provisions may be a response to demand from users of Google Chrome. Google may have good reasons to maintain a reputation for protecting user privacy, particularly because of the wide range of services it provides where user privacy is often of paramount importance to many users: Search, Maps, Gmail, YouTube, and Chrome itself.

Apple and Mozilla, neither of which has a significant online display advertising arm (and thus, have no incentive to block cookies simply to disadvantage display advertisers, as the Complaint alleges Google has done) have taken similar steps to increase user privacy. These are direct competitors of Google Chrome’s, and when Apple made blocking third-party cookies the default in its Safari browser, it was reported by one major outlet as “beating Google by two years to the privacy feature.”135F[135] Indeed, one of the reasons that Google delayed its disabling of third-party cookies was reportedly to implement technologies to “make it easier for advertisers to target certain demographics without laser-sighting down to specific people, ensure that the infrastructure many sites use for logins don’t break, and help provide some level of anonymous tracking so advertisers can know if their ads actually converted into sales.”136F[136]

That Chrome’s competitors, neither of which has an incentive to hurt ad tech companies, have taken the same steps that the Complaint alleges Google is taking for anticompetitive reasons should be compelling evidence that Google, too, is responding to user demand and/or regulation. Under U.S. law, the fact that these are legitimate moves and benefit users interested in privacy—and, indeed, may be a response to competition in the browser market—undermines claims that Google has failed to maximize competition along other dimensions.

The Roadmap also presents a hypothetical circumstance that amounts to an allegation that Google “captures” data from ads served to publishers to “expropriate” publishers’ investments in content that attracts a particular audience:

Some publishers have invested in content that attracts and retains a specific type of consumer, for example, readers of the Wall Street Journal or Golf Digest; this in turn allows them to support their business by selling valuable ads to advertisers looking for exposure to those audiences. Google has two ways to expropriate that value. First, rather than serve an ad on the Wall Street Journal at a high price, it can track the user who visited the Wall Street Journal and wait until she visits a site that sells space at low prices, for example, a local recipe blogger. Google can then sell Wall Street Journal users to advertisers in a way that does not benefit the Wall Street Journal at all and costs advertisers much less. A second strategy used by Google is to take the data describing these differentiated audiences and use it to create an imitation portfolio of consumers that mimic the characteristics of the publisher’s audience. For example, Google could create an audience of consumers similar to the people who read Golf Digest. Then Google sells access to this group of consumers when they visit inexpensive websites. Advertisers are happy to buy these ads because the consumers likely belong to the specialized audience of interest but are available at a much lower price. In these ways the unique audience assembled by the publisher is copied and expropriated.137F[137]

It should be noted that the Roadmap does not conclude that Google engages in these practices, but merely describes strategies Google “can” undertake to “expropriate” publishers’ investments. The Roadmap concedes that advertisers would be “happy” under such hypotheticals, because they are buying effective ads at a “much lower price.” In the Roadmap’s example, the hypothetical recipe blogger is “happy” that it earned revenues from selling an impression and the advertiser is “happy” that it paid a lower price than it would have had the impression been sold to the Wall Street Journal. The Wall Street Journal may not be so “happy” that it did not serve that particular ad, but that display space did not sit empty; the hypothetical lost ad was replaced by another impression that was served. And it is neither Google’s nor antitrust law’s job to make specific publishers better off—nor to make publishers better off at the expense of advertisers—but to ensure that the market as a whole is competitive and acting in consumers’ interests.

These hypotheticals again highlight the tensions discussed above between the different sides of a multisided market. Actions that make advertisers “happy” may come at the expense of publishers’ advertising revenues and actions that increase publishers’ revenues may increase costs to advertisers. One of the goals of a multisided market intermediary such as Google is to balance these competing interests to maximize total revenues flowing through the ad tech stack.

The Roadmap concludes that, through its “entire family of products,” Google collects and analyzes substantial amounts of information about its users. It uses this information to maximize the “effectiveness,” “precision,” and “value” of the ads it intermediates.

First, Google offers an entire family of products—everything from Gmail and Google Maps to the Google Calendar, Google Chrome, Android mobile operating system and the search engine—that gather valuable personal data about its users. Second, the products across the ad stack further collect data on consumer activities that the company then integrates to maximize the effectiveness and precision of ad targeting and attribution and thereby the value of the ads.138F[138]

Rather than “expropriating” publishers’ data, it would be reasonable to conclude that Google is adding value to the data provided by publishers, advertisers, and consumers to better target ads. For example, the Wall Street Journal may not know that a consumer recently did a Google Search for “running shoes.” By adding valuable information from Search, the consumer might be served a relevant running shoe ad on the Wall Street Journal’s site. This benefits the publisher who is paid for serving a valuable impression, the advertiser who sells a pair of shoes, and the consumer who obtains useful information and purchases the product she was seeking.

E.   Accelerated Mobile Pages (AMP) and header bidding

The Texas Complaint, like the Roadmap, alleges that Google designed Accelerated Mobile Pages (AMP) “[t]o respond to the threat of header bidding… [by making it] essentially incompatible with JavaScript and header bidding. Google then used its power in the search market to effectively force publishers into using AMP.”139F[139] But this gets several key facts wrong. First, AMP is an open-source industry collaboration project and Google cannot unilaterally impose a design standard on it. 140F[140] Second, a version of header bidding can work with AMP.141F[141] Third, it is mistaken to assert that “non-AMP-formatted results often do not even show up on the first page of results, regardless of their relevance.”142F[142] AMP has been a prerequisite only for inclusion in the top news story carousel, while other listings are ranked by relevance and speed.

Importantly, the argument ignores the main benefit of AMP to publishers and users: faster load times for mobile users who may be on slow connections. One of header bidding’s chief downsides is that it increases page-load latency. It is obvious why an HTML framework built to maximize load times would not be compatible with header bidding. Because AMP confers undisputed benefits on users and publishers, Google and the other companies involved in the AMP project have no obligation to re-engineer AMP to be compatible with header bidding. Any conclusion otherwise would involve a court deciding that users should be forced to use a slower Internet so that websites can use header bidding.

F.   Alleged barriers to entry in the open digital display ad market

Claims about Google’s alleged market power in display advertising rest on assumptions that the company enjoys the benefits of significant barriers to entry throughout the ad tech stack, thus enabling it to extract supercompetitive rents without fear of competition: “With these barriers in place,” it is claimed, “entry seems nearly futile.”143F[143]

A key element in establishing a company’s durable market power—and thus, its ability to impose anticompetitive costs on its users—is the presence of entry barriers. Even a market with only a single company—a true monopoly—cannot act like a monopoly if entry into its market is easy; if it did profitably raise prices, new competitors would enter the market and undercut it.144F[144]

As the Roadmap concedes, “[m]arket power is not permanent, of course. It can be undercut by, among other things, new entrants that offer better quality or lower prices.”145F[145] This notion of “contestability” is a fundamental part of assessing the competitiveness of markets under U.S. antitrust law.146F[146] In the absence of barriers to entry, it is well-established that assumptions of future competitive harm from ongoing conduct cannot be sustained.147F[147] Thus, the Roadmap bases much of its brief against Google on the presence of barriers to entry, “which heighten[] the prospect that Google can engage in conduct that harms competition without restraint from new entrants or potential new entrants.”148F[148] On the strength of these asserted barriers, the Roadmap’s authors interpret ambiguous conduct as anticompetitive.

According to the Roadmap, “the CMA’s findings reveal a number of significant barriers to entry into the digital advertising market.”149F[149] But most of its assertions in this regard are flawed, either because the CMA did not, in fact, make “findings” in the ways it suggests, or else because it reaches incorrect conclusions that certain conduct constitutes a barrier.150F[150] The Texas Complaint’s assertions of similar barriers to entry are likewise problematic.151F[151]

1.     Consumer location information

Although the Texas Complaint does not discuss it as an explicit barrier to entry,152F[152] one of the Omidyar Roadmap’s key assertions about barriers to entry relates to Google’s access to user-location data. It asserts that:

The CMA concluded that Google has nearly insurmountable advantages in access to location data, due to the location information it receives from the Android operating system, Google search, and other applications…. An entrant into the ad tech stack requires information about the consumer to target an ad effectively. Because Google accounts for nearly the entirety of the mobile search sector in the UK—97%—and controls many of the known sources of location data, such an entrant faces a large barrier to entry.153F[153]

But the CMA does not, in fact, “conclude[] that Google has nearly insurmountable advantages in access to location data,” either in the CMA Interim Report to which the Roadmap refers, nor in the CMA Final Report. The CMA never makes any claim of “insurmountable advantage.” Indeed, it does not use the word “insurmountable” at all, except to note that “rival platforms did not suggest that accessing consumer data was an insurmountable barrier to entry.”154F[154] Rather, to support this claim, the Roadmap cites to a portion of the CMA Interim Report recounting a suggestion made by Microsoft regarding the “critical” value of location data in providing relevant advertising.155F[155]

Moreover, that portion of the CMA Interim Report, as well as the suggestion made by Microsoft, is about search advertising, not display advertising. While the CMA does not characterize this data in the way the Roadmap claims, it does allege that “Google has exclusive access to a large amount of user data that can be used for targeted advertising and for measuring advertising outcomes, collected through its consumer-facing services. Data collected on its search platform is particularly valuable for targeting purposes in open display as it reveals users’ purchasing intent.”156F[156]

While location data may also be valuable for display advertising in a comparable way, it is not clear that the GPS-level data that is so valuable in providing mobile-search ad listings is particularly useful for display advertising, which may be just as well-targeted by less granular city- or county-level location data.

Consider the Roadmap’s illustrative example:

A digital ad for a brick-and-mortar running store in Des Moines is of little use to a runner looking to test out new shoes in Omaha, and, if shown to the Omaha runner, is unlikely to prompt a click, much less a purchase, from the Des Moines store.157F[157]

This is certainly correct. But GPS or even cell-tower location data is not necessary to determine in which city a user is located. Publicly available databases of IP address locations can provide this information, and they are readily and often freely available to all competitors. It is difficult to imagine that display advertising uses location data at any greater level of granularity except in unusual circumstances; it simply would not be particularly useful or effective.158F[158]

Furthermore, to the extent that location data (like other consumer data) may be useful for display advertising, the most significant issue affecting its availability to advertisers is not Google’s presence in the ad tech stack; it is privacy regulations that limit the collection, use, and sharing of such data.159F[159] These privacy regulations, such as the GDPR, limit the ability of digital firms to sell or otherwise pass user data to third-party advertisers. What seems like unequal treatment, in this regard, is really a case of privacy regulation in action.

These laws may have the indirect effect of favoring larger digital conglomerates that can collect user data through one service and use it to target ads in another. In this sense, it could be true that Google has informational advantages over rivals, though in a critically different way than that alleged by the Roadmap. But it can hardly be considered anticompetitive if the source of such advantage is legal constraints on information sharing. Indeed, an empirical study by economists Avi Goldfarb and Catherine Tucker found that (pre-GDPR) privacy regulation in the EU “restricted advertisers’ ability to collect data on Web users in order to target ad campaigns. We ?nd that, on average, display advertising became far less effective at changing stated purchase intent after the EU laws were enacted, relative to display advertising in other countries.”160F[160] Along similar lines, Nils Wernerfelt and his co-authors show that access to data from different sources significantly improves ad targeting.161F[161] In turn, this may give a competitive advantage to firms that operate several successful web services and applications.

As Israeli competition law scholars Michal Gal and Oshrit Aviv found with respect to the GDPR, privacy regulations can function as a barrier to entry in several further ways.162F[162] These include creating new economies of scale associated with regulatory compliance, increased litigation risk, and uncertainty around interpretation of the rules. Because they serve to make reputation more central, they also can lead users to become more likely to entrust their data to incumbents but not to unknown, new entrants.163F[163]

2.     Attribution measurement

“Attribution” refers to the method by which advertisers can see which ad led a user to an action, such as visiting a website or making a purchase.164F[164] The Roadmap alleges that Google can design attribution to mislead advertisers by, for example, favoring search ads over display ads.165F[165] This would lead to more of the advertiser’s money going to Google instead of (in part) to a publisher, and (assuming, as the Roadmap implies, that this makes ad campaigns less effective166F[166]) can harm advertisers by misleading them into choosing a less-effective advertising channel.

The Roadmap provides no evidence this is taking place. What it describes is more a complaint about the nature of search advertising in general: that companies will sometimes end up paying for ads in lieu of identical organic search results for their pages. That is an argument to be had elsewhere, but there are clear reasons why it may be in an advertiser’s interest to advertise even in these situations. Paid search ads may give them greater control over how a link is displayed to a user (for example, with text the advertiser has chosen, rather than text that the search engine has retrieved) or guarantee a prominent listing for searches where the advertiser’s URL listing is not always guaranteed to be on top.

Apart from the broader objection to the nature of search advertising, the Roadmap’s authors also object to Google setting an attribution default in its DSP. But advertisers can choose from several different attribution models, not just the default one that the Roadmap objects to, which attributes to search ads the “last click.” Other options include “last non-direct click,” which “ignores direct traffic and attributes 100% of the conversion value to the last channel that the customer clicked through from before buying or converting”; “last Google Ads click”; “First interaction”; and others that give attribution weights according to where and when the customer saw or used the ads during their purchase or conversion “journey.”167F[167] These are precisely the kinds of models that the Roadmap’s authors implicitly believe are more appropriate for campaigns heavy on display advertising. Advertisers can also create their own custom models, and Google has published guides for advertisers to help them choose among the different models.168F[168]

The Roadmap’s objection is thus reduced to being about the choice by Google to use the “last click” attribution model as the default. But some model has to be the default, and “last click” is also the default on, for example, Microsoft Advertising.169F[169] Indeed, according to digital-ad-intermediary company, Outbrain (one of Google’s competitors), it is the most common attribution default across the industry.170F[170] For the Roadmap’s objection to carry any weight, a case based on this claim would need to demonstrate that it was unusual for Google to use “last click” as the default attribution. Even then, given the ease with which advertisers can change the attribution model, the charge would be thin.

3.     ‘Opaque’ pricing

Both the Texas Complaint and the Roadmap allege that Google’s “opaque pricing” constitutes a barrier to entry by impeding “advertisers from switching to a lower-cost for higher-quality” buying tool.171F[171] As the Roadmap puts it, a “new or potential new PAS or DSP cannot credibly claim to be able to undercut the Google products on price if the publishers and advertisers cannot tell how much Google actually is charging.”172F[172] The Texas Complaint further alleges that “Google compounds its exclusionary auction manipulations by purposefully keeping its auction mechanics, terms, and pricing, opaque and ‘nontransparent.’ This makes it nearly impossible for publishers and advertisers to discover Google’s misrepresentations, and even harder for rivals to neutralize or offset.”173F[173] Both the Texas Complaint and the Roadmap also suggest that competition is undermined when publishers and advertisers do not know the fee structure of the intermediaries they are using.

But it is not unusual for businesses’ costs and prices to be private to their competitors, and it is not a barrier to competition. Grocery stores do not need to know how much it cost a farmer to grow an orange or how much their rivals are paying for transportation, unless they are attempting to anticompetitively coordinate their prices; they just need to work to make their own costs as low as possible and to reduce their prices to consumers by as much as possible. Similarly efficient firms are perfectly able to offer competitive prices simply by making the best offer based on their own fundamentals; only less-efficient firms will struggle (as they should).

Along these lines, for competition to work effectively in display advertising, Google’s competitors do not need to know what Google is charging; they need to offer a price and product that is more attractive overall to potential customers than Google’s is. Similarly, a publisher does not need to know how much an advertiser bid to place an ad, nor does the advertiser need to know how much the publisher received to serve the ad. The advertiser’s competition concern is whether an effective ad can be served at a lower price from a different intermediary and the publisher’s competition concern is whether it can earn greater revenues from a different intermediary. One should not be surprised that Google does not reveal information on which competing intermediaries can free ride. Indeed, this is widely considered to be one of the hallmarks of vigorous competition.

Conclusion

As we have argued, many of the most significant claims made against Google’s ad tech products are based on a misunderstanding of U.S. antitrust law, or of the details of the ad tech market itself. Although we cannot be sure how the Texas, et al. v. Google case will develop once the allegations in the Complaint are fleshed out into full arguments, many of its initial claims and assumptions are wrongheaded. Based on the information currently available, if the court rules in favor of these, the result will be to condemn procompetitive conduct and potentially to impose costly, inefficient remedies that function as a drag on innovation.

Legislators, too, who may be concerned about Google’s conduct and tempted to impose regulatory requirements on it and other tech companies should bear in minds the risk of the Nirvana fallacy, in which real-life conduct is compared against a hypothetical “competition maximizing” benchmark, and anything that falls short is deemed problematic and in need of intervention.174F[174] That approach would pervert the incentives of businesses to innovate and compete, and would make an unobtainable “perfect” that exists only in the minds of some economists and lawyers the enemy of a “good” that exists in the market right now.

 

[1] Third Amended Complaint, Texas v. Google, 21-md-3010-PKC (S.D.N.Y. Jan 14, 2022) at 105 (hereinafter, “Texas Complaint”).

[2] See Complaint, United States v. Google LLC, No. 1:20-CV-03010 (D.D.C. Oct. 20, 2020); see also, Complaint, State of Colorado, et al. v. Google LLC, 1:20-CV-03715 (D.D.C. Dec. 17, 2020).

[3] DoJ Expected to File Antitrust Lawsuit Against Google in Weeks—Bloomberg News, U.S. News (Jul. 14, 2022), https://money.usnews.com/investing/news/articles/2022-07-14/doj-expected-to-file-antitrust-lawsuit-against-google-in-weeks-bloomberg-news.

[4] Antitrust: Commission Opens Investigation into Possible Anticompetitive Conduct by Google in the Online Advertising Technology Sector, European Commission (Jun. 22, 2021), https://ec.europa.eu/commission/presscorner/detail/en/ip_21_3143.

[5] Bundeskartellamt Publishes Report on Non-Search Online Advertising for Public Discussion, Bundeskartellamt (Aug. 29, 2022), https://www.bundeskartellamt.de/SharedDocs/Meldung/EN/Pressemitteilungen/2022/29_08_2022_SU_Online_Werbung.html?nn=3599398.

[6] Id.

[7] Online Platforms and Digital Advertising Market Study, U.K. Competition and Markets Authority (Jul. 1, 2020), https://www.gov.uk/cma-cases/online-platforms-and-digital-advertising-market-study (hereinafter “CMA Market Study”); Online Platforms and Digital Advertising, Market Study Final Report, U.K. Competition and Markets Authority (Jul. 1, 2020), https://assets.publishing.service.gov.uk/media/5fa557668fa8f5788db46efc/Final_report_Digital_ALT_TEXT.pdf (hereinafter “CMA Final Report”), at 21 & 37.

[8] See Josh Frydenberg, Competition and Consumer (Price Inquiry—Digital Advertising Services) Direction 2020 (Feb. 10, 2020); Ad Tech Inquiry Issues Paper 5, Australian Competition & Consumer Commission (Mar. 10, 2020); Digital Advertising Services Inquiry, Australian Competition & Consumer Commission (Feb. 26, 2021), https://www.accc.gov.au/focus-areas/inquiries-finalised/digital-advertising-services-inquiry/submissions-to-interim-report.

[9] Investigation of Competition in Digital Markets, Majority Staff Report and Recommendations, Subcommittee on Antitrust, Commercial and Administrative Law of the Committee on the Judiciary (Oct. 4, 2020), available at https://templatelab.com/competition-in-digital-markets/4493-519; Hearing on Stacking the Tech: Has Google Harmed Competition in Online Advertising?, Committee of the Judiciary, Subcommittee on Antitrust, Competition Policy and Consumer Rights (Sep. 15, 2020), https://www.judiciary.senate.gov/meetings/stacking-the-tech-has-google-harmed-competition-in-online-advertising.

[10] Investigation of Competition in Digital Markets, Majority Staff Report and Recommendations, id., at 20.

[11] Competition and Transparency in Digital Advertising Act, S.4258, 117th Congress (2021-2022), https://www.congress.gov/bill/117th-congress/senate-bill/4258/text.

[12] Lee Introduces Digital Advertising Act, Mike Lee US Senator for Utah (May 19, 2022), https://www.lee.senate.gov/2022/5/lee-introduces-digital-advertising-act.

[13] Support Mounts for Lee’s Digital Advertising Act, Mike Lee US Senator for Utah (May 27, 2022), https://www.lee.senate.gov/2022/5/support-mounts-for-lee-s-digital-advertising-act.

[14] Online Platforms and Digital Advertising Market Study Interim Report, U.K. Competition and Markets Authority (Dec. 18, 2019), https://assets.publishing.service.gov.uk/media/5ed0f75bd3bf7f4602e98330/Interim_report_—_web.pdf (hereinafter, “CMA Interim Report”).

[15] Fiona M. Scott Morton & David C. Dinielli, Roadmap for a Digital Advertising Monopolization Case Against Google, Omidyar Network (May 2020), https://omidyar.com/wp-content/uploads/2020/09/Roadmap-for-a-Case-Against-Google.pdf (hereinafter, “Roadmap” or “Omidyar Roadmap”). One of the Roadmap’s authors testified at a Senate hearing on the display-advertising market, and the report has been widely cited. See, e.g., Gilad Edelman, Here’s What an Antitrust Case Against Google Might Look Like, Wired (May 18, 2020), https://www.wired.com/story/antitrust-case-against-google-roadmap-paper.

[16] Damien Geradin & Dimitrios Katsifis, An EU Competition Law Analysis of Online Display Advertising in the Programmatic Age, 15 Eur. Comp. J. 55 (2019); Damien Geradin & Dimitrios Katsifis, “Trust Me, I’m Fair”: Analysing Google’s Latest Practices in Ad Tech from the Perspective of EU Competition Law, 16 Eur. Comp. J. 11 (2020); Damien Geradin & Dimitrios Katsifis, Online Platforms and Digital Advertising Market Study: Observations on CMA’s Interim Report, TILEC Discussion Paper No. DP2020-044 (Feb. 13, 2020), https://ssrn.com/abstract=3537864; Damien Geradin & Dimitrios Katsifis, Competition in Ad Tech: A Response to Google, TILEC Discussion Paper No. DP2020-038 (Jun. 3, 2020), https://ssrn.com/abstract=3617839.

[17] The markets alleged in the Texas Complaint involve (1) publisher ad servers, (2) ad exchanges, (3) ad-buying tools for large advertisers, (4) ad-buying tools for small advertisers, (5) in-app mediation tools, and (6) in-app networks. The complaint does not relate to other forms of advertising on the Internet, such as targeted text-based ads sold by search engines, video ads that run before or during video content, or shareable ads on social media platforms.

[18] This section is distilled from our much longer discussion of the broader market surrounding digital advertising. See Eric Fruits, Geoffrey A. Manne & Lazar Radic, Relevant Market in the Google AdTech Case, ICLE Issue Brief 2022-06-01 (2022), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4125569.

[19] Benedict Evans, News by the Ton: 75 Years of US Advertising (Jun. 15, 2020), https://www.ben-evans.com/benedictevans/2020/6/14/75-years-of-us-advertising; Benedict Evans, TV, Merchant Media and the Unbundling of Advertising (Mar. 18, 2022), https://www.ben-evans.com/benedictevans/2022/3/18/unbundling-advertising.

[20] See Fruits, Manne & Radic, supra note 18.

[21] Michael Schneider & Kate Aurthur, R.I.P. Cable TV: Why Hollywood Is Slowly Killing Its Biggest Moneymaker, Variety (Jul. 21, 2020), https://variety.com/2020/tv/news/cable-tv-decline-streaming-cord-cutting-1234710007 (“[B]asic cable feasted on a dual revenue stream of subscriber fees and advertising revenue. But that gravy train started going off the rails when the streaming services arrived.”).

[22] At the same time, as Benedict Evans notes, not all digital advertising is drawn from offline sources: “[I]f you talk to people at both Google and Facebook and in the agency world, you’ll hear that a lot of the money spent on Google and Facebook is money that was never spent on traditional advertising—it’s coming from SMEs [small and medium enterprises] and local businesses that might have spent in classified at most but probably wouldn’t have done even that.” Evans, News by the Ton, supra note 19 (emphasis in original).

[23] See Xi He, Rigoberto Lopez & Yizao Liu, Are Online and Offline Advertising Substitutes or Complements? Evidence from U.S. Food Industries, 15 J. Agricultural & Food Indus. Org. 1 (2017).

[24] David Bardey, Jorge Tovar & Nicolas Santos, Characterization of the Relevant Market in the Media Industry: Some New Evidence, Toulouse School of Economics Working Paper 16-719 (2016), https://www.tse-fr.eu/publications/characterization-relevant-market-media-industry-some-new-evidence (“The results show substitution and complementary patterns across certain media outlets. An increase in price for advertising in radio, for instance, leads to higher demand for newspapers and outdoors. Similarly, complementarity relationships between media outlets are observed, suggesting that advertising across the various media platforms is, overall, interwoven.”).

[25] David S. Evans, The Online Advertising Industry: Economics, Evolution, and Privacy, 23 J. Econ. Persp. 37, 49 (2009).

[26] Avi Goldfarb & Catherine Tucker, Search Engine Advertising: Channel Substitution When Pricing Ads to Context, 57 Management Sci. 458 (2011) (The authors find that the price of “ambulance chaser” lawyer ads was significantly more expensive in states prohibiting direct-mail solicitation by attorneys. This leads them to conclude that “online advertising substitutes for online advertising”).

[27] Avi Goldfarb & Catherine Tucker, Substitution Between Offline and Online Advertising Markets, 7 J. Competition L. & Econ. 37, 43 (2011).

[28] Daniel S. Levine, Ad-Supported Cyber-Magazines to Launch on Internet, Adweek (Sep. 10, 1993).

[29] Id.

[30] Brian Morrissey, How the Banner Ad Was Born, Digiday (Apr. 12, 2013), https://digiday.com/marketing/how-the-banner-ad-was-born.

[31] Chris Lapham, AOL and GNN Partner to Build Launch Pad, CMC Magazine (Jul. 1, 1995), https://www.december.com/cmc/mag/1995/jul/cutting.html.

[32] Kim Cleland, Poppe Creates Web Net, Advertising Age (Oct. 30, 1995).

[33] Id.

[34] The History of Online Advertising, OKO Ad Management (Jul. 19, 2019), https://oko.uk/blog/the-history-of-online-advertising.

[35] The company changed its name to Overture, which was acquired by Yahoo! in 2003.

[36] GoTo.com Announces First Round of Financing, Totaling More Than $ 6 Million, Led by Draper Fisher Jurvetson, Business Wire (May 19, 1998), https://www.internetnews.com/marketing/goto-com-raises-6-million-in-first-round-of-financing.

[37] Will Oremus, Google’s Big Break, Slate (Oct. 13, 2013), https://slate.com/business/2013/10/googles-big-break-how-bill-gross-goto-com-inspired-the-adwords-business-model.html.

[38] Id.

[39] Dean Schmid, The History of Display Advertising: Everything You Need to Know, DisruptorDaily.com (Aug. 14, 2017), https://www.disruptordaily.com/the-history-of-display-advertising-everything-you-need-to-know.

[40] Julia Scheeres, Death of Banner Ads Exaggerated, Wired (Jan. 26, 2001), https://www.wired.com/2001/01/death-of-banner-ads-exaggerated.

[41] Id.

[42] Breaking News, AdAge (Oct. 23, 2000).

[43] Mark Evans, Investors Leap off Overture Roller Coaster: Rival Google Elbows In, National Post (Feb. 21, 2002).

[44] Oremus, supra note 37.

[45] Google Grabs Applied Semantics, EuropeMedia (Apr. 25, 2003); Google Expands Advertising Monetization Program for Websites, Google Press Release (Jun. 18, 2003), http://googlepress.blogspot.com/2003/06/google-expands-advertising-monetization.html.

[46] Dean Schmid, The History of Display Advertising: Everything You Need to Know, DisruptorDaily (Aug. 14, 2017), https://www.disruptordaily.com/the-history-of-display-advertising-everything-you-need-to-know.

[47] Kate Walsh, Search Marketing: Understanding the Basics, B2B Marketing Magazine (March 2006).

[48] Louise Story & Miguel Helft, Google Buys DoubleClick for $3.1 Billion, The New York Times (Apr. 14, 2007), https://www.nytimes.com/2007/04/14/technology/14DoubleClick.html.

[49] Sarah Sluis, The Year Header Bidding Went Mainstream, AdExchanger (Dec. 27, 2016); Townhall Media Selects OpenX for Patent-Pending Header Bidding Solution, BusinessWire (Sep. 18, 2015), https://www.businesswire.com/news/home/20150918005110/en/Townhall-Media-Selects-OpenX-for-Patent-Pending-Header-Bidding-Solution.

[50] As the name suggests, ad waterfalls enable publishers to sell their inventory seriatim, beginning with premium, direct sales and flowing through the most historically profitable ad servers in succession to unload unsold inventory before offering its remnant inventory in the open display channel. See, e.g., Maciej Zawadzinski, What Is Waterfalling and How Does it Work?, Clearcode (Aug. 20, 2021), https://clearcode.cc/blog/what-is-waterfalling.

[51] See, e.g., Header Bidding, OKO Ad Management, https://oko.uk/topic/header-bidding (retrieved July 27, 2022).

[52] Client-side header bidding is so-named because it operates via a small piece of java script embedded in the header of a publisher’s website and executed within the user’s browser (i.e., client). See, e.g., Maciej Zawadzinski, What Is Header Bidding and How Does it Work?, Clearcode (Aug. 20, 2021), https://clearcode.cc/blog/what-is-header-bidding.

[53] Header Bidding Facts and Statistics 2021, Automatad (Jun. 27, 2021), https://headerbidding.co/header-bidding-statistics. Today, 70% of the top 10,000 U.S. publishers use header bidding. See Header Bidding (HBIX) Tracker, kevel (retrieved Nov. 1, 2022), https://www.kevel.com/hbix.

[54] See, e.g., CMA Final Report, supra note 7, at Appendix M, ¶ 33.

[55] See, e.g., Vishveshwar Jatain, Header Bidding Integrations: Client Vs. Server-Side, Explained, Blockthrough (Apr. 15, 2021), https://blockthrough.com/blog/header-bidding-integrations-client-vs-server-side-explained.

[56] IAB and PwC, IAB Internet Advertising Revenue Report, 2010 Full Year Results (Apr. 2011), available at https://www.iab.com/wp-content/uploads/2015/05/IAB_Full_year_2010_0413_Final.pdf; Megan Graham, Digital Ad Revenue Jumped 35% in the U.S. Last Year, Biggest Gain Since 2006, Wall Street Journal (Apr. 12, 2022), https://www.wsj.com/articles/digital-ad-revenue-jumped-35-in-the-u-s-last-year-biggest-gain-since-2006-11649759401.

[57] Producer Price Index by Commodity: Advertising Space and Time Sales: Internet Advertising Sales, Excluding Internet Advertising Sold by Print Publishers, U.S. Bureau of Labor Statistics, https://fred.stlouisfed.org/series/WPU365; Producer Price Index, December 2009—February 2021, U.S. Bureau of Labor Statistics, https://fred.stlouisfed.org/graph/?g=vtTd.

[58] Scott Morton & Dinielli, supra note 15, at 9.

[59] Importantly, however, network effects are not monolithic; nor do they increase forever. For different types of networks at different points in their growth, adding more users might not increase the value of the platform and could even reduce the platform’s benefits. See, e.g., D’Arcy Coolican & Li Jin, The Dynamics of Network Effects, Andreesen Horowitz (Dec. 13, 2018), https://a16z.com/2018/12/13/network-effects-dynamics-in-practice.

[60] See Stan J. Liebowitz & Stephen E. Margolis, Network Externality: An Uncommon Tragedy, 8 J. Econ. Persp. 133 (1994).

[61] Catherine Tucker, Digital Data, Platforms and the Usual [Antitrust] Suspects: Network Effects, Switching Costs, Essential Facility, 54 Rev. Indus. Org. 683, 686 (2019).

[62] See, e.g., David S. Evans, Economics of Vertical Restraints for Multi-Sided Platforms, University of Chicago Institute for Law & Economics Olin Research Paper No. 626 (Jan. 2, 2013), https://ssrn.com/abstract=2195778.

[63] See, e.g., Stylianos Despotakis, R. Ravi & Amin Sayedi, First-Price Auctions in Online Display Advertising, 58 J. Marketing Research 888 (2021). See also Display Advertising Switched to First-Price Auctions After Adoption of Header Bidding, New Study Finds, Tepper School of Business (Apr. 22, 2020), https://www.cmu.edu/tepper/news/stories/2020/april/display-advertisting-research-ravi.html.

[64]  Jonathan Levin, Auction Theory (Oct. 2004), available at https://web.stanford.edu/~jdlevin/Econ%20286/Auctions.pdf.

[65] Maciej Zawadzi?ski, How Do First-Price and Second-Price Auctions Work in Online Advertising?, Clearcode (Aug. 12, 2021), https://clearcode.cc/blog/first-price-second-price-auction.

[66] Id.

[67] Texas Complaint, supra note 1, at ¶ 351 (“Overall, the lack of transparency prevents more efficient competition that would drive greater innovation, increase the quality of intermediary services, increase output, and create downward pricing pressure on intermediary fees.”); Scott Morton & Dinielli, supra note 15, at 18 (“Based on the public facts known at the moment, however, it does not seem plausible that the incremental efficiencies created by the conduct described here could outweigh all the harms to competition resulting from this broad pattern of behaviors.”); Scott Morton & Dinielli, supra note 15, at 38 (“It also is true that Google has allowed some rivals to survive (although not necessarily to thrive). It is possible that Google adopted a strategy of incomplete foreclosure specifically so that it can paint an illusion of healthy competition when the reality is quite different. Indeed, to the extent Google has adopted ‘pro-competitive’ concessions, the narrative here demonstrates that they simply have not succeeded in addressing the harms or lowering the barriers to entry.”).

[68] Id. at 3 (“It is clear even to us as lay people that there are less anticompetitive ways of delivering effective digital advertising—and thereby preserving the substantial benefits from this technology—than those employed by Google.”).

[69] United States v. Aluminum Co. of America, 148 F.2d 416, 430 (2nd Cir. 1945) (Learned Hand, J.) (emphasis added).

[70] Cal. Computer Prods., Inc. v. Int’l Bus. Machine Corp., 613 F.2d 727, 744 (9th Cir. 1979) (“IBM, assuming it was a monopolist, had the right to redesign its products to make them more attractive to buyers whether by reason of lower manufacturing cost and price or improved performance. It was under no duty to help [its competitors] survive or expand.”).

[71] Scott Morton & Dinielli, supra note 15 at 18.

[72] Texas Second Amended Complaint at ¶ 113.

[73] See Verizon Commc’ns Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 408 (2004). The exception—”at or near the outer boundary of § 2 liability” (id. at 409)—is the extremely narrow case in which a monopolist (i) sacrifices profits, by (ii) terminating a prior course of dealing, (iii) for no purpose except to harm competition. See Novell v. Microsoft, 731 F.3d 1064, 1074-75 (10th Cir. 2013) (Gorsuch, J.) (holding that a refusal-to-deal claim requires terminating “a preexisting voluntary” course of dealing where the “monopolist decided to forsake short-term profits,” and “the monopolist’s conduct” is “irrational but for its anticompetitive effect”).

[74] Opinion and Order, Texas, et al. v. Google, 21-md-3010-PKC (S.D.N.Y, Sep. 13, 2022) (citing Charych v. Siriusware, Inc., 790 Fed. App’x 299, 302 (2nd Cir. 2019)).

[75] United States v. Colgate & Co., 250 U.S. 300, 307 (1919).

[76] Trinko, 540 U.S. at 407-08

[77] See Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 488 (1977) (“The antitrust laws, however, were enacted for ‘the protection of competition not competitors.’”) (quoting Brown Shoe Co. v. United States, 370 U.S. 294, 320 (1962)).

[78] See Ohio v. American Express, 138 U.S. 2274, 2285 (2018) (“Due to indirect network effects, two-sided platforms cannot raise prices on one side without risking a feedback loop of declining demand…. Price increases on one side of the platform [] do not suggest anticompetitive effects without some evidence that they have increased the overall cost of the platform’s services.”).

[79] Geoffrey A. Manne, In Defence of the Supreme Court’s ‘Single Market’ Definition in Ohio v American Express, 7 J. Antitrust Enforcement 104, 111 (2019) (quoting Brief for Amici Curiae Antitrust Law & Economics Scholars in Support of Respondents at 19, Ohio v. American Express, 138 U.S. 2274 (2018) (No. 16-1454) and United States, et al. v. American Express, 838 F.3d 179, 198 (2nd Cir. 2016)).

[80] Among innumerable examples, see Texas Complaint, supra note 1, at ¶ 297 (“Google’s harm to the competitive process has harmed customers in this market, i.e., online publishers.”). Notably, the Texas Complaint does, in places, recognize that identifying the incidence of benefits and harms in multisided markets is complex—it just fails to carry its analysis to its logical conclusion. Thus, in ¶157 the Complaint notes that “[t]he higher advertising revenue publishers make from exchanges permits publishers to offer consumers better quality content and lower-priced or free access to their content.” (Emphasis added). Undoubtedly, this is true. But if it is correct, then it must also be correct that, at the same time, the correspondingly higher prices advertisers pay for advertising through exchanges limits their ability to provide marketing benefits directly to consumers and may increase the price to consumers of the advertised goods. It is an empirical question which effect is larger, but the mere possibility that one set of consumers could benefit from a different arrangement is insufficient on its own to identify harm when another set of consumers would be harmed by it.

[81] See Harold Demsetz, Information and Efficiency: Another Viewpoint, 12 J. L. & Econ. 1, 1-2 (1969) (“In practice, those who adopt the nirvana viewpoint seek to discover discrepancies between the ideal and the real and if discrepancies are found, they deduce that the real is inefficient…. The nirvana approach is… susceptible… to committing three logical fallacies—the grass is always greener fallacy, the fallacy of the free lunch, and the people could be different fallacy.”) (emphasis in original).

[82] See, generally, Thomas Nachbar, Less Restrictive Alternatives and the Ancillary Restraints Doctrine, Virginia Law and Economics Research Paper No. 2020-18 (2021) (forthcoming U. Seattle L. Rev.) at 57-8, available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3723807 (“The more general risk to tech markets comes from the intangible nature of the products and services they produce. Although many of the cases cited for less restrictive alternatives are horizontal cases, it is the vertical context (which normally receives more permissive antitrust review) in which less restrictive alternatives present the greatest likelihood of destabilizing current law because of the difficulty of specifying what is and is not less restrictive with regard to the intangible products produced by today’s ‘big tech’ economy. To the extent that less restrictive alternatives present problems of incrementalism, those problems will be exacerbated in the ‘big tech’ markets.”).

[83] See Geoffrey A. Manne, Error Costs in Digital Markets, Global Antitrust Institute Report on the Digital Economy (Joshua D. Wright & Douglas H. Ginsburg, eds., 2020) 33, 76, available at https://gaidigitalreport.com/wp-content/uploads/2020/11/Manne-Error-Costs-in-Digital-Markets.pdf (“The concern with error costs is especially high in dynamic markets in which it is difficult to discern the real competitive effects of a firm’s conduct from observation alone. And for several reasons, antitrust decision-making in the context of innovation tends much more readily toward distrust of novel behavior, thus exacerbating the risk and cost of over-enforcement.”).

[84] Among many other examples, see Texas Second Amended Complaint at ¶138 (“Then, through Dynamic Allocation, Google’s ad server passed inside information to Google’s exchange and permitted Google’s exchange to purchase valuable impressions at artificially depressed prices. Competing exchanges were deprived of the opportunity to compete for inventory and left with the low-value impressions passed over by Google’s exchange.”); Omidyar Roadmap, supra note 15, at 20 (“[A]fter purchasing DoubleClick, which became its publisher ad server, Google apparently lowered its prices to publishers by a factor of ten, at least according to one publisher’s account related to the CMA. Low prices for this service can force rivals to depart, thereby directly reducing competition.”).

[85] Barry Wright Corp. v. ITT Grinnell Corp., 724 F.2d. 227, 235 (1st Cir. 1983) (Breyer, C.J.).

[86] Allied Orthopedic Appliances, Inc. v. Tyco Health Care Grp. LP, 592 F.3d 991, 1000 (9th Cir. 2010).

[87] Berkey Photo, Inc. v. Eastman Kodak Co., 603 F.2d 263, 287 (2nd Cir. 1979). See also, Manne & Wright, Innovation and the Limits of Antitrust, 6 J. Comp. L. & Econ. 153–202 (March 2010), https://doi.org/10.1093/joclec/nhp032.

[88] Allied Orthopedic, 592 F.3d at 999-1000; see also, California Computers Prods. v. IBM, 613 F.2d 727, 744 (9th Cir. 1979); Foremost Pro Color, Inc. v. Eastman Kodak Co., 703 F.2d 534, 543-45 (9th Cir. 1983).

[89] Foremost Pro Color, 703 F.2d at 543.

[90] Allied Orthopedic, 592 F.3d at 1000.

[91] Verizon Commc’ns, Inc. v. Law Offices of Curtis V. Trinko, 540 U.S. 398, 400-41 (2004).

[92] Trinko, 540 U.S. at 415-16.

[93] Id.; see also New York Merc. Exch., Inc. v. Intercontinental Exch. Inc., 323 F.Supp.2d 559 (S.D.N.Y. 2004) (dismissing Section 2 claim and reiterating limited exceptions in which forced sharing is appropriate).

[94] See, e.g., Jack Walters & Sons Corp. v. Morton Bldg., Inc., 737 F.2d 698, 710 (7th Cir. 1984) (“We just said that vertical integration is not an improper objective. But this puts the matter too tepidly; vertical integration usually is procompetitive. If there are cost savings from bringing into the firm a function formerly performed outside it, the firm will be made a more effective competitor.”). There is a robust body of empirical research indicating that vertical integration is generally procompetitive or benign. For a summary of the leading meta-studies by DOJ and FTC economists and others, see Koren W. Wong-Ervin, Antitrust Analysis of Vertical Mergers: Recent Developments and Economic Teachings, The Antitrust Source (February 2019), https://www.americanbar.org/content/dam/aba/publishing/antitrust_source/2018-2019/atsource-february2019/feb19_wong_ervin_2_18f.pdf. See also, Francine Lafontaine & Margaret Slade, Vertical Integration and Firm Boundaries: The Evidence, 45 J. Econ. Lit. 677 (2007) (“In spite of the lack of unified theory, overall a fairly clear empirical picture emerges. The data appear to be telling us that efficiency considerations overwhelm anticompetitive motives in most contexts. Furthermore, even when we limit attention to natural monopolies or tight oligopolies, the evidence of anticompetitive harm is not strong.”). See also, generally, Geoffrey A. Manne, Kristian Stout & Eric Fruits, The Fatal Economic Flaws of the Contemporary Campaign Against Vertical Integration, 68 Kansas L. Rev. 923 (2020).

[95] Scott Morton & Dinielli, supra note 15, at 17.

[96] See, e.g., Port Dock & Stone Corp. v. Oldcastle Ne., Inc., 507 F.3d 117, 123-25 (2nd Cir. 2007) (affirming dismissal of a Section 2 claim and finding that even a monopolist’s “vertical expansion into another level of the same product market will ordinarily be for the purpose of increasing its efficiency, which is a prototypical valid business purpose”). Moreover, single-firm conduct that supposedly projects power into another market, even through anticompetitive means, does not violate Sherman Act Section 2 unless the practices threaten monopoly power in that distinct second market. Harming competition is not enough. See Trinko, 540 U.S. at 415 n.4 (citing Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 459 (1993)).

[97] Thus, the Omidyar Roadmap condemns Google’s supposed integration of data “to maximize the effectiveness and precision of ad targeting and attribution and thereby the value of an ad,” Scott Morton & Dinielli, supra note 15, at 20, even though the conduct makes Google’s offering to advertisers more attractive.

[98] Id. at 18-19.

[99] CMA Interim Report, supra note 14, at ¶ 5.89.

[100] Texas Second Amended Complaint at ¶ 113.

[101] Scott Morton & Dinielli, supra note 15, at 22.

[102] Texas Second Amended Complaint at ¶¶ 284-91 (“Cutting off access to YouTube foreclosed competition in the ad buying tool markets and protected Google’s market power in these markets. Many DSPs stopped growing, many others went out of business, and the market overall has been closed to entry.”).

[103] Scott Morton & Dinielli, supra note 15, at 22.

[104] See, e.g., Ryan Joe, The Big Story: Call of the Peacock, AdExchanger (Jan. 22, 2020) at 31:05-31:26, https://www.adexchanger.com/podcast/the-big-story/the-big-story-call-of-the-peacock (indicating that NBC’s Peacock streaming service will have only direct sales when it launches); Kevin Weiss, What Is the Amazon Demand Side Platform (DSP)?, Amplio (July 2019), https://www.ampliodigital.com/blog/what-is-the-amazon-demand-side-platform-dsp (“Amazon DSP is the only way to access advertising inventory exclusively available on Amazon’s collection of owned online properties and devices like: Kindle; Fire TV; IMDb; Amazon Owned & Operated properties”); Tim Cross, Xandr Launches New Demand-Side Platform ‘Xandr Invest’, VideoAdNews (Jun. 10, 2019) https://videoadnews.com/2019/06/10/xandr-launches-new-demand-side-platform-xandr-invest (“Xandr [AT&T-Time Warner’s ad tech division] has announced it will be the exclusive source of inventory from Community, its recently announced video marketplace which includes content from various WarnerMedia brands as well as Vice, Hearst Magazines, Newsy, Philo, Tubi and XUMO.”).

[105] Neal Mohan, Focusing Investments to Improve Buying on YouTube, Google (Aug. 6, 2015) https://doubleclick-advertisers.googleblog.com/2015 (“To continue improving the YouTube advertising experience for as many of our clients as possible, we’ll be focusing our future development efforts on the formats and channels used by most of our partners. To enable that, as of the end of the year, we’ll no longer support the small amount of YouTube buying happening on the DoubleClick Ad Exchange.”); see also, Kelly Liyakasa, Google to Yank YouTube Inventory out of AdX by Year’s End, AdExchanger (Aug. 6, 2015), https://www.adexchanger.com/ad-exchange-news/google-to-yank-youtube-inventory-out-of-adx-by-years-end.

[106] Liyakasa, id.

[107] See Lara O’Reilly, Ad Tech Company The Trade Desk Goes Public at $28.75 Per Share—A Huge Pop on its $18 Price Target, Business Insider (Sep. 21, 2016), https://www.businessinsider.com/the-trade-desk-ipo-2016-9; Trey Titone, The Bill That Could Break Up Google and Shake Up Ad Tech, Ad Tech Explained (May 23, 2022), https://adtechexplained.com/competition-and-transparency-in-digital-advertising-act-ctda; Trade Desk Market Cap, YCharts, https://ycharts.com/companies/TTD/market_cap.

[108] Scott Morton & Dinielli, supra note 15, at 16 n.70 (identifying AppNexus as a “vigorous competitor to Google”).

[109] Id. at 2, 28-29.

[110] Annual Report (Form 10-K) for Year Ending December 31, 2021, Alphabet Inc. (Feb. 02, 2022), https://www.sec.gov/ix?doc=/Archives/edgar/data/0001652044/000165204422000019/goog-20211231.htm.

[111] Id.

[112] Id.

[113] Id.

[114] Id.

[115] Rachel Kaser, YouTube Claims to Share Billions in Ad Money with Creators, Unlike Instagram, The Next Web (Feb. 5, 2020), https://thenextweb.com/facebook/2020/02/05/youtube-claims-share-billions-ad-money-creators-unlike-instagram.

[116] Texas Complaint, supra note 1, at ¶¶ 61, 156, 253, 288.

[117] Id. ¶ 157.

[118] Id. ¶ 21.

[119] Scott Morton & Dinielli, supra note 15, at 14 (“The CMA estimates Google’s take rate, or price, at 40%, which it deems a supra-competitive price for the services provided by the Google-controlled players in ad tech stack. A recent study by the Incorporated Society of British Advertisers (ISBA) found that publishers received 51% of the price, while the amount they could track going to intermediaries was 34%. The study could not find where the remaining 15% of the price went. As we will describe below, Google has such a dominant position across all elements of the ecosystem, it seems likely that these missing funds are accruing to Google at least in part, which would support the CMA’s findings.”).

[120] Geradin & Katsifis, “Trust Me, I’m Fair,” supra note 16 (“[L]ack of competition across the ad tech chain enables Google to exploit advertisers and publishers by charging hidden fees for ad intermediation on top of its disclosed commission…. Unfortunately, we conclude that Google’s latest switch does nothing to increase auction transparency. Worse, it seems to strengthen Google’s ability to extract hidden margins from its customers, while undermining the competitive pressure exercised by header bidding.”).

[121] CMA Final Report, supra note 7, at 275 (emphasis added).

[122] Scott Morton & Dinielli, supra note 15, at 20.

[123] See, e.g., Jean-Charles Rochet & Jean Tirole, Platform Competition in Two-Sided Markets, 1 J. Eur. Econ. Ass’n 990 (2003); Bruno Jullien, Price Skewness and Competition in Multi-Sided Markets, IDEI Working Paper 504 (March 2008), available at https://core.ac.uk/download/pdf/6375977.pdf.

[124] See Joshua. D. Wright & John. M. Yun, Burdens and Balancing in Multisided Markets: The First Principles Approach of Ohio v. American Express, 54 Rev. Industrial Organization 717 (2019); Manne, In Defence of the Supreme Court’s ‘Single Market’ Definition in Ohio v American Express, supra note 79.

[125] As described here, true pricing is theoretically possible but difficult in practice: “To successfully engage in predatory pricing means taking enormous and rising losses that grow for the ‘predatory’ firm as customers switch to it from its competitor. And once the rival firm has exited the market, if the predatory firm raises prices above average cost (i.e., to recoup its losses), there is no guarantee that a new competitor will not enter the market selling at the previously competitive price. And the competing firm can either shut down temporarily or, in some cases, just buy up the ‘predatory’ firm’s discounted goods to resell later.” Sam Bowman, Buck’s “Third Way”: A Different Road to the Same Destination, Truth on the Market (Oct. 27, 2020), https://truthonthemarket.com/2020/10/27/bucks-third-way-a-different-road-to-the-same-destination.

[126] Scott Morton & Dinielli, supra note 15, at 20.

[127] See, e.g., Barry Wright, 724 F.2d at 234-35.

[128] CMA Interim Report, supra note 14, at Appendix H, ¶ 194.

[129] Texas Complaint, supra note 1, at ¶ 477.

[130] Id. at ¶¶ 473-476.

[131] Scott Morton & Dinielli, supra note 15, at 28.

[132] Id. at 28.

[133] As one study on the effects of GDPR (in this case, on app development) notes, “While 42.1 percent of EU-developed apps exit in the year following GDPR, the analogous ?gure averages between 37.7 and 50 percent in the other six countries, con?rming the di?culty in ?nding an untreated part of the world.” Rebecca Janßen, Reinhold Kesler, Michael E. Kummer, & Joel Waldfogel, GDPR and the Lost Generation of Innovative Apps, NBER Working Paper 30028 (May 2022) at 19-20, available at https://www.nber.org/papers/w30028.

[134] Julie Brill, Microsoft Will Honor California’s New Privacy Rights Throughout the United States, Microsoft Blog (Nov. 11, 2019), https://blogs.microsoft.com/on-the-issues/2019/11/11/microsoft-california-privacy-rights.

[135] Nick Statt, Apple Updates Safari’s Anti-Tracking with Full Third-Party Cookie Blocking, The Verge (Mar. 24, 2020), https://www.theverge.com/2020/3/24/21192830/apple-safari-intelligent-tracking-privacy-full-third-party-cookie-blocking.

[136] Dieter Bohn, Google to “Phase Out” Third-Party Cookies in Chrome, but not for Two Years, The Verge (Jan. 24, 2020), https://www.theverge.com/2020/1/14/21064698/google-third-party-cookies-chrome-two-years-privacy-safari-firefox.

[137] Scott Morton & Dinielli, supra note 15, at 30.

[138] Id. at 20.

[139] Texas Complaint, supra note 1, at ¶¶ 407-408. See also, Scott Morton & Dinielli, supra note 15, at 26.

[140] See David Besbris, Introducing the Accelerated Mobile Pages Project, for a Faster, Open Mobile Web, Google (Oct. 7, 2015), https://blog.google/products/search/introducing-accelerated-mobile-pages/.

[141] See Automated Team, Header Bidding on AMP—A Complete Guide, Automated (Jan. 10, 2020), https://headerbidding.co/header-bidding-amp.

[142] Scott Morton & Dinielli, supra note 15, at 26.

[143] Id. at 17.

[144] See William J. Baumol, Contestable Markets: An Uprising in the Theory of Industry Structure, 72 Am. Econ. Rev. 1, 14 (1982) (“In the limit, when entry and exit are completely free, efficient incumbent monopolists and oligopolists may in fact be able to prevent entry. But they can do so only by behaving virtuously, that is, by offering to consumers the benefits which competition would otherwise bring. For every deviation from good behavior instantly makes them vulnerable to hit-and-run entry.”).

[145] Scott Morton & Dinielli, supra note 15, at 15.

[146] See, generally, William J. Baumol, John C. Panzar, & Robert D. Willig, Contestable Markets and the Theory of Industry Structure (1982).

[147] United States v. Microsoft Corp., 253 F.3d 34 (D.C. Cir. 2001) (“Because a firm cannot possess monopoly power in a market unless that market is also protected by significant barriers to entry… it follows that a firm cannot threaten to achieve monopoly power in a market unless that market is, or will be, similarly protected.”).

[148] Scott Morton & Dinielli, supra note 15, at 15.

[149] Id.

[150] See CMA Final Report, supra note 7, at 252–55 for a discussion of barriers to entry.

[151] See Texas Complaint, supra note 1, at ¶ 127: In addition to these barriers, Google’s own anticompetitive conduct imposes additional barriers to entry and expansion. As addressed below in Section VII.A, from 2010 to present, Google has tied its ad server to its ad exchange, requiring publishers to use Google’s ad server in order to receive live, competitive bids from Google’s ad exchange. This tie effectively forces almost every large publisher to use Google’s ad server. And because it is difficult-to-impossible for a publisher to use multiple ad servers simultaneously, requiring publishers to use Google’s ad server effectively prohibits them from using a competitor’s ad server. Google’s anticompetitive conduct creates an unnatural and nearly insurmountable barrier to entry.

[152] An earlier version of the Texas Complaint did make assertions regarding Google’s abuse of monopoly power through the “use [of] its data advantages to trade on inside information” (Texas Second Amended Complaint at ¶ 311), by which the state plaintiffs may mean (or have meant) to encompass location data, among other things.

[153] Scott Morton & Dinielli, supra note 15, at 15.

[154] CMA Interim Report, supra note 14, at 189 (emphasis added).

[155] Id., at ¶ 3.71 (“Microsoft suggested that accessing at-scale location data from user devices is a critical input to providing relevant, localized results. It indicated its belief that Google has unique advantages in this area, due to the location data that it receives from the Android operating system and the location data it receives when users access Google Search or other apps like Google Maps/Waze.”).

[156] CMA Final Report, supra note 7, at ¶ 5.268.

[157] Scott Morton & Dinielli, supra note 15, at 15.

[158] To be sure, location data can be helpful in assessing the efficacy of advertising by, for example, enabling an advertiser to better evaluate whether an advertisement led users to go to the advertiser’s physical location. But this function hardly seems necessary to a well-functioning market, and other sources of such information (e.g., questionnaires) are available.

[159] 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 (General Data Protection Regulation), OJ L 119, 4.5, 2016; See, e.g., Bert Peeters, Processing of Location Data: Navigating the EU Data Protection Framework, CiTiP Blog (Feb. 4, 2021), https://www.law.kuleuven.be/citip/blog/processing-of-location-data-navigating-the-eu-data-protection-framework. (“The general understanding seems to be that, while European law does not qualify location data as a ‘special category’ of data under article 9 of the GDPR, location data should for all intents and purposes be treated with the utmost of care.”).

[160] Avi Goldfarb & Catherine Tucker, Privacy Regulation and Online Advertising, 57 Mgmt. Sci. 57, 57 (2011).

[161] Nils Wernerfelt, Anna Tuchman, Bradley Shapiro, & Robert Moakler, Estimating the Value of Offsite Data to Advertisers on Meta, University of Chicago, Becker Friedman Institute for Economics Working Paper No. 114 (August 22, 2022) at 1, available at https://ssrn.com/abstract=4198438 (“Taken together, our results suggest a substantial benefit of offsite data across a wide range of advertisers, an important input into policy in this space.”).

[162] Michal S. Gal & Oshrit Aviv, The Competitive Effects of the GDPR, 16 J. Competition & Econ. 349 (May 18, 2020). See also James Campbell, Avi Goldfarb, & Catherine Tucker, Privacy Regulation and Market Structure, 24 J. Econ. & Mgmt. Strategy 47, 68 (2015) (“[A] potential risk in privacy regulation is the entrenchment of the existing incumbent firms and a consequent reduction in the incentives to invest in quality. These incentives are stronger when firms have little consumer-facing price flexibility, as is the case in online media.”).

[163] Gal & Aviv, id. at 16.

[164] See, e.g., Cheok Lup, Explaining Marketing Attribution Models [Scenario Example], tinkerEdge (Nov. 12, 2015), https://www.tinkeredge.com/blog/web-analytics/explaining-marketing-attribution-models. (“On Day #1: User wants to purchase a coffee table for his new house, and perform a keyword search on Google. He clicks on one of the organic listings on Google Search Engine Result Page (SERP) to land onto Overstock.com. On Day # 2: He continues his search for his coffee table, and clicks on one of the PPC ads on Google SERP to land onto Overstock.com again. He subscribes to the email newsletter this time. On Day #3: He receives an eDM [electronic direct mail] from Overstock.com with a promotional offer of 30% discount sale, and clicks the “Buy Now” button from the eDM to enter the website. Unable to resist the discount offer, he decides to make a purchase of the furniture from the website.”). Attribution metrics determine which channel gets credit for the ultimate sale.

[165] Scott Morton & Dinielli, supra note 15, at 29

[166] “Furthermore, the default makes the advertiser believe that search ads are very effective relative to display ads, so the advertiser has no reason to change the default.” Id.

[167] See About the Default MCF Attribution Models: Learn How Each MCF Model Assigns Conversion Credit, Google Analytics Help (last visited Nov. 1, 2022), Attribution Models, Google, https://support.google.com/analytics/answer/1665189?hl=en. For the Google Analytics 4 version of these attribution models currently being implemented, see [GA4] About Attribution and Attribution Modeling, Google Analytics Help (last visited Nov. 1, 2022), https://support.google.com/analytics/answer/10596866. Google even created a guide called “Beyond Last Click Attribution” to help advertisers select the most appropriate model. See Beyond Last Click Attribution: Official Guide to Attribution Modeling in Google Ads, Google Ads Help (last visited Nov. 1, 2022), https://support.google.com/google-ads/answer/7003286.

[168] See Joan Arensman & Wilfred Yeung, Move Beyond Last Click Attribution in AdWords, Google Blog (May 10, 2016), https://adwords.googleblog.com/2016/05/move-beyond-last-click-attribution.html.

[169] How Does Conversion Tracking Work?, Microsoft Advertising (n.d.) https://help.ads.microsoft.com/#apex/ads/en/56710/2.

[170] Nir Elharar, How to Choose the Right Marketing Attribution Model for Your Content, Outbrain (Apr. 8, 2019), https://www.outbrain.com/blog/marketing-attribution-model-content.

[171] Texas Complaint, supra note 1, at ¶ 195.

[172] Scott Morton & Dinielli, supra note 15, at 17

[173] Texas Complaint, supra note 1, at ¶ 351.

[174] See Demsetz, supra note 81.

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Antitrust & Consumer Protection

Antitrust Unchained: The EU’s Case Against Self-Preferencing

ICLE White Paper Examining whether self-preferencing should be considered a new standalone offense under European competition law.

Abstract

Whether self-preferencing is inherently anticompetitive has emerged as perhaps the core question in competition policy for digital markets. Large online platforms who act as gatekeepers of their ecosystems and engage in dual-mode intermediation have been accused of taking advantage of these hybrid business models to grant preferential treatment to their own products and services. In Europe, courts and competition authorities have advanced new antitrust theories of harm that target such practices, as have various legislative initiatives around the world. In the aftermath of the European General Court’s decision in Google Shopping, however, it is important to weigh the risk that labeling self-preferencing as per se anticompetitive may merely allow antitrust enforcers to bypass the legal standards and evidentiary burdens typically required to prove anticompetitive behavior. This paper investigates whether and to what extent self-preferencing should be considered a new standalone offense under European competition law.

I. Introduction

In recent years, widespread concern has emerged that large digital platforms may misuse their market positions by giving preferential treatment to their own products and services. One fear is that, by engaging in self-preferencing, so-called “Big Tech” firms may be able not only to entrench their power in core markets, but also to extend it into associated markets.1F[1] Notably, by controlling ecosystems of integrated complementary products and services—which usually represent important gateways for business users to reach end users—dominant platforms may enjoy a strategic market status that allows them to exercise bottleneck power. As the argument goes, by acting as gatekeepers and regulators within their ecosystems, these platforms represent unavoidable trading partners and may pick winners and losers in the marketplace.

Moreover, digital platforms often serve a dual role, acting as both an intermediary and a trader operating on the platform. Hence, they may be tempted to influence results in their own favor (so-called “biased intermediation”). Indeed, once an intermediation platform is also active in complementors’ markets, it loses its status of neutrality and risks of discrimination against rivals may arise because of potential conflict of interests. Therefore, quoting a slogan delivered by U.S. Sen. Elizabeth Warren (D-Mass.) during the 2020 Democratic Party presidential primary campaign: “you get to be the umpire or you get to have a team in the game—but you don’t get to do both at the same time.”2F[2] European Commissioner for Competition Margrethe Vestager has used a similar sporting analogy—arguing that a platform cannot be both a player who competes against rivals in the downstream market and, at the same time, the upstream referee who determines the conditions of that competition.3F[3]

In short, self-preferencing may allow large digital platforms to adopt a leveraging strategy to pursue a twofold anticompetitive effect—that is, excluding or impeding rivals from competing with the platform (defensive leveraging) and extending their market power into associated markets (offensive leveraging). The latter scenario may take the form of envelopment, in which a platform attempts to both exclude rivals and facilitate its own entry into a target market by tying the core functionalities of its platform to the services offered in that market.4F[4]

The legislative initiatives that have been undertaken around the world posit that, to ensure a level playing field, digital gatekeepers must be prevented from engaging in various forms of self-preferencing. The European Union’s Digital Markets Act (DMA), for example, prohibits gatekeepers from: engaging in any form of self-preferencing in ranking services and products offered by the platform itself; using any non-publicly available data generated through activities by business users to compete with those users on the platform; preventing the removal of preinstalled applications; giving preferential access to hardware, operating-system, or software features to their own ancillary services; and refusing to grant “fair, reasonable, and non-discriminatory” (FRAND) access to app stores, search engines, and social-networking services.5F[5] The United Kingdom’s proposed regulatory regime for digital markets, which imagines the adoption of firm-specific codes of conduct for online platforms with “strategic market status,” includes self-preferencing as an example of exclusionary behavior that large digital platforms sometimes engage in when they exert control over an ecosystem.6F[6] The German Digitalization Act likewise includes a ban on platforms favoring their own offers when they mediate access to supply and sales markets, particularly in cases where they present their own offers in a more favorable manner, exclusively pre-install them on devices, or integrate them in any other way.7F[7]

The American Innovation and Choice Online Act (AICOA) would go even further. The bill would declare it unlawful to engage in conduct that would “unfairly preference the covered platform operator’s own products, services, or lines of business over those of another business user on the covered platform in a manner that would materially harm competition on the covered platform.”8F[8] Accordingly, for example, Google would be prevented from launching only Google Maps in response to a query for restaurants, or from placing Google services at the top of a search-results page unless it is accompanied by all possible rival services. Similarly, Amazon would be constrained from showcasing its branded products or favoring third-party products that use its fulfillment service, while Apple would be banned from supplying prominent app-search results for its own apps or even from preinstalling its own apps.9F[9]

These provisions and others like them would essentially treat digital platforms as common carriers, and therefore subject them to a neutrality regime and utilities-style regulation. In some markets, lawmakers have proposed even more stringent reforms designed to reduce digital platforms’ potential bottleneck and intermediation power, and to prevent conflicts of interest, such as requirements that intermediation and operating units be structurally separated, restrictions on lines of business, and imposed duties to deal.10F[10]

In addition to these legislative initiatives, self-preferencing has also emerged as a theory of harm before European courts and antitrust authorities. After all, much of the behavior prohibited explicitly in the DMA initially attracted attention as part of antitrust investigations. In particular, the ban against self-preferencing appears to have been informed by the European Commission’s decision in the Google Shopping case, in which Google was fined for having systematically demoted the results of competing comparison-shopping products on its search results pages, while having granted prominent placement to its own comparison-shopping service.11F[11] The fact that the decision came following a protracted seven-year investigation has been cited as evidence of the need for an ex ante prohibition of such practices, thus removing the annoying hurdles and burdens posed by standard antitrust analysis.

The European General Court recently upheld the Commission’s decision,12F[12] although it narrowed the original decision’s scope by focusing on the context in which the practice occurred. Rather than articulating a legal test for a new antitrust offense, the Court applied fact-specific criteria to examine the potential for discrimination by a search engine. This approach notably differs from defining self-preferencing as a standalone abuse, as has been supported by the European Commission and some national competition authorities (NCAs).13F[13]

The DMA, it should be noted, will not displace Europe antitrust rules;14F[14] rather, the law will be implemented alongside them. This heightens the potential for interpretative uncertainty regarding the degree to which self-preferencing will or ought to be treated, in practice, as an infringement of competition law. This paper therefore sets out to investigate whether, in the aftermath of the Google Shopping ruling, self-preferencing by digital platforms has peculiar features that justify its consideration as a new theory of harm.

Indeed, one of the primary challenges posed by treating self-preferencing as a competitive harm, from a competition-law perspective, is the lack of an obvious limiting principle.15F[15] Notably, recent European case law suggests that, rather than a standalone theory of harm, self-preferencing is a catch-all category that includes various practices already addressed by antitrust rules. The risk is that labeling self-preferencing as per se anticompetitive would merely provide antitrust authorities with the opportunity to elide the application of legal standards and evidentiary burdens traditionally required to prove anticompetitive behavior.

This paper calls for appreciation of the continuing wisdom of antitrust orthodoxy against the prevailing zeitgeist, arguing that many of the perceived limits of antitrust actually represent its virtues.16F[16] Indeed, the goal of competition law ought not be to satisfy urgent policy objectives. Rather, antitrust is about limiting principles, even where that means it is unpopular.17F[17]

The remainder of the paper is structured as follows. Section II provides an overview of the relevant traditional antitrust theories of harm and emerging case law to analyze whether and to what extent self-preferencing could be considered a new standalone offense in EU competition law. Section III investigates whether platform neutrality more generally belongs to the scope of competition law, according to its legal foundations and settled principles. Section IV concludes.

II. Self-Preferencing as a Standalone Offense

The debate over self-preferencing revolves around its novelty. Antitrust concerns are raised regarding the preferential treatment granted by a vertically integrated dominant firm to its own products and services because of the firm’s dual role as both host and competitor. This is of particular interest when such potential conflicts of interest may result in the leveraging of market power in adjacent lines of business in ways capable of producing exclusionary effects.

From this perspective, competitive risks associated with self-preferencing do not appear significantly different from those that emerge in any scenario of vertical integration. Vertical integration is, indeed, often procompetitive, specifically because it can be used to improve efficiency and reduce transaction costs. Furthermore, while there is some dispute as to whether a dominant firm is required to ensure a level playing field by treating rivals in the same way as it does its own businesses, competition law is already equipped with tools to forbid practices that pursue discriminatory leveraging strategies. The emergence of digital platforms does not, in and of itself, challenge antitrust enforcement. To investigate whether self-preferencing should be considered a new standalone offense, it is necessary to first analyze the scope of relevant antitrust prohibitions and to evaluate the peculiar features of self-preferencing, as illustrated by courts and antitrust authorities that have recently sanctioned this behavior.

A.   Traditional European Theories of Antitrust Harm

Although predatory pricing and loyalty rebates may sometimes lead a firm to favor its own downstream services, our attention will be devoted to those practices that appear closer to self-preferencing: namely, refusal to deal, tying, bundling and mixed bundling, margin squeezes, and discrimination. In particular, the last of these represents the most obviously relevant comparison, as the favorable treatment a platform grants to its own products and services entails discriminatory treatment of rivals.

Under European competition law’s non-discrimination provisions, preferential treatment may be investigated when a vertically integrated firm applies to rivals (primary line injury) or other partners (secondary line injury) more onerous conditions than it applies to its own downstream businesses.18F[18] The second-degree price discrimination is mainly addressed by Article 102(c) TFEU, which establishes the abusive character of applying dissimilar conditions to equivalent transactions with trading parties, thereby placing them at a competitive disadvantage. It has been noted that the provision may be considered a straightforward legal basis for a theory of self-preferencing, as shown by the case law that has predominantly applied the provision in settings where a vertically integrated dominant firm sought to advantage its downstream operations at the expense of rivals.19F[19]

In the aftermath of the MEO ruling and following the effects-based approach affirmed in Intel,20F[20] discrimination is not, in itself, problematic from the point of view of competition law.21F[21] As a consequence, not every disadvantage that affects some customers of a dominant firm will amount to an anticompetitive effect; competitive disadvantages cannot be presumed. Antitrust enforcers are instead required to consider all the circumstances of the relevant case, assessing whether there is a strategy to exclude from the downstream market a trading partner that is at least as efficient as its competitors.

Self-preferencing may also take the form of tying, bundling, or mixed bundling. In the first of these, a dominant player leverages its market position in the tying product, making the purchase of the latter subject to the acceptance of another (tied) product. Bundling refers to the way products are offered and priced. In the case of pure bundling, the products are only sold jointly in fixed proportions. In mixed bundling, the products are also made available separately, but the sum of prices when sold separately is higher than the bundled price.22F[22]

Any of these practices may lead to anticompetitive foreclosure in the tied market and, indirectly, in the tying market. The exclusion of as-efficient-competitors is key to triggering antitrust liability for competition foreclosure. Mixed bundling may be anticompetitive if the discount is so large that equally efficient competitors offering only some of the components cannot compete against the discounted bundle. With bundling, the greater the number of products on which the undertaking exerts market power, the stronger the likelihood of anticompetitive foreclosure. In the case of tying, if an insufficient number of customers would buy the tied product on its own to sustain competitors of the dominant undertaking in the tied market, the tying could lead to those customers facing higher prices. Finally, the risk of foreclosure in tying and bundling strategies is expected to be greater where the dominant player makes it last—e.g., through technical tying (i.e., designing a product in such a way that it only works properly with the tied product and not with alternatives offered by competitors).

As tying strategies can be implemented either through contractual terms or by technical means, antitrust authorities are increasingly prone to challenge platforms’ product-design decisions that favor their own products or services by limiting interoperability, thereby impeding compatibility with rival products or services.23F[23] In Microsoft, the European General Court argued that the ubiquity of a dominant player in the tying market is likely to foreclose competition in the tied market. The Court noted that the practice of bundling a specific piece of software to an operating system through pre-installation allows the tied product “to benefit from the ubiquity of that operating system … which cannot be counterbalanced by other methods of distributing media players.”24F[24]

Foreclosure also may arise when consumers obtain the tied product free of charge and are not prevented from obtaining rival services. In Google Android, the Commission fined Google for having engaged in a leveraging practice to preserve and strengthen its position in the search-engine market by requiring device manufacturers to preinstall Google Search and the Chrome browser as preconditions to license the Google Play app store. By locking down Android in the Google-controlled ecosystem, manufacturers wishing to pre-install Google apps were prevented from selling smart-mobile devices that run on versions of Android not approved by Google (so-called Android “forks”).25F[25] According to the Commission, pre-installation can create a status quo bias, which reduces the incentives for manufacturers to pre-install competing search and browser apps, as well as the incentives for users to download such apps. The therefore affects rivals’ ability to compete effectively with Google. Despite the fact that Android is mostly distributed as open-source software, the Commission rejected both of the justifications Google put forward: that leveraging practices reflected a legitimate appropriation strategy to preserve incentives to innovate in a regime of weak appropriability26F[26] and that fork restrictions fell under governance rules needed to protect multi-sided platforms from negative externalities (in this case, preventing software fragmentation and the potential diffusion of incompatible versions of the software).27F[27]

Taken to its extreme, self-preferencing can result in refusals to deal,28F[28] which explains why European policymakers have invoked the essential facilities doctrine to address such cases. The aim of the doctrine, which imposes on dominant firms a duty to deal with all who request access, is to prevent a firm with control over an essential asset from excluding rivals or from extending its monopoly into another stage of production. Because it requires sacrificing the dominant firm’s freedom of contract and right to property, however, it may weaken incentives to invest, innovate, and compete.

These refusal-to-deal infringements are, under European competition law, generally limited to “exceptional circumstances.” According to Magill, a refusal to deal may trigger an antitrust violation when: (i) access to the product or service is indispensable to a firm’s ability to do business in a market; (ii) the refusal is unjustified; (iii) the refusal excludes competition on a secondary market; and (iv), if intellectual property rights are involved, it prevents the emergence of a new product for which there is potential consumer demand.29F[29] The IMS30F[30] and Microsoft31F[31] judgments substantially dismantled the third and fourth requirements, respectively, by considering the secondary-market requirement met even if that market is just potential or hypothetical, and the new product requirement satisfied even when access to the facility is necessary for rivals to develop follow-on innovation (i.e., improved products with added value).

Nonetheless, pursuant to the interpretation provided in Bronner, the requirement that a requested facility be indispensable remains in place and represents the last bulwark against the dangers of uncontrolled application of the doctrine.32F[32] Indeed, access to an input is considered indispensable if there are no technical, legal, or even economic obstacles that would render it impossible (or even unreasonably difficult) to duplicate. To demonstrate the lack of realistic potential alternatives, a requesting firm must establish that it is not economically viable to create the resource on a scale comparable to that of the firm controlling the existing product or service.

Against this background, the recent Slovak Telekom judgment introduced a relevant novel claim that the conditions laid down in Bronner do not apply where the dominant undertaking does give access to its infrastructure but makes that access subject to unfair conditions.33F[33] In addition, the Court of Justice (CJEU) implied that enforcers do not have to prove indispensability when access to a facility has been granted as a result of a regulatory obligation.34F[34] The implications are particularly relevant to digital markets, as the regulatory framework established by the DMA requiring access to platforms designated as gatekeepers would exempt antitrust authorities from having to demonstrate the indispensability of those facilities.

Finally, self-preferencing may be construed as a “margin squeeze,” which EU competition law defines as a standalone abuse that undermines the condition of equality of opportunity between economic operators. The European Commission initially equated this practice to a constructive refusal to deal, noting that, instead of refusing to supply, a dominant undertaking charges a price for a product on the upstream market that would not allow even an equally efficient competitor to trade profitably in the downstream market on a lasting basis.35F[35] The Commission therefore introduced the so-called Telefonica exceptions to categorize a specific class of cases where Bronner’s requirements would not apply. These exceptions hold that an obligation to supply cannot have negative effects on the input owner’s and/or other operators’ incentives to invest and innovate upstream.36F[36]  The CJEU has, however, gradually moved toward rejecting the concept of an implicit refusal to grant access, holding that margin squeezes should be treated as a separate theory of harm, thereby introducing an even broader exception to Bronner.

Notably, while an essential facility was involved in Deutsche Telekom I, the owner of the facility had a regulatory obligation to share and rivals’ margins were negative.37F[37] Teliasonera found a margin squeeze in a situation where the input of the dominant undertaking was not indispensable, there was no regulatory obligation to supply, and rival firms’ margins were positive, but insufficient, as the rivals were forced to operate at artificially reduced levels of profitability.38F[38] Telefonica39F[39] and Slovak Telekom40F[40] upheld the approach of considering margin squeezes as an independent form of abuse to which the criteria established in Bronner are not applicable.

B.   European Case Law on Self-Preferencing

Against this background, doubts about the potential to identify self-preferencing as a standalone abuse under EU law emerge from the court analysis and antitrust decisions that have been issued to date sanctioning dominant platforms for preferential treatment granted of own products and services. Indeed, recent European case law would appear to question whether self-preferencing is sufficiently novel to constitute a standalone theory of harm, given that it has been readily addressed under existing theories of harm. With the exceptions of the Amsterdam Court of Appeal41F[41] and the Italian Competition Authority,42F[42] courts generally do not even use the term “self-preferencing,” opting instead to label the conduct “favoring.”

1.  UK Streetmap decision and European Commission Google Shopping decision

The birth of self-preferencing as a standalone theory of harm is usually associated with the European Commission’s investigation of Google for having positioned and displayed, in its general search-results pages, its own comparison-shopping service more favorably than rival comparison-shopping services.43F[43]

However, a similar issue was addressed a few months earlier by the High Court of England and Wales in the dispute between Streetmap and Google, which involved the interaction of competition between online search engines and online maps.44F[44] Indeed, Streetmap contended that Google abused its dominant position by prominently and preferentially displaying its own related online-map product. Streetmap contended that, by visually displaying a clickable image from Google Maps (and no other map) in response to certain geographic queries (Maps OneBox) at or near the very top of its search-engine results page (SERP), and consequently relegating Streetmap to a blue link lower down the page, Google abused its dominant position in the market for online search and online search advertising.

Given the evident similarity with the Google Shopping case, Justice Roth’s analysis is worthy of examination. While Streetmap framed Google’s practice in terms of bundling or tying, and referred extensively to the European Microsoft decision, the U.K. Court held that the complaint should have been appropriately characterized as an allegation of discrimination.45F[45] The user who sees the Maps OneBox is, indeed, under no obligation to click on it or to use Google Maps; she remains free to use any other online-mapping provider without penalty. In contrast to Microsoft, where obtaining a competing streaming-media player by downloading from the Internet was regarded by a significant number of users as more complicated than using the pre-installed Microsoft product, the Google SERP includes clickable links to other relevant online maps and users experience no difficulty in clicking on those blue links.

To establish whether Google’s conduct constituted anticompetitive foreclosure, the Court concluded that it was necessary to prove that the effects of that conduct appreciably affected competition, which cannot simply be assumed. Indeed, the Google’s introduction a Maps OneBox containing a thumbnail map was intended to improve the quality of the SERP, and hence must be evaluated as a technical efficiency46F[46]: “The unusual and challenging feature of this case is that conduct which was pro-competitive in the market in which the undertaking is dominant is alleged to be abusive on the grounds of an alleged anti-competitive effect in a distinct market in which it is not dominant.”47F[47] For this reason, evaluating alternative ways that Google might have made this procompetitive improvement without allegedly distorting competition in online maps played a significant role in the Court’s analysis.

If anticompetitive effects are proven, then the issue of objective justification must be considered. This requires a proportionality assessment, which is a matter of fact and degree. Hence, the question of alternatives cannot be considered only with respect to competitive impact: “Where the efficiency is a technical improvement, proportionality does not require adoption of an alternative that is much less efficient in terms of greatly increased cost, or which imposes an unreasonable burden.”48F[48]

Following this line of reasoning, Justice Roth found that the introduction of the Maps OneBox with no shortcut hyperlinks to Streetmap (and other online maps) did not, in itself, have an appreciable effect in steering customers away from Streetmap; it therefore was not reasonably likely to give rise to anticompetitive foreclosure.49F[49] Moreover, even if it was likely to have such an effect, Google’s conduct was objectively justified because the way that it implemented the technical efficiency—i.e., presenting a thumbnail map on the SERP—was not disproportionate.50F[50]

The European Commission reached a different conclusion in Google Shopping. There, the Commission found that, by promoting its own comparison-shopping service in its search results and demoting those of competitors, Google engaged in a strategy of leveraging the dominance of its flagship product (i.e., the search engine) in the adjacent market for comparison-shopping services.

According to the Commission’s findings, Google’s strategy rested on two related practices: ensuring prominent placement for its own comparison-shopping service and demoting rival comparison-shopping services in its search results. Notably, while competing comparison-shopping services could appear only as generic search results—potentially subject to demotion in search listings by Google’s algorithms—Google’s own comparison-shopping service was prominently positioned, displayed in rich format, and free from the risk of demotion to the second page of search results.51F[51]

The Commission concluded that the conduct fell outside the scope of competition on the merits, could extend Google’s dominant position in the national markets for general search services to the national markets for comparison-shopping services (offensive leveraging), would tend to protect Google’s dominance in the former (defensive leveraging).

Rather than recognizing that it was deploying a novel theory of harm, the Commission argued that Google’s conduct belonged to the well-known category of leveraging. Accordingly, there was no need to look for a new legal test, since “it is not novel to find that conduct consisting in the use of a dominant position on one market to extend that dominant position to one or more adjacent markets can constitute an abuse.”52F[52] The Commission therefore found that self-preferencing constitutes a “well-established, independent, form of abuse.”53F[53]

To support its line of reasoning, the Commission invoked disparate case law, including judgments involving either specific theories of harm (e.g., Tetra Pack,54F[54] Irish Sugar,55F[55] and Microsoft,56F[56] with regards to tying and predatory pricing, loyalty rebates, and refusal to deal, respectively) or that are outdated (e.g., Telemarketing57F[57]).58F[58] The Commission’s rationale in offering this selection of decisions is unclear. References to one case in which the essential facilities doctrine was applied (i.e., Microsoft) and to another ruling that has since been replaced by the elaboration of the essential facilities doctrine (i.e., Telemarketing) are even more surprising.

The Commission ultimately dismissed Google’s claim that its conduct could be considered abusive only if Bronner’s criteria were fulfilled: namely, if access to Google’s general search results pages were indispensable to being able to compete.59F[59] According to the Commission, the decision merely required Google to cease the conduct. Hence, the Bronner criteria were “irrelevant in a situation, such as that of the present case, where bringing to an end the infringement does not involve imposing a duty on the dominant undertaking to transfer an asset or enter into agreements with persons with whom it has not chosen to contract.”60F[60]

The case spurred debate over the legal test applied to require Google to grant equal treatment to rival comparison-shopping services and its own service. Among the questions raised by the case are whether the conduct fell more within exclusionary or discriminatory abuses and, if it was the former, whether tying or the essential facilities doctrine was the proper framework to assess such self-preferencing abuse.61F[61] For instance, the experts appointed by the Commission to provide suggestions for the design of a competition policy for digital markets considered self-preferencing a specific technique of leveraging, which is not abusive per se, but subject to an effects test.62F[62] Furthermore, quoting Microsoft, they argued that, according to well-established case law, the owner of an essential facility must not engage in self-preferencing. Nonetheless, they believed that self-preferencing by a vertically integrated dominant digital platform can be abusive, not only under the preconditions set out by the essential facilities doctrine, but also wherever it is likely to result in leveraging market power and is not justified by a pro-competitive rationale.

2.   Amsterdam Court of Appeal ruling in Funda

In May 2020, the Amsterdam Court of Appeal handed down a decision in litigation between VBO Makelaars and NVM, two associations of real-estate agents, brokers, and appraisers.63F[63] NVM owns Funda, the largest online real-estate platform in the Netherlands and which, according to VBO, granted NVM agents more prominent positions in the ranking of properties. Funda also applied higher tariffs to and granted only limited website functionality to VBO agents, who also did not have access to the underlying Funda database. VBO’s complaint charged NVM with anticompetitive discrimination.

Upholding the decision of the district court, the Court of Appeal found that Funda did not abuse its dominant position in favoring the listings of NVM members over those of rival agents. Assessing self-preferencing as discriminatory conduct under Article 102(c) TFEU, the Court cited MEO, arguing that VBO’s complaint failed to demonstrate that the discrimination distorted the company’s competitive position in ways that led to a competitive disadvantage on the downstream market for real-estate services.

In particular, the Court noted that several factors play relevant roles in consumers’ home-purchase decisions and that it is implausible that a buyer would automatically assume that the listing placed highest on a website would be the one that best meets their demands. To the contrary, the Court concluded that the market for homes differs significantly from markets for other consumer products. For example, buyers generally conduct an intensive search over a long period of time to consider all relevant offers. Therefore, the Court found, a lower website ranking would be of minor importance and would not necessarily lead to a competitive disadvantage.

Accordingly, the Court considered comparisons with Google Shopping to be unhelpful.64F[64] In assessing NVM’s preferential treatment in accordance with the principles the CJEU elaborated in MEO, however, the Dutch court did frame self-preferencing as a discriminatory abuse, thus anticipating the approach that the European General Court would ultimately endorse in Google Shopping.

3.   French Competition Authority Apple ATT and Google AdTech decisions

In June 2021, the French Competition Authority (AdlC) followed the European Commission’s lead in investigating practices implemented by Google in the online-advertising sector.65F[65]

Responding to referrals from news publishers who monetize their websites and mobile apps through advertising, the AdlC found that Google engaged in abusive practices to favor its own advertising intermediation technologies, granting preferential treatment to its proprietary technologies offered under the Google Ad Manager brand. Notably, in the Authority’s view, Google used its dominant publisher ad server (DoubleClick for Publishers, or DFP) both to favor its own programmatic advertising sales platform (AdX) and, separately, used AdX to favor DFP in the market for supply-side ad-intermediation platforms (SSPs). Regarding the first practice, the preferential treatment consisted of informing AdX of the prices offered by competing SSPs, thus allowing it to optimize the bidding process by varying the commissions received on impressions sold according to the intensity of competition. Regarding the second practice, Google imposed technical and contractual limitations on the use of the AdX platform through a third-party ad server. As a result, the modalities of interaction offered to third-party ad-server clients were inferior to the modalities of interaction between DFP and AdX, which penalized both third-party SSPs and publisher clients.

Similar concerns about the impact of Google’s conduct in ad-tech services have also been raised by the Australian Competition and Consumer Commission (ACCC). The ACCC concluded that Google’s vertical integration and dominance across the ad-tech supply chain and related services have allowed the company to engage in leveraging and self-preferencing conduct and that this, in turn, has likely interfered with the competitive process.66F[66]

According to the AdlC, the evidence showed that DFP’s favorable treatment of AdX had a foreclosure effect on competition among platforms selling ad space, significantly reducing the attractiveness of rival SSPs. In addition, according to the Authority, DFP’s preferential treatment strengthened Google’s dominant position, impairing the competitiveness of rival ad-server providers, and limiting their ability to compete on the merits. Therefore, as regards the latter, limitations on interoperability were deemed a practice that cannot be considered competition on the merits, as it would tend to impose on rivals a competitive disadvantage by applying to them less favorable technical conditions.67F[67]

By and large, the French decision did not provide insights on the theory of harm or type of abuse that this form of discrimination would constitute. Like the European Commission, the AdlC did not refer to self-preferencing explicitly, instead describing Google’s conduct as favoring. With regards to Google’s leveraging strategy, the AdlC cited Google Shopping and quoted the very same case law the Commission mentioned in that decision.68F[68] The only significant addition made by the Authority was a reference to Slovak Telekom, a margin-squeeze case that, as already mentioned, brought about a remarkable change in confining the application of Bronner’s indispensability condition to “pure” refusals to deal.69F[69]

However, the AdlC is also currently investigating Apple’s privacy policy, where self-preferencing is mentioned explicitly and appears to be framed differently.70F[70] Notably, in March 2021, the French Authority rejected the request for interim measures against Apple’s adoption of the App Tracking Transparency (ATT) framework for applications on iOS 14, which create new consent and notification requirements for app publishers. The ATT solicitation was considered part of Apple’s longstanding strategy to protect iOS users’ privacy and its implementation was not expected to impose unfair trading conditions, such as excessive or disproportionate restrictions on the activities of app developers. The AdlC nonetheless advised that, as part of its investigation into the merits of the case, it would examine how the user-consent collection processes differ between Apple’s own advertising services and third-party advertising services. Differences in those processes might result in a “form of discrimination (or self-preferencing)” if Apple applied, without justification, more binding rules on third-party operators than those it applies to itself for similar operations.71F[71]

The growing suspicion of self-preferencing has likewise prompted the German Competition Authority to initiate its own proceeding on Apple’s ATT policy,72F[72] while the U.K. Competition and Markets Authority (CMA) raised similar concerns in its market study on mobile ecosystems.73F[73]

4.   General Court ruling in Google Shopping

Given this background, the European General Court’s judgment in Google Shopping was much awaited.74F[74] For those who were looking for legal certainty from the judgment, however, those expectations have been not completely met.

What was new in the ruling was its broad interpretation of the general principle of equal treatment, which the Court affirmed obligates vertically integrated platforms to refrain from favoring their own services over rivals.75F[75] While this approach was in line with the Commission’s expansive reading of the special responsibility of dominant firms, however, the ruling framed self-preferencing as a discriminatory abuse.76F[76] Notably, the Court highlighted that the various judgments the Commission cited in its original ruling do not support the conclusion that any use of a dominant position on one market to extend that position to one or more adjacent markets constitutes a “well-established” form of abuse.77F[77] After all, “leveraging” is a generic term covering several practices that are potentially abusive, such as tied sales, margin squeezes, and loyalty rebates.78F[78]

The three rulings the Court cited involve, instead, practices found to be discriminatory abuses specifically because they place third parties at a competitive disadvantage. Two of three involve discriminatory conditions applied by public undertakings operating a commercial port79F[79] and an airport.80F[80] This may support a link with recent legislative initiatives categorizing digital platforms as common carriers and thus subject to the neutrality regime of public utilities-style regulation. Nonetheless, the Court clarified that prohibiting self-preferencing to enforce the policy goal of neutrality is appropriate only when a competitive harm is demonstrated. Indeed, rather than deeming self-preferencing to be per se abusive, the Court moved to its potential anticompetitive effects. This is in line with the effects-based approach affirmed in MEO,81F[81] as well as in other judgments that, although they involve different abusive conduct, entail similar discriminatory elements.82F[82] The Court, however, surprisingly did not even mention MEO.

The Court’s ruling focused on potential exclusionary effects associated with specific leveraging strategies, reflected in the Commission’s original finding of abuse on the basis of certain relevant criteria.83F[83] The Commission had noted that, due to network effects, the traffic that Google’s search engine generates represents a critical asset; that users are significantly influenced by favoring, as they typically concentrate on the first few search results and tend to assume that the most visible results are the most relevant; and that traffic directed from Google’s search-results pages accounts for a large portion of traffic to competing comparison-shopping services, which cannot be effectively replaced by other sources.84F[84]

The Court outlined four criteria that differentiated Google’s self-preferencing from competition on the merits, therefore warranting a finding of antitrust liability.

First, the Court highlighted the “universal vocation” and openness of a search engine as features of its core mission.85F[85] These features distinguish a search engine, which designed to index results that might contain any possible content, from other services referenced in the case law, which consist of tangible or intangible assets (press-distribution systems or intellectual property rights, respectively) whose value depends on a proprietor’s ability to retain their exclusive use.86F[86]

While not explicitly mentioned, the reference is clearly to the essential facilities doctrine case law. Unlike these services, “the rationale and value of a general search engine lie in its capacity to be open” to results from external sources and to display multiple and diverse sources on its general results pages.87F[87] Moreover, the legal obligation of equal treatment that ensues from net-neutrality regulations88F[88] for Internet access providers on the upstream market cannot be disregarded when analyzing the practices of an operator like Google on the downstream market.89F[89]

Second, because Google holds a “superdominant” (or “ultra-dominant”) position on the market for general search services and acts as a “gateway” to the Internet, it is under a stronger obligation not to allow its behavior to impair genuine, undistorted competition on the related market for specialized comparison-shopping search services.90F[90]

Third, the market for general search services is characterized by very high barriers to entry.91F[91]

Fourth, in light of prior considerations (i.e., the mission of a search engine, Google’s dominance, and the presence of very high barriers to entry), the Court found that Google’s conduct is “abnormal.”92F[92] Indeed, for a search engine to limit the scope of its results to its own services entails an element of risk and is “not necessarily rational.” This is especially the case in a situation where, because of barriers to entry and the search engine’s own dominance, it is significantly unlikely that there would be market entry within a sufficiently short period of time in response to the limitations placed on Internet users’ choices.93F[93]

In this scenario, in the Court’s view, Google’s promotion of its own specialized results over third-party results contradicts the basic economic model of a search engine and hence involves a certain form of abnormality.94F[94] The suspicion is strengthened by Google’s “change of conduct.”95F[95] While it initially provided general search services and displayed all the results of specialized search services in the same way and according to the same criteria, once the firm had entered the market for specialized comparison-shopping search services—and after having experienced the failure of its dedicated comparison-shopping website (Froogle)—Google changed its practices and comparison-shopping services were no longer all treated equally.96F[96]

These four criteria suggest that the Court saw Google’s search engine as an essential facility. The Court, indeed, noted that, by envisaging equal treatment for any comparison-shopping services on Google’s general results pages, the Commission’s decision was seeking to provide competitors with access to Google’s general results pages. This was presented as particularly important to competing comparison-shopping services and something that was not effectively replaceable, as it accounted for such a large proportion of traffic to their websites.97F[97] Moreover, the Court acknowledged that the Commission considered Google’s traffic to be indispensable to competing comparison-shopping services.98F[98] As a consequence, the analysis would have required an assessment of preferential treatment pursuant to the conditions set out in Bronne, as Google itself had requested, rather than relying on the case law applicable to abusive leveraging, as the Commission did in its decision.

But despite characterized the features of Google’s general results page as “akin to those of an essential facility,”99F[99] the Court upheld the Commission’s decision not to apply Bronner’s indispensability requirement. In doing so, it drew a line between express refusals to supply and exclusionary practices that do not lie “principally” in a refusal, as such.100F[100] Indeed, “the present case is not concerned merely with a unilateral refusal by Google to supply a service to competing undertakings that is necessary in order to compete on a neighboring market, which would be contrary to Article 102 TFEU and would therefore justify the application of the ‘essential facilities’ doctrine.”101F[101]

Therefore, the Court shared the Commission’s viewpoint that Google’s self-preferencing was a standalone form of leveraging abuse, involving positive acts of discrimination in the treatment of the search results for comparison-shopping services.102F[102]

The Court’s ruling has been generally welcomed for two reasons. By affirming self-preferencing as an independent abuse, the judgment provides legal support to the policy goal of imposing a neutrality regime over large digital platforms, which has informed all the regulatory interventions promoted in different jurisdictions. At the same time, the Court advances a clearer legal qualification of the conduct in question. Indeed, while the Commission’s approach appeared unprecedented—because it revolved around the notion of favoring as a specific form of leveraging—the Court opted for the more defined legal framework of discrimination. The outcome should help to restrain the scope of application for self-preferencing prohibitions in comparison to other traditional practices that, although belonging to the general category of leveraging and including elements of discrimination, reflect specific theories of harm and are assessed according to their respective legal tests.103F[103] By and large, the Court confirms that there is no well-established case law that would forbid any extension of a dominant position in adjacent markets, in contrast with the Commission’s stance.

Nonetheless, the ruling raises new doubts. Notably, the definition of the conduct that would be covered remains unclear. While adopting the general principle of equal treatment as a legal basis to prohibit self-preferencing may allow intrusions into platforms’ design choices,104F[104] the listed criteria appear to define a narrow framework, ultimately calling into question the broad application of self-preferencing as a standalone abuse.

The Court underscored the relevance of the “particular context” in which favoring occurred.105F[105] Namely, the emphasis was on the role played by search engines on the Internet, including their “universal vocation” and “open” business models. This is strengthened by analogies to net neutrality, the characteristics “akin to those of an essential facility,” and the “superdominant position” that made Google a “gateway” to the Internet. Furthermore, the peculiar features of search engines (notably, their openness) are also deemed relevant in assessing the “abnormality” of Google’s behavior—which, in the Court’s evaluation, is indeed at odds with the basic economic model of its search engine. The legal framework is completed with the detection of opportunistic behavior by Google, which changed its strategy once it entered the adjacent market of comparison-shopping services.

It is left far from clear whether Google Shopping is even sanctioning the favoring practice as such. Indeed, the Court describes the anticompetitive strategy in question as formed by a combination of two practices—namely the promotion of Google’s own services and the demotion of its rivals’ services. Therefore, the conduct is not necessarily abusive even if it consists “solely in the special display and positioning” of the platform’s own products and services.106F[106] The practice has instead been judged illegal because it included the relegation of competing services in Google’s general results pages by means of adjustment algorithms. That, in conjunction with Google’s promotion of its own results, there was a simultaneous demotion of results from competing comparison services is considered a “constituent element” of the conduct and moreover plays a “major role” in the exclusionary effect identified.107F[107]

In summary, rather than articulating a legal test for a new antitrust offense, the criteria pointed out in the judgment for considering the preferential treatment abusive appear extremely fact-sensitive: both Google-specific and search engine-specific. Therefore, it is difficult to see how, according to these criteria, a self-preferencing prohibition may be applied to different forms of preferential treatment, digital services, and business models.108F[108]

5.   Italian Competition Authority Amazon Logistics decision

A few weeks after the General Court’s ruling, the Italian Competition Authority (AGCM) handed down a decision that significantly departed from the legal framework elaborated in Google Shopping, thus confirming that the precise contours of self-preferencing abuses under Article 102 TFEU remained anything but clear.109F[109]

In late November 2021, the AGCM issued a mammoth fine against Amazon for granting preferential treatment to third-party sellers who use the company’s own logistics and delivery services (i.e., Fulfilment by Amazon, or FBA). Amazon was accused of having leveraged its dominance in the market for intermediation services on marketplaces to favor the adoption of its own FBA by sellers active on Amazon.it, as well as to strengthen its own dominant position. Under AGCM’s view, this strategy ultimately harmed both competing logistics operators, by putting them at a competitive disadvantage, and competing marketplaces, by creating incentives for sellers to single-home.

Indeed, although third-party sellers are free to manage the logistics associated with their operations on the platform themselves or outsource them to an independent operator (Merchant Fulfilment Network, or MFN), Amazon was deemed to be artificially pushing them to use its own logistics service, thus deterring them from multi-homing.110F[110] Notably, the Authority found that Amazon “tied” the use of FBA to access to a set of exclusive benefits essential for gaining visibility and increasing sales on the marketplace.111F[111]

Among those benefits, the most relevant is the Prime label, which allows sellers to participate in special events promoted by Amazon (e.g., Black Friday, Cyber Monday, Prime Day) and benefit from fast and free shipping. Furthermore, Prime increases the likelihood of sellers’ offers being selected as featured offers displayed in the Buy Box. This is of the utmost importance to sellers, as the Buy Box prominently displays just a single seller’s offer for a given product on Amazon’s marketplaces and generates the vast majority of all sales for that product.

Quoting from several of Amazon CEO Jeff Bezos’ letters to shareholders, the AGCM noted the company believes FBA is the “glue” that links Marketplace and Prime112F[112]: “Thanks to FBA, Marketplace and Prime are no longer two things … Their economics and customer experience are now happily and deeply intertwined.”113F[113] Furthermore, FBA is a “game changer” for sellers because it makes their items eligible for Prime benefits, which drives their sales.114F[114] Pursuant to its leveraging strategy, Amazon prevented third-party sellers from associating the Prime label with offers not managed by FBA. In addition, the AGCM noted that third-party sellers using FBA are not subject to the performance-evaluation metrics that Amazon applies in monitoring non-FBA sellers’ performance. Such metrics can ultimately lead to the suspension of non-compliant sellers’ accounts on Amazon.it. All these benefits derived from the use of FBA were considered, to various extents, to be “crucial” to success on the marketplace.115F[115]

It is worth noting that the European Commission has also launched an investigation of Amazon for facts identical to those already addressed in the Italian inquiry, with the relevant market defined as the European Economic Area, except for Italy.116F[116]

The alleged unequal treatment of non-FBA sellers has also been investigated by the Austrian Federal Competition Authority (BWB).117F[117] Although concerned about potential discrimination against sellers who organize their deliveries independently, the Authority conceded that  a better ranking could have also resulted from the better service offered under FBA, compared with the independent organization of deliveries. Hence, the BWB remained open to the possibility that the appearance of preferential treatment for FBA Marketplace sellers was objectively justified.118F[118] The Austrian Authority concluded that a comprehensive and transparent legal framework was the best way to counter problematic business practices and accepted Amazon’s modifications to its terms and conditions.119F[119]

The link between Amazon Marketplace and FBA was also scrutinized as part of the investigation conducted by the U.S. House Judiciary Committee’s Antitrust Subcommittee into the state of competition in digital markets. The subcommittee’s final report found that many third-party sellers have no choice but to purchase fulfillment services from Amazon to maintain a favorable search-result position.120F[120] The report characterized Amazon’s strategy as tying.121F[121]

For the sake of our analysis, the Italian Amazon decision is especially remarkable because of how it contrasts with Google Shopping. As already mentioned, with the exception of the Amsterdam Court of Appeal, it represents the only decision in which the term self-preferencing is used.122F[122] Self-preferencing is here defined as an unequal and unjustified preferential treatment granted by a dominant player to its own services in pursuing a leveraging strategy, hence falling outside the scope of competition on the merits.123F[123] Therefore, rather than reflecting the criteria set out by the General Court, the Italian decision is clearly inspired by the Commission’s approach in Google Shopping. Indeed, in line with the idea of describing self-preferencing as a new form of leveraging abuse, Amazon’s practice is characterized as a form of tying.124F[124]

This definition of self-preferencing is convenient for enforcers, in that it would allow them to bypass the legal standards otherwise required to prove unlawful tying. Indeed, tying requires a form of coercion, such that customers do not have the choice to obtain the tying product without the tied product. In the Amazon case, by contrast, there is neither a contractual obligation nor technical integration between marketplace services and logistics services. Business users are free to run the logistics by themselves or to outsource it to an independent operator without losing the ability to operate on the Amazon e-commerce platform.

Apart from the legal qualification of the conduct in question (which may be more properly characterized as bundling), finding an abuse in a tying case also requires proof of potential foreclosure effects against equally efficient rivals. Looking at the effects on logistics operators, according to the AGCM’s view, vertical integration between the marketplace and logistics constitutes Amazon’s main competitive advantage, which is unmatchable even by equally efficient rivals.125F[125] Indeed, FBA is an integrated logistics service designed to represent “a one-stop shop solution” for storage, shipping, and customer service within a “closed and complete ecosystem” in which Amazon plays multiple roles.126F[126] While Amazon recently started offering a multi-channel logistics service, few retailers have adopted it due to its high operating costs.127F[127] Moreover, part of the AGCM’s decision concerning complaints raised by Amazon’s major e-commerce rival eBay—which reported that a large portion of its market share had been absorbed by Amazon—ultimately recognized that Amazon’s superiority stemmed from its popularity with users and retailers, especially in the critical areas of trust, shipping, and returns.128F[128]

In short, the thing that has made the playing field uneven has been Amazon’s creation of a successful ecosystem, which provides the company with competitive advantages that cannot be replicated either by pure online marketplaces or pure logistics providers.129F[129] A prohibition on self-preferencing may therefore functionally reflect a bias against ecosystems, which require massive and uncertain investment to create, and which provide significant benefits to both business users and final customers.

In summary, the AGCM endorsed an expansive view of the scope of anticompetitive self-preferencing that was at odds with the legal qualifications and narrow criteria set out by the General Court in Google Shopping, and that lacked the context the General Court had laid out to assess the circumstances in which preferential treatment constitutes discriminatory abuse. Notably, an online marketplace does not share many relevant features with an Internet search engine. Indeed, Amazon’s business model is “a closed and complete ecosystem.”130F[130] Moreover, unlike in the Google Shopping case, Amazon is not accused of changing its conduct in response to its market position. The only elements of the criteria defined in Google Shopping that Amazon could be argued to meet are operating in a market with high barriers to entry and being a vertically integrated firm with a super/hyper dominance in the upstream market.131F[131]

Although the General Court’s ruling is mentioned a few times,132F[132] these appear to be last-minute references included merely to note that the Commission’s decision had been upheld by the General Court.133F[133] Since the Italian Amazon decision was delivered just a few weeks after the Google Shopping ruling, it is possible that the AGCM simply did not have time to adjust its line of reasoning to comport with the Court’s qualifications and criteria.

C.   Preferential access to non-public data

A broad interpretation of self-preferencing could find that it covers the preferential provision of data and information, which could similarly be prohibited as abusive. Following this line of reasoning, the European Commission sent a statement of objections to Amazon in November 2020 informing the company of the Commission’s preliminary view that its practice of systematically using non-public business data from independent retailers who sell on its online marketplace infringes antitrust rules, on grounds that Amazon uses that data to benefit its own retail business that directly competes with those retailers.134F[134]

More recently, the UK CMA has also opened an investigation into how Amazon collects and uses third-party seller data, including whether Amazon gains an unfair advantage in business decisions made by its retail arm.135F[135] Similar concerns were raised by staff to the U.S. House Judiciary Antitrust Subcommittee, whose final report argued that Amazon’s asymmetric access to and use of third-party seller data constitutes unfair treatment of those third-party sellers.136F[136] The ACCC likewise warned that Apple and Google both have the ability and incentive to use their positions as app-marketplace operators to monitor downstream competitors.137F[137] For instance, the ACCC found that Apple’s Developer Agreement allows the company to develop, acquire, license, market, promote, and distribute products and software that perform functions the same or similar to any of the products, software or technologies provided by app developers that use the App Store. By contrast, Apple requires that app developers follow obligations to avoid being copycats.

Similar allegations of unfair use of user data have been levied against Facebook by the European Commission and the U.K. CMA, which charge that the company uses data gathered from advertisers in order to compete with them in markets in which Facebook is active, such as classified ads.138F[138] Finally, one focus of the European Commission’s investigation of Apple’s App Store rule requiring developers to use Apple’s in-app purchase mechanism for the distribution of paid apps and/or paid digital content is the potential that competing developers may be disintermediated from important customer data, while Apple can obtain valuable data about the activities and offers of its competitors.139F[139]

These investigations have inspired the bans on so-called “sherlocking” (i.e., the use of business users’ data to compete against them) included both in the DMA140F[140] and the proposed American Innovation and Competition Online Act,141F[141] as well as calls for structural separation and line-of-business restrictions.142F[142]

Amazon has faced accusations that it takes advantage of its dual role and hybrid business model in serving both as a marketplace-service provider and a retailer on the same marketplace, in competition with independent sellers. The charge is that the company can leverage its access to non-public third-party sellers’ data—such as the number of units ordered and shipped, the revenues sellers earn on the marketplace, the number of visits to sellers’ offers, data related to shipping and to sellers’ past performance, and consumer product claims—to identify and replicate popular and profitable products from among the hundreds of millions of listings on its marketplace.

Notably, according to the European Commission’s preliminary findings, such granular and real-time business data feed into the algorithms of Amazon’s retail business, allowing them to calibrate retail offers and strategic business decisions to the detriment of the other marketplace sellers. Thus, it is argued that the appropriation and the use of third-party sellers’ data enables Amazon to avoid the normal risks of retail competition, such as those associated with investing in a new product or choosing a specific price level, and to leverage its dominance in the market for the provision of marketplace services in France and Germany (i.e., the biggest markets for Amazon in the EU).143F[143]

The U.S. House Antitrust Subcommittee similarly charged that Amazon is able to use marketplace data from third-party merchants to create competing private-label products or to source products directly from manufacturers in order to free ride off sellers’ efforts.144F[144] The impact assessment study supporting the DMA confirmed this suspicion, noting that the launch of Amazon Basics (i.e., the most successful private label brand on Amazon’s marketplace) has negatively impacted the sales on Amazon of third-party products in identified attractive product segments.145F[145]

Leveraging this information exclusively, without sharing it with third-party sellers, is considered a form of self-preferencing because Amazon is in position to use data from its marketplace to gain a competitive advantage in market research and to identify new business opportunities without incurring any financial risk.146F[146] Furthermore, by using information from its Amazon fulfilment program, Amazon can also determine where products offered by third-party merchants are being manufactured and by whom. Since Amazon Basics products are sold in large volumes, Amazon can approach the manufacturers of goods for third-party merchants, buy these items in larger quantities, and sell them for a lower price than the competition on its own platform.147F[147]

This line of reasoning aligns with the core concerns about self-preferencing, such as conflicts of interest and the competitive advantages that a platform’s dual role may yield. But to invoke antitrust in cases where a platform performing a dual role gains a competitive advantage would require demonstrating proof of competitive harm, which isn’t apparent in this case. Indeed, while the impact on innovation appears uncertain,148F[148] Amazon’s practice likely benefits consumers by permitting close price comparisons, increasing output, and forcing sellers to reduce their prices.149F[149] Such effects are even more relevant when it comes to sellers with market power, as the introduction of products and services in competition with third parties would reduce double marginalization.

Moreover, the relevance of non-public third-party merchants’ data in facilitating copying by Amazon is questionable. Indeed, as noted, Amazon’s public product reviews supply a great deal of information and any competitor can obtain an item for the purposes of reverse engineering.150F[150] Conversely, if the products in question are protected by intellectual-property rights, Amazon could be found guilty of infringement. Finally, it is unclear whether and how this form of self-preferencing would meet the legal qualification and criteria set out by the General Court in Google Shopping.

Nonetheless, the European Commission is currently evaluating the commitments offered by Amazon, which has proposed to refrain from using non-public data relating to, or derived from, the activities of independent sellers on its marketplace for its retail businesses that compete with those sellers.151F[151] The relevant data would cover both individual and aggregate data (e.g., sales terms, revenues, shipments, inventory-related information, consumer-visit data, or seller performance on the platform). Amazon commits not to use such data for the purposes of selling branded goods, as well as in its private-label products.

III. Imposing platform neutrality under antitrust law

Because preferential treatment may result from a wide range of practices, self-preferencing potentially covers different types of behavior that are subject to different legal standards and that may include exploitative elements.152F[152] Prohibitions on self-preferencing as per se anticompetitive would therefore grant antitrust enforcers significant leeway to bypass the legal standards ordinarily required to prove traditional anticompetitive harms. As a result, such prohibitions would provide antitrust authorities with a powerful tool to intervene in digital markets. This issue is particularly sensitive in Europe where the DMA entrusts the European Commission with the sole power to apply the new regulation but does not displace national competition law. Hence, national competition authorities will remain in charge of the enforcement of national and European antitrust rules.

Besides its potential as an enforcement shortcut, self-preferencing prohibitions may function to impose a neutrality regime on online gatekeepers. The aim would be to ensure a level playing field that currently appears uneven because of the bottleneck and intermediation power exerted by large online platforms. Such rules also could neutralize conflicts of interests raised by platforms’ dual-mode intermediation. The dual roles that some platforms perform fuel the never-ending debate over vertical integration and the related concern that, by giving preferential treatment to its own products and services, an integrated provider may leverage its dominance from one market to related markets. Indeed, the circumstances that may give rise to conflicts of interests and the circumstances that can give rise to leveraging strategies can be similar.153F[153] From this perspective, self-preferencing is a byproduct of the emergence of ecosystems. By integrating complementary products and services, a platform that controls and operates at all levels of the value chain may have an incentive to favor its own offers.154F[154]

But as antitrust authorities generally recognize, self-preferencing conduct is “often benign.”155F[155] Furthermore, since the value that the ecosystem generates depends on the activities of independent complementors, that value is not completely under the control of the platform owner.156F[156] Firms operating on the platform and competing with the platform owner may be disadvantaged by a variety of legal, technological, and informational measures implicated by self-preferencing, but there also may be legitimate justifications for such conduct that would need to be carefully considered in each instance.157F[157] Platforms implement different business models and are driven by different incentives, which in turn affects their strategies.

Against this backdrop, an outright ban on self-preferencing could undermine the very existence of ecosystems by challenging their design and monetization strategies.158F[158] Given that preferential treatment can take many different forms and have very different effects, the different business models adopted by platforms should be subject to case-by-case and effects-based assessment.159F[159] This is also consistent with the industrial-organization literature, which has found mixed evidence on the impact of duality on welfare, thereby supporting the insight that absolute neutrality is not desirable and interventions should be product- and platform-specific.160F[160]

Finally, and more importantly, antitrust law does not impose a general duty to ensure a level playing field by sharing competitive advantages with rivals. Indeed, a competitive advantage cannot be automatically equated with anticompetitive effects.161F[161] Within this framework, the relevance of the general principle of equal treatment that has been invoked by the General Court in Google Shopping to frame self-preferencing as a discriminatory abuse should be regarded with significant skepticism.

This is even more evident in the aftermath of the recent CJEU ruling in Servizio Elettrico Nazionale, which confirmed that the effects-based approach to the assessment of abusive practices remains core to European competition law.162F[162] Notably, the CJEU definitively stated that competition law is not intended to protect the competitive structure of the market, but rather to protect consumer welfare, which represents the goal of antitrust intervention.163F[163]

Accordingly, as illustrated in Intel, not every exclusionary effect is necessarily detrimental to competition.164F[164] Competition on the merits may, by definition, lead some competitors— those that are less efficient and thus less attractive to consumers from the standpoint of price, choice, quality or innovation—to become marginalized or to depart from the market.165F[165] In particular, given that exclusionary effects do not necessarily undermine competition, a distinction must be drawn between a risk of foreclosure and a risk of anticompetitive foreclosure, since only the latter may be penalized under Article 102 TFEU.166F[166] If any conduct having an exclusionary effect were automatically classified as anticompetitive, such rules would become a means to protect less capable, less efficient undertakings and would in no way protect the more meritorious undertakings that stimulate a market’s competitiveness.167F[167]

By and large, these well-settled principles do not support the claim that antitrust rules are designed to ensure platform neutrality. As acknowledged by the General Court in Google Shopping, self-preferencing cannot be considered prima facie unlawful and therefore outside the scope of competition on the merits. Its assessment instead requires the demonstration of anticompetitive effects, taking account of the circumstances of the case and the relevant legal and economic context.168F[168] Toward this aim, a dominant platform remains free to demonstrate that its practice, albeit producing an exclusionary effect, is objectively justified on the basis of all the circumstances of the case, or that the effects are counterbalanced or outweighed by efficiency advantages that also benefit consumers, such as through lower prices, better quality, or a wider choice of new or improved goods and services.169F[169]

In order to assess the anticompetitive nature of a practice, it is necessary to examine whether the means used come within the scope of normal competition.170F[170] Anticompetitive effects do not amount to a mere competitive disadvantage, but require an impact on efficient firms’ ability and incentive to compete.171F[171] Servizio Elettrico Nazionale also clarified the meaning of competition on the merits, considering outside its scope conduct that is not based on obvious economic reasons or objective reasons.172F[172] It is therefore necessary to assess the ability of equally efficient competitors to imitate the conduct of the dominant undertaking. Exclusionary conduct by a dominant firm that can be replicated by equally efficient competitors does not represent the sort of conduct that would lead to anticompetitive foreclosure; it therefore comes within the scope of competition on the merits.173F[173] In order to assess whether a given practice comes within the scope of competition on the merits, the test of whether it would be impossible for an equally efficient rival to imitate the dominant firm’s conduct arises from the case law on both price-related (e.g., TeliaSonera and Post Danmark II) and non-price-related conduct (e.g., Bronner).174F[174]

Moving away from the goal of ensuring a level playing field, recent European case law on self-preferencing centers instead on the competitive advantages that platforms enjoy due to their dual role. A competitive advantage, however, need not amount to anticompetitive foreclosure. Foreclosure not only needs to be proved, but also assessed against potential advantages for consumers, in terms of price, quality, and choice of new goods and services. It is even less clear how NCAs’ expansive approach toward self-preferencing as a standalone abuse fit within this legal framework. Both the AdlC’s decision in Google AdTech and the AGCM’s decision in Amazon Logistics appear inconsistent both with the legal qualification and criteria defined by the General Court, and with the CJEU principles recalled in Servizio Elettrico Nazionale. Similar doubts are raised by the investigations into the preferential access to and use of non-public business data. Moreover, in these cases, the benefits for consumers appear particularly significant as, for instance in Amazon Marketplace, the conduct under investigation led to an immediate output increase and price reduction: in short, more competition.

IV. Conclusion

In her opinion Post Danmark II opinion, Advocate General Juliane Kokott warned that, in enforcing antitrust rules, the CJEU “should not allow itself to be influenced so much by current thinking (‘Zeitgeist’) or ephemeral trends, but should have regard rather to the legal foundations on which the prohibition of abuse of a dominant position rests in EU law.”175F[175] Accordingly, this paper has addressed the prevailing zeitgeist in digital markets, analyzing the markets’ proclaimed peculiar features and the potential scope of application to evaluate whether it should be considered a novel standalone antitrust prohibition.

Indeed, common-carrier antitrust is on the rise. Following the 2017 decision in Google Shopping, the European Commission and some NCAs have advanced a new theory of harm pointing to the competitive disadvantage suffered by rivals. This therefore constitutes a de facto ban on any preferential treatment granted by dominant platforms to their own products and services. Such a strong stance in antitrust enforcement relies on the premise that the special responsibility that an incumbent dominant player bears implies that they must ensure a level playing field.

It remains the case, however, that European case law questions both the goal of relying on antitrust rules to impose a neutrality regime on dominant platforms and the very existence of self-preferencing as an autonomous abuse. Competition law does not impose a general duty to share competition advantages with rivals and does not protect the structure of the market; hence, not every exclusionary effect automatically undermines competition. Self-preferencing is not, in itself, unlawful and platform neutrality as such is outside the scope of competition law.

In contrast with the European Commission and some NCAs, the European General Court in Google Shopping not only framed self-preferencing as a discriminatory abuse but also highlighted some criteria to assess its potential exclusionary effects and considered it outside the scope of competition on the merits. Such criteria are particularly fact-sensitive, and therefore at odds with its wide application as a standalone abuse.

In summary, against the sirens of a fascinating, popular, and convenient new label, the limiting principles of competition law remind us that it cannot be weaponized to ensure a specific market outcome. Therefore, in the aftermath of the Google Shopping ruling, doubts about the characteristics and boundaries of self-preferencing remain on the table, and we still do not have a legal test that distinguishes such purported new antitrust offenses from other practices aimed at pursuing leveraging strategies and already addressed by antitrust rules.

[1] Jacques Cre?mer, Yves-Alexandre de Montjoye, and Heike Schweitzer, Competition Policy for the Digital Era, European Commission (2019) 7, available at https://ec.europa.eu/competition/publications/reports/kd0419345enn.pdf; Unlocking Digital Competition, UK Digital Competition Expert Panel (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.

[2] Elizabeth Warren, Here’s How We Can Break up Big Tech, Medium (2019) available at https://medium.com/@teamwarren/heres-how-we-can-break-up-big-tech-9ad9e0da324c.

[3] Margrethe Vestager, Statement Before the U.S. House of Representatives, Subcommittee on Antitrust, Commercial, and Administrative Law (2020) 2, available at https://www.euractiv.com/wp-content/uploads/sites/2/2020/07/Statement-EVP-Vestager-House-SubCommittee-30-July.pdf. See also id., Technology with Purpose (2020), https://ec.europa.eu/commission/commissioners/2019-2024/vestager/announcements/technology-purpose_en.

[4] Thomas Eisenmann, Geoffrey Parker, and Marshall Van Alstyne, Platform Envelopment, 32 Strateg. Manag. J. 1270 (2011).

[5] Regulation (EU) on Contestable and Fair Markets in the Digital Sector (Digital Markets Act), Article 6(1), (3), (5), (7), and (12), https://www.europarl.europa.eu/doceo/document/TA-9-2022-0270_EN.html.

[6] Impact Assessment – A New Pro-Competition Regime for Digital Markets, U.K. Government (2021) para. 21, https://www.gov.uk/government/consultations/a-new-pro-competition-regime-for-digital-markets.

[7] GWB Digitalization Act (Jan. 18, 2021), Section 19a, https://www.bundesrat.de/SharedDocs/beratungsvorgaenge/2021/0001-0100/0038-21.html.

[8] S.2992 – American Innovation and Choice Online Act, 117th Congress (2021-2022) Section 3(a)(1), available at https://www.congress.gov/117/bills/s2992/BILLS-117s2992rs.pdf.

[9] Richard J. Gilbert, The American Innovation and Choice Online Act: Lessons from the 1950 Celler-Kevaufer Amendment, Concurrentialiste (2022), https://leconcurrentialiste.com/gilbert-innovation-choice-act/?mc_cid=8bdf17d95a&mc_eid=34922555f0; Randal Picker, The House’s Recent Spate of Antitrust Bills Would Change Big Tech as We Know It, Promarket (2021), https://promarket.org/2021/06/29/house-antitrust-bills-big-tech-apple-preinstallation.

[10] Investigation of Competition in Digital Markets’, Majority Staff Reports and Recommendations, U.S. House Judiciary Subcommittee on Antitrust, Commercial, and Administrative Law (2020), 380, https://judiciary.house.gov/uploadedfiles/competition_in_digital_markets.pdf?utm_campaign=4493-519. See also Elettra Bietti, Self-Regulating Platforms and Antitrust Justice, Tex. Law Rev. (forthcoming); Nikolas Guggenberg, Essential Platforms, 24 STLR 237 (2021); Rory Van Loo, In Defense of Breakups: Administering a “Radical” Remedy, 105 Cornell L. Rev. 1955 (2020); Lina M. Khan, The Separation of Platforms and Commerce, 119 Columbia Law Rev. 973 (2019); K. Sabeel Rahman, Regulating Informational Infrastructure Internet Platforms as the New Public Utilities, 2 GLTR 234 (2018).

[11] Case AT.39740, Google Search (Shopping), European Commission (Jun. 27, 2017).

[12] Case T-612/17, Google LLC and Alphabet Inc. v. European Commission, European General Court (Nov. 10, 2021), EU:T:2021:763.

[13] See, e.g., Decision No. 29925, FBA Amazon, Autorità Garante della Concorrenza e del Mercato (Nov. 30, 2021), https://www.agcm.it/dettaglio?db=41256297003874BD&uid=801201274D8FDD40C12587AA0056B614&view=&title=A528-FBA%20AMAZON&fs=Abuso%20di%20posizione%20dominante. Previously, see Decision 21-D-11, Google, Autorité de la Concurrence (Jun. 7 2021) , https://www.autoritedelaconcurrence.fr/en/decision/regarding-practices-implemented-online-advertising-sector.

[14] Giuseppe Colangelo, The Digital Markets Act and EU Antitrust Enforcement: Double & Triple jeopardy, ICLE White Paper (2022), https://laweconcenter.org/resource/the-digital-markets-act-and-eu-antitrust-enforcement-double-triple-jeopardy.

[15] Pablo Iba?n?ez Colomo, Self-Preferencing: Yet Another Epithet in Need of Limiting Principles, 43 World Competition 417 (2020).

[16] Nicolas Petit, A Theory of Antitrust Limits, 28 Geo. Mason L. Rev. 1399 (2021).

[17] Herbert Hovenkamp, Selling Antitrust, Hastings L.J. (forthcoming).

[18] See Opinion of Advocate General Wahl, 20 December 2017, Case C?525/16, MEO — Serviços de Comunicações e Multimédia SA v. Autoridade da Concorrência, EU:C:2017:1020, paras. 76-77, arguing that a distinction must be drawn between undertakings that are vertically integrated (and have an interest in displacing competitors on the downstream market) and those that have no such interest. In the case of vertically integrated undertakings, the application by a dominant undertaking of discriminatory prices on the downstream or upstream market is, in reality, similar to first-degree price discrimination, which indirectly affects the undertaking’s competitors. See also Inge Graef, Differentiated Treatment in Platform-to-Business Relations: EU Competition Law and Economic Dependence, 38 YEL 448, 452-453 (2019), distinguishing among pure self-preferencing (whereby a vertically integrated platform treats its affiliated services more favorably than non-affiliated services), pure secondary line differentiation (whereby a non-vertically integrated platform engages in differentiated treatment among unaffiliated services in a market in which it is not active itself), and a hybrid category in which either a vertically integrated or a non-vertically integrated platform engages in differentiated treatment among unaffiliated services in an effort to favor its own business.

[19] Nicolas Petit, Theories of Self-Preferencing Under Article 102 TFEU: A Reply to Bo Vesterdorf, 1(3) CLPD 4 (2015).

[20] Case C-413/14 P, Intel v. Commission, Court of Justice of the European Union (Sept. 6, 2017), EU:C:2017:632.

[21] Id., C?525/16, MEO v. Autoridade da Concorrência (Apr. 19, 2018),  EU:C:2018:270. See also Wahl, supra note 18, para. 61.

[22] Guidance on the Commission’s Enforcement Priorities in Applying Article 82 of the EC Treaty to Abusive Exclusionary Conduct by Dominant Undertakings, European Commission (2009) OJ C 45/7, paras. 47-62.

[23] See Autorité de la Concurrence, supra note 13, para. 410, binding limits on interoperability with third-party services servers cannot be considered competition on the merits. See also Herbert Hovenkamp, Antitrust and the Design of Production, 103 Cornell L. Rev. 1155 (2018); Pablo Iba?n?ez Colomo, Product Design and Business Models in EU Antitrust Law, SSRN (2021), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3925396.

[24] Case T-201/04, Microsoft v. Commission, European General Court (Sept. 17, 2007), para. 1036, EU:T:2007:289.

[25] Case AT.40099, Google Android, European Commission, (Jul. 18, 2018), confirmed by Case T-604/18, Google v. Commission, European General Court (Sept. 14, 2022) EU:T:2022:541.

[26] Dirk Auer, Appropriability and the European Commission’s Android Investigation, 23 CJEL 647 (2017).

[27] Christopher S. Yoo, Open Source, Modular Platforms, and the Challenge of Fragmentation, 1 Criterion Journal on Innovation 619 (2016).

[28] UK Government, supra note 6, para. 21.

[29] Joined Cases C-241/91 P and 242/91 P, RTE and ITP v. Commission, Court of Justice of the European Union (Apr. 6, 1995), EU:C:1995:98.

[30] Id., 29, Case C-418/01, IMS Health GmbH & Co. OHG v. NDC Health GmbH & Co. GH (Apr. 29, 2004), EU:C:2004:257.

[31] European General Court, supra note 24.

[32] 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, Court of Justice of the European Union (Nov. 26, 1998), EU:C:1998:569.

[33] Id., Case C-165/19 P, Slovak Telekom a.s. v. Commission (Mar. 25, 2021) para. 50, EU:C:2021:239.

[34] Ibid., para. 57. In a similar vein, see Case T?814/17, Lietuvos gele?inkeliai AB v. Commission, European General Court (Nov. 18, 2020), para. 92, EU:T:2020:545.

[35] European Commission, supra note 22, para. 80.

[36] Ibid., para. 82; and Case COMP/38.784, Wanadoo Espan?a v. Telefo?nica, European Commission (Jul 4, 2007). This is likely to occur in two cases: where regulation compatible with EU law already imposes an obligation to supply on the dominant undertaking and it is clear, from the considerations underlying such regulation, that the necessary balancing of incentives has already been made by the public authority when imposing such obligation; or where the upstream market position of the dominant firm has been developed under the protection of special or exclusive rights or has been financed by state resources.

[37] Case C-280/08 P, Deutsche Telekom AG v. European Commission (Deutsche Telekom I), Court of Justice of the European Union (Oct. 14, 2010), EU:C:2010:603.

[38] Id., Case C-52/09, Konkurrensverket v. TeliaSonera Sverige AB (Feb. 17, 2011), EU:C:2011:83.

[39] Id., Case C?295/12 P, Telefónica SA and Telefónica de España SAU v. European Commission (Jul. 10, 2014), EU:C:2014:2062.

[40] Id., supra note 33.

[41] Case C/13/528337, VBO Makelaar v. Funda, Gerechtshof Amsterdam (May 16, 2020), para. 3.12.3.

[42] Autorità Garante della Concorrenza e del Mercato, supra note 13, paras. 236, 393, 436, 504, 708, 710, 716, and 901.

[43] European Commission, supra note 11.

[44] Streetmap.EU Ltd. v. Google and Others, [2016] EWHC 253 (ch).

[45] Ibid., paras. 51-54.

[46] Ibid., paras. 84 and 147.

[47] Ibid., para. 84.

[48] Ibid., para. 149.

[49] Ibid., para. 139.

[50] Ibid., para. 161.

[51] European Commission, supra note 11, para. 344.

[52] Ibid., para. 649.

[53] Ibid.

[54] Case C-333/94, Tetra Pak International SA v. Commission, Court of Justice of the European Union (Nov. 14, 1996), EU:C:1996:436.

[55] Case T-288/97, Irish Sugar plc v Commission, European General Court (Oct. 7, 1999), EU:T:1999:246.

[56] Id., supra note 24.

[57] Case C-311/84, Centre Belge D’Etudes de Marché – Télémarketing (CBEM) v. SA Compagnie Luxembourgeoise de Télédiffusion (CLT) and Information Publicité Benelux (IPB), Court of Justice of the European Union (Oct. 3, 1985), EU:C:1985:394.

[58] European Commission, supra note 11, para. 334.

[59] Ibid., para. 645.

[60] Ibid., para. 651.

[61] See, e.g., Jay Pil Choi and Doh-Shin Jeon, A Leverage Theory of Tying in Two-Sided Markets with Nonnegative Price Constraints, 13 Am Econ J Microecon 283 (2021); Edward Iacobucci and Francesco Ducci, The Google Search Case in Europe: Tying and the Single Monopoly Profit Theorem in Two?Sided Markets, 47 Eur. J. Law Econ. 15 (2019); Eduardo Aguilera Valdivia, The Scope of the ‘Special Responsibility’ upon Vertically Integrated Dominant Firms after the Google Shopping Case: Is There a Duty to Treat Rivals Equally and Refrain from Favouring Own Related Business?, 41 World Competition 43 (2018);  Pinar Akman, The Theory of Abuse in Google Search: A Positive and Normative Assessment under EU Competition Law, 2 J. Tech. L. & Pol’y 301 (2017); Ioannis Kokkoris, The Google Case in the EU: Is There a Case?, 62 Antitrust Bull. 313 (2017); John Temple Lang, Comparing Microsoft and Google: The Concept of Exclusionary Abuse, 39 World Competition 5 (2016); Renato Nazzini, Unequal Treatment by Online Platforms: A Structured Approach to the Abuse Test in Google, SSRN (2016), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2815081; Bo Vesterdorf, Theories of Self-Preferencing and Duty to Deal – Two Sides of the Same Coin?, 1(1) CLPD 4 (2015); Petit, supra note 19.

[62] Cre?mer, de Montjoye, and Schweitzer, supra note 1.

[63] Gerechtshof Amsterdam, supra note 41.

[64] Ibid., para. 3.12.1.

[65] Autorité de la Concurrence, supra note 13.

[66] Digital Advertising Services Inquiry Final Report, Australian Competition and Consumer Commission (2021), available at https://www.accc.gov.au/system/files/Digital%20advertising%20services%20inquiry%20-%20final%20report.pdf.

[67] Autorité de la Concurrence, supra note 13, paras. 369 and 410.

[68] Ibid., paras. 366 and 369. Since Google did not hold a dominant position in the market for SSPs, the reference to Tetra Pak has also been used to argue that, under specific circumstances, behavior implemented in a non-dominated market that has effects on the dominated market may be considered abusive (see para. 367).

[69] CJEU, supra note 33.

[70] Decision 21-D-07, Apple, Autorité de la Concurrence, (Mar. 17, 2021) https://www.autoritedelaconcurrence.fr/en/decision/regarding-request-interim-measures-submitted-associations-interactive-advertising-bureau.

[71] Ibid., para. 163.

[72] Bundeskartellamt Reviews Apple’s Tracking Rules for Third-Party Apps (press release), Bundeskartellamt (2022) https://www.bundeskartellamt.de/SharedDocs/Meldung/EN/Pressemitteilungen/2022/14_06_2022_Apple.html.

[73] Mobile Ecosystems: Market Study Final Report, U.K. Competition and Markets Authority (2022), Chapter 6 and Appendix J, https://www.gov.uk/cma-cases/mobile-ecosystems-market-study.

[74] European General Court, supra note 12.

[75] Ibid., para. 155.

[76] More recently, see also Case 50972, Google Privacy Sandbox, U.K. Competition and Markets Authority (Feb. 11, 2022), https://www.gov.uk/cma-cases/investigation-into-googles-privacy-sandbox-browser-changes, which considered self-preferencing as a traditional discrimination abuse. In particular, the competitive risks the CMA highlighted involve Google’s self-preferencing its own ad inventory and ad-tech services by transferring key functionalities to Chrome. The Privacy Sandbox Project would offer Google the ability to affect digital-advertising-market outcomes through Chrome in a way that cannot be scrutinized by third parties. It could lead to conflicts of interests because Google operates as publisher and ad-tech provider simultaneously.

[77] General Court, supra note 12, para. 160.

[78] Ibid., para. 163.

[79] Case C-242/95, GT-Link A/S v. De Danske Statsbaner (DSB), Court of Justice of the European Union (Jul. 17, 1997), EU:C:1997:376.

[80] Id., Case C-82/01 P, Ae?roports de Paris v. Commission (Oct. 24, 2002), EU:C:2002:617.

[81] Id., supra note 21.

[82] See Lena Hornkohl, Article 102 TFEU, Equal Treatment and Discrimination after Google Shopping, 13 J. Eur. Compet. Law Pract. 99 (2022), mentioning Post Danmark I as an example of primary-line exclusionary discrimination in the predatory-pricing context and TeliaSonera (supra note 38) and Slovak Telekom (supra note 33) as examples of secondary-line exclusionary discrimination in the margin-squeeze context.

[83] General Court, supra note 12, paras. 166 and 175.

[84] Ibid., paras. 169-174.

[85] Ibid., paras. 176-177.

[86] Ibid.

[87] Ibid., para. 178.

[88] Regulation (EU) 2015/2120 laying down measures concerning open Internet access and amending Directive 2002/22/EC on universal service and users’ rights relating to electronic communications networks and services, and Regulation (EU) No 531/2012 on roaming on public mobile-communications networks within the European Union, (2015) OJ L 310/1.

[89] General Court, supra note 12, para. 180. Comparisons to net neutrality have also been made by the U.S. House Judiciary Subcommittee on Antitrust, Commercial, and Administrative Law, supra note 10, 382-383, recommending that Congress consider establishing nondiscrimination rules.

[90] General Court, supra note 12, paras. 180, 182 and 183.

[91] Ibid., paras. 178, 182, 183, and 237.

[92] Ibid., paras. 176 and 179.

[93] Ibid..

[94] Ibid., paras. 176 and 179.

[95] Ibid., para. 181.

[96] Ibid., paras. 182-184.

[97] Ibid., paras. 219-222.

[98] Ibid., paras. 227.

[99] Ibid., para. 224.

[100] Ibid., paras. 232 and 233.

[101] Ibid., para. 238.

[102] Ibid., para. 240.

[103] See Christian Ahlborn, Gerwin Van Gerven, and William Leslie, Bronner Revisited: Google Shopping and the Resurrection of Discrimination Under Article 102 TFEU, 13 J. Eur. Compet. Law Pract. 87 (2022); Friso Bostoen, The General Court’s Google Shopping Judgement Finetuning the Legal Qualification and Tests for Platform Abuse, 13 J. Eur. Compet. Law Pract. 75 (2022), and Hornkohl, supra note 82, arguing that the ruling has resurrected discriminatory abuses as potentially one of the most important tools for regulating the platform economy.

[104] See Elias Deutscher, Google Shopping and the Quest for a Legal Test for Self-preferencing Under Article 102 TFEU, 6 European Papers 1345, 1348 (2021), arguing that the judgment did not address the fundamental question of how far Article 102 TFEU can interfere with the design choices of dominant firms or prohibit them from granting favorable treatment to their own products or services.

[105] General Court, supra note 12, para. 196.

[106] Ibid., para. 187.

[107] Ibid., para. 245.

[108] See Bostoen, supra note 103, arguing that, at best, this form of favoritism may be applicable in other cases of prominent display and positioning in searches (e.g., the conduct of Amazon favoring its own retail offers); and Ahlborn, Van Gerven, and Leslie, supra note 103, noting that, in contrast to price discrimination, discriminatory access to an input can encompass a range of factors that are difficult to disentangle (e.g., greater interoperability or preferential access to core services).

[109] Autorità Garante della Concorrenza e del Mercato, supra note 13.

[110] Ibid., para. 702, describing Amazon’s conduct as an “abusive pressure.”

[111] Id., Italian Competition Authority: Amazon Fined over € 1,128 Billion for Abusing Its Dominant Position (2021), https://en.agcm.it/en/media/press-releases/2021/12/A528.

[112] Autorità Garante della Concorrenza e del Mercato, supra note 13, para. 254.

[113] Ibid..

[114] Ibid., paras. 253 and 737.

[115] Ibid., para. 698.

[116] See C(2020) 7692 Final, European Commission (Nov. 10, 2020). See also Margrethe Vestager, Statement by Executive Vice-President Vestager on Statement of Objections to Amazon for the Use of Non-Public Independent Seller Data and Second Investigation into Its E-Commerce Business Practices (2020), https://ec.europa.eu/commission/presscorner/detail/en/STATEMENT_20_2082. See also CMA Investigates Amazon over Suspected Anti-Competitive Practices, U.K. Competition and Markets Authority (2022), https://www.gov.uk/government/news/cma-investigates-amazon-over-suspected-anti-competitive-practices, opening an investigation into how Amazon sets criteria for allocation of suppliers to be the preferred in the Buy Box and how Amazon sets the eligibility criteria for selling under the Prime label. The European Commission is currently evaluating the commitments offered by Amazon (Commission Seeks Feedback on Commitments Offered by Amazon Concerning Marketplace Seller Data and Access to Buy Box and Prime, European Commission (2022) https://ec.europa.eu/commission/presscorner/detail/en/ip_22_4522). Amazon has committed to apply equal treatment to all sellers when selecting the winner of the Buy Box and to display a second competing offer to the Buy Box winner if there is a second offer that is sufficiently differentiated on price and/or delivery. Both offers will display the same descriptive information and provide for the same purchasing experience. Moreover, regarding Prime, Amazon has committed to set non-discriminatory conditions and qualifying criteria for marketplace sellers and offers, to allow Prime sellers to freely choose any carrier for their logistics and delivery services, and not to use any information obtained through Prime about the terms and performance of third-party carriers for its own logistics services.

[117] Bundeswettbewerbsbehörde (Jul. 17, 2019), available at https://www.bwb.gv.at/fileadmin/user_upload/Fallbericht_20190911_en.pdf.

[118] Ibid., para. 81.

[119] Ibid., para. 87.

[120] U.S. House Judiciary Subcommittee on Antitrust, Commercial, and Administrative Law, supra note 10, 287-291.

[121] Ibid., 287-288.

[122] Autorità Garante della Concorrenza e del Mercato, supra note 13, paras. 236, 504, 710, 716, and 901.

[123] Ibid., paras. 236, 504, 506, 716, 723, and 810.

[124] Ibid., paras. 505, 713, 726, 760, 826, 852, 857, and 874. See also Autorità Garante della Concorrenza e del Mercato, supra note 111.

[125] Id., supra note 13, para. 807.

[126] Ibid., paras. 127, 136, 188, 614, and 804.

[127] Ibid., paras. 834-835.

[128] Ibid., paras. 658-666, 679, and 682.

[129] Ibid., paras. 805-806.

[130] Ibid., para. 136.

[131] Ibid., paras. 506, 609, 610, 680, and 716.

[132] Ibid., paras. 610, 710, 716, and 723.

[133] Ibid., para. 710.

[134] Case AT.40462, Amazon Marketplace, European Commission (Nov. 10, 2020). See also 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.

[135] U.K. Competition and Markets Authority, supra note 116.

[136] U.S. House Judiciary Subcommittee on Antitrust, Commercial, and Administrative Law, supra note 10, 275.

[137] App Marketplaces: Interim Report, Australian Competition and Consumer Commission, (2021), 134, available at https://www.accc.gov.au/system/files/Digital%20platform%20services%20inquiry%20-%20March%202021%20interim%20report.pdf.

[138] Case AT.40684, Facebook leveraging, European Commission (Jun. 4, 2021), https://ec.europa.eu/competition/elojade/isef/case_details.cfm?proc_code=1_AT_40684; CMA Investigates Facebook’s Use of Ad Data, U.K. Competition and Markets Authority (2021), https://www.gov.uk/government/news/cma-investigates-facebook-s-use-of-ad-data.

[139] Case AT.40716, Apple – App Store Practices, European Commission (Jun. 16, 2020).

[140] DMA, supra note 5, Article 6(1).

[141] AICOA, supra note 8, Section 3.

[142] See, e.g., U.S. House Judiciary Subcommittee on Antitrust, Commercial, and Administrative Law, supra note 10, 380. See also Simon P. Anderson and O?zlem Bedre-Defolie, Hybrid Platform Model, CEPR Discussion Paper No. 16243 (2021), available at https://cepr.org/active/publications/discussion_papers/dp.php?dpno=16243, arguing that the hybrid business model leads to higher platform fees for third-party sellers, less variety on the platform, and lower consumer welfare, compared to when the platform is a pure marketplace. On a different note, see Herbert Hovenkamp, Antitrust and Platform Monopoly, 130 Yale Law J. 1952 (2021), considering structural separation as the worst solution for the problems raised by Amazon’s strategy. See also Andrei Hagiu, Tat-How Teh, and Julian Wright, Should Platforms Be Allowed to Sell on Their Own Marketplaces?, 53 Rand J Econ 297 (2022), arguing that a structural remedy, such as an outright ban on the dual mode, would be detrimental to consumer surplus or total welfare, since the presence of the intermediary’s products constrains the pricing of the third-party sellers on its marketplace. The authors consider preferable policy interventions that target specific behaviors by the platform, such as a ban on product imitation and on self-preferencing.

[143] European Commission, supra note 134.

[144] U.S. House Judiciary Subcommittee on Antitrust, Commercial, and Administrative Law, supra note 10, 275.

[145] Digital Markets Act: Impact Assessment Support Study (Annexes), European Commission (2020), 301-308, https://op.europa.eu/en/publication-detail/-/publication/2a69fd2a-3e8a-11eb-b27b-01aa75ed71a1/language-en/format-PDF/source-search.

[146] Ibid., 304.

[147] Ibid..

[148] See Hagiu, Teh, and Wright, supra note 142, arguing that a ban on product imitation by a platform restores sellers’ incentive to innovate; Erik Madsen and Nikhil Vellodi, Insider Imitation, SSRN (2022) available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3832712, finding that a ban on a platform’s use of marketplace data can either stifle or stimulate innovation, depending on the nature of innovation. Namely, it stimulates innovation only for experimental product categories with significant upside demand potential. On the impact of data usage on consumer welfare, because of the tradeoff between static benefits from lower prices and dynamic costs from lower sellers’ incentives to investment, see Federico Etro, Product Selection in Online Marketplaces, 30 J Econ Manag Strategy 614 (2021).

[149] See Herbert Hovenkamp, The Looming Crisis in Antitrust Economics, 101 B.U. L. 489, 543 (2021), finding 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. One close analogy is dual distribution, which occurs when a firm sells through both independent franchisees and its wholly owned stores. Such practices nearly always increase output, benefitting consumers and typically even independent competing firms.” On the different impact of Amazon’s practice on consumer welfare and third-party sellers’ welfare, see also Feng Zhu and Qihong Liu, Competing with Complementors: An Empirical Look at Amazon.com, 39 Strateg. Manag. J. 2618 (2018), finding that Amazon tends to enter into high-quality, popular products sold by third-party merchants and that such entry tends to lower prices and lead to the exit of third-party sellers; and Nan Chen and Hsin-Tien Tsai, Steering via Algorithmic Recommendations, (2021) https://www.tse-fr.eu/sites/default/files/TSE/documents/sem2021/tsai.pdf, arguing that Amazon tends to recommend products sold by Amazon Retail to consumers over products sold by third-party retailers, and that this steering is inconsistent with Amazon promoting consumer welfare.

[150] Hovenkamp, supra note 142, 2015-2016.

[151] European Commission, supra note 116.

[152] See Graef, supra note 18, distinguishing Google Shopping and Amazon Marketplace as pure self-preferencing cases (i.e., primary-line injuries whose key objective is to exclude rivals from the market) from the Italian Amazon Logistics case, which belongs instead to a hybrid category that includes a mix of exploitative and exclusionary elements.

[153] Australian Competition and Consumer Commission, supra note 66, 92.

[154] Colomo, supra note 15, 418.

[155] Updating Competition and Consumer Law for Digital Platform Services, Australian Competition and Consumer Commission (2022), 85, https://www.accc.gov.au/media-release/feedback-sought-on-potential-new-rules-for-large-digital-platforms.

[156] Tobias Kretschmer, Aija Leiponen, Melissa Schilling, and Gurneeta Vasudeva, Platform Ecosystems as Meta?Organizations: Implications for Platform Strategies, 43 Strateg. Manag. J. 405 (2022).

[157] Kevin J. Boudreau and Andrei Hagiu, Platforms Rules: Multi-Sided Platforms as Regulators, in (Annabelle Gawer, ed.) Platforms, Markets and Innovation, Cheltenham, Edward Elgar Publishing (2009), 163; David Evans, Governing Bad Behavior by Users of Multi-sided Platforms, 27 BTLJ 1201 (2012).

[158] See Hovenkamp, supra note 17, considering the pending U.S. self-preferencing legislation “an affront to both antitrust policy and intelligent regulatory policy.” See also Geoffrey A. Manne, Against the Vertical Discrimination Presumption, 2 Concurrences 1, 2 (2020), arguing that forcing platforms to allow complementors to compete on their own terms would affect platform incentives for innovation. Indeed, platforms have an incentive to optimize openness and mandating maximum openness is not necessarily optimal because it would disregard the trade-off faced by platforms. Consequently, any presumption of harm from vertical discrimination is not based on sound economics. In a similar vein, Jonathan M. Barnett, The Host’s Dilemma: Strategic Forfeiture in Platform Markets for Informational Goods, 124 Harv. L. Rev. 1861 (2011).

[159] See Australian Competition and Consumer Commission, supra note 155, 87, arguing that rules might need to be “specifically tailored to each digital platform service with a high level of precision, to target the specific conduct that causes anti-competitive harm.”

[160] See Patrice Bougette, Axel Gautier, and Fre?de?ric Marty, Business Models and Incentives: For an Effects-Based Approach of Self-Preferencing?, 13 J. Eur. Compet. Law Pract.136, 140 (2022). On the welfare effects of Amazon’s dual role and the welfare implications of proposed regulations, see Germa?n Gutie?rrez, The Welfare Consequences of Regulating Amazon, (2021) available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3965566, showing that interventions that eliminate either the Prime program or product variety are likely to decrease welfare. See also Guy Aridor and Duarte Gonçalves, Recommenders’ Originals: The Welfare Effects of the Dual Role of Platforms as Producers and Recommender Systems, 83 Int. J. Ind. Organ.102845 (2022), highlighting the importance of targeted restrictions on self-preferencing because of the ambiguity of the welfare implications of a policy remedy separating recommendation and production or imposing unbiased recommendations. However, with regards to app stores and device-funded gatekeepers, Jorge Padilla, Joe Perkins, and Salvatore Piccolo, Self-Preferencing in Markets with Vertically Integrated Gatekeeper Platforms, J. Ind. Econ. (forthcoming) find that consumer welfare would be increased by preventing the device seller from selling its own apps and associated services in competition with third-party apps. See also Morgane Cure, Matthias Hunold, Reinhold Kesler, Ulrich Laitenberger, and Thomas Larrieu, Vertical Integration of Platforms and Product Prominence, Quant. Mark. Econ. (forthcoming), studying the potential effects of self-preferencing in the online hotel-booking industry because of the integration between one of the major online travel agencies (Booking Holdings) and a meta-search platform (Kayak). According to their empirical findings, the horizontal ranking of sales channels for a given hotel indicate that sales channels of online travel agents by Booking Holdings are more often position leaders than price leaders and online travel agents affiliated to Booking Holdings have a higher probability than other online travel agents of being among the visible providers and of being the highlighted sales channel. Moreover, for the vertical ranking of hotels for a search request, hotels are ranked worse in the Kayak search results when an online travel agent of the Expedia Group is the cheapest sales channel.

[161] Colomo, supra note 15, 421; Id., Anticompetitive Effects in EU Competition Law, 17 J. Competition Law Econ. 309, 356 (2021).

[162] Case C-377/20, Servizio Elettrico Nazionale SpA v. Autorità Garante della Concorrenza e del Mercato, Court of Justice of the European Union (May 12, 2022), EU:C:2022:379.

[163] Ibid., para. 46.

[164] CJEU, supra note 20, paras. 133-134.

[165] CJEU, supra note 162, para. 73.

[166] Case C?377/20, Servizio Elettrico Nazionale SpA v. Autorità Garante della Concorrenza e del Mercato, Advocate General Rantos (Dec. 9, 2021), EU:C:2021:998, para. 43.

[167] Ibid., para. 45.

[168] See CJEU, TeliaSonera, supra note 38; Post Danmark I, supra note 82; Case C-23/14, Post Danmark A/S v. Konkurrencerådet (Post Danmark II), (Oct. 6, 2015), EU:C:2015:651; Intel, supra note 20; Case C-307/18, Generics (UK) and Others v. Competition and Markets Authority (Jan. 30, 2020), EU:C:2020:52; Case C-152/19 P, Deutsche Telekom v. Commission (Mar. 25, 2021) EU:C:2021:238.

[169] CJEU, supra note 162, paras. 84-85.

[170] Ibid., para. 75. See also Advocate General Rantos, supra note 166, paras. 48-50, arguing that demonstrating that a dominant undertaking used means other than those that come within the scope of normal competition is not a requirement that needs to be assessed separately from the restrictive effect of the conduct.

[171] See, e.g., CJEU, MEO, supra note 21, and Post Danmark II, supra note 168. See also Colomo, supra note 161.

[172] Advocate General Rantos, supra note 166, para. 62.

[173] Ibid., para. 68 and CJEU, supra note 162, paras. 77-79.

[174] CJEU, supra note 162, para. 79.

[175] Case C?23/14, Post Danmark A/S v. Konkurrencerådet, Advocate General Kokott (May 21, 2015), EU:C:2015:343, para. 4.

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Antitrust & Consumer Protection

ICLE Brief for D.C. Circuit in State of New York v Facebook

Amicus Brief In this amicus brief for the U.S. Court of Appeals for the D.C. Circuit, ICLE and a dozen scholars of law & economics address the broad consensus disfavoring how New York and other states seek to apply the “unilateral refusal to deal” doctrine in an antitrust case against Facebook.

United States Court of Appeals
for the District of Columbia Circuit

STATE OF NEW YORK, et al.,
Plaintiffs-Appellants,
v.
FACEBOOK, INC.,
Defendant-Appellee.

ON APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
No. 1:20-cv-03589-JEB (Hon. James E. Boasberg)

BRIEF OF INTERNATIONAL CENTER FOR
LAW AND ECONOMICS AND SCHOLARS OF LAW
AND ECONOMICS AS AMICUS CURIAE SUPPORTING
DEFENDANT-APPELLEE FACEBOOK, INC. AND AFFIRMANCE

 

STATEMENT OF THE AMICUS CURIAE

Amici are leading scholars of economics, telecommunications, and/or antitrust. Their scholarship reflects years of experience and publications in these fields.

Amici’s expertise and academic perspectives will aid the Court in deciding whether to affirm in three respects. First, amici provide an explanation of key economic concepts underpinning how economists understand the welfare effects of a monopolist’s refusal to deal voluntarily with a competitor and why that supports affirmance here. Second, amici offer their perspective on the limited circumstances that might justify penalizing a monopolist’s unilateral refusal to deal—and why this case is not one of them. Third, amici explain why the District Court’s legal framework was correct and why a clear standard is necessary when analyzing alleged refusals to deal.

SUMMARY OF ARGUMENT

This brief addresses the broad consensus in the academic literature disfavoring a theory underlying plaintiff’s case—“unilateral refusal to deal” doctrine. The States allege that Facebook restricted access to an input (Facebook’s Platform) in order to prevent third parties from using that access to export Facebook data to competitors or compete directly with Facebook. But a unilateral refusal to deal involves more than an allegation that a monopolist refuses to enter into a business relationship with a rival.

Mainstream economists and competition law scholars are skeptical of imposing liability, even on a monopolist, based solely on its choice of business partners. The freedom of firms to choose their business partners is a fundamental tenet of the free market economy, and the mechanism by which markets produce the greatest welfare gains. Thus, cases compelling business dealings should be confined to particularly delineated circumstances.

In Part I below, amici describe why it is generally inefficient for courts to compel economic actors to deal with one another. Such “solutions” are generally unsound in theory and unworkable in practice, in that they ask judges to operate as regulators over the defendant’s business.

In Part II, amici explain why Aspen Skiing—the Supreme Court’s most prominent precedent permitting liability for a monopolist’s unilateral refusal to deal—went too far and should not be expanded as the States’ and some of their amici propose.

In Part III, amici explain that the District Court correctly held that the conduct at issue here does not constitute a refusal to deal under Aspen Skiing. A unilateral refusal to deal should trigger antitrust liability only where a monopolist turns down more profitable dealings with a competitor in an effort to drive that competitor’s exit or to disable its ability to compete, thereby allowing the monopolist to recoup its losses by increasing prices in the future. But the States’ allegations do not describe that scenario.

In Part IV, amici address that the District Court properly considered and dismissed the States’ “conditional dealing” argument. The States’ allegations are correctly addressed under the rubric of a refusal to deal—not exclusive dealing or otherwise. The States’ desire to mold their allegations into different legal theories highlights why courts should use a strict, clear standard to analyze refusals to deal.

Read the full brief here.

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Antitrust & Consumer Protection