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ICLE White Paper For more on this topic, see the ICLE Issue Spotlight “Digital Competition Regulations Around the World.” Executive Summary Inspired by the European Union’s Digital Markets . . .
For more on this topic, see the ICLE Issue Spotlight “Digital Competition Regulations Around the World.”
Inspired by the European Union’s Digital Markets Act (DMA), a growing number of jurisdictions around the globe either have adopted or are considering adopting a framework of ex-ante rules to more closely regulate the business models and behavior of online platforms.
These digital competition regulations (“DCRs”) share two key features. The first is that they target so-called “gatekeepers” who control the world’s largest online platforms. Such regulations assume that these firms have accumulated a degree of economic and political power that allows them to harm competition, exclude rivals, exploit users, and possibly inflict a broader range of social harms in ways that cannot be adequately addressed through existing competition laws. Typically cited as examples of gatekeepers are the main platforms of Google, Amazon, Facebook/Meta, Apple, and Microsoft.
The second common features of these DCR regimes is that they impose similar, if not identical, per-se prohibitions and obligations on gatekeepers. These often include prohibitions on self-preferencing and the use of third-party party data, as well as obligations for interoperability and data sharing. These two basic characteristics set DCRs apart from other forms of “digital regulation”—e.g., those that concern with AI, privacy, or content moderation and misinformation.
This paper seeks to understand what digital competition regulations aim to achieve and whether a common rationale underpins their promulgation across such a broad swatch of territories.
We find that DCRs pursue multiple goals that may vary across jurisdictions. Some DCRs are guided by the same goals as competition law, and may even be embedded into such laws. Such is the case, e.g., in Germany and Turkey. Other regulations address competition concerns under differing or modified standards. Examples here include the “material-harm-to-competition” standard in the United States and, arguably, digital competition regulation in the UK and Australia—where traditional competition-law goals such as the protection of competition and consumer welfare comingle with an increased emphasis on “fairness.”
DCRs sometimes pursue a much broader set of goals. For instance, a prospective digital competition regulation in South Africa seeks greater visibility and opportunities for small South African platforms and increased inclusivity of historically disadvantaged peoples, along with other more competition-oriented objectives (this duality is a common feature of South African legislation). Similarly, a bill proposed in Brazil attempts to reduce regional and social inequality, as well as to widen social participation in matters of public interest, alongside its stated effort to protect competition.
In the United States, apart from protection of competition, proponents of the (now-stalled) DCR bills have invoked a broad set of potential benefits, including fairness; fair prices; a more level playing field; reduced gatekeeper power; protections for small and medium-sized enterprises (“SMEs”); reduced costs for consumers; and boosts to innovation.
Some DCRs, however, are not promulgated in pursuit of competition-oriented objectives at all—at least, not explicitly or not in the sense in which such objectives are understood in traditional competition law. The clearest example is the EU’s DMA itself, which openly eschews traditional competition-related goals and instead seeks to make digital markets “fair” and “contestable.”
Regardless of the overarching goals, it is evident that DCRs incorporate themes and concepts familiar to the competition lawyer, such as barriers to entry, exclusionary conduct, competitive constraints, monopolistic outcomes, and, in some cases, even market power. This may, at first blush, hint at a close relationship between digital competition regulation and competition law. While not entirely incorrect, that assessment must come with a number of caveats.
DCRs diverge in subtle but significant ways from mainstream notions of competition law. We posit that DCRs are guided by three fundamental goals: wealth redistribution among firms, the protection of competitors of incumbent digital platforms, and the “leveling down” of those same digital platforms.
The notion of “gatekeepers” itself presumes asymmetrical power relations between digital platforms and other actors, which are further presumed both to lead to unfair outcomes and to be insurmountable without regulatory intervention. Thus, the first commonality among the DCRs we study is that they all seek to transfer rents directly from gatekeepers to rival firms, complementors, and, to a lesser extent, consumers. This conclusion follows inexorably from the DCRs’ stated goals, the prohibitions and obligations they promulgate, and the public statements of those who promote them.
While the extent to which various groups are intended to benefit from this rent re-allocation might not always be identical, all DCRs aim to redistribute rents generated on digital platforms away from gatekeepers and toward some other group or groups—most commonly the business users active on those platforms.
Another important feature that DCRs share is the common goal not just to protect business users, but to directly benefit competitors—including, but not limited to, via rent redistribution. DCRs are concerned with ensuring that competitors—even if they are less efficient—enter or remain on the market. This is evidenced by the lack of overarching efficiency or consumer-welfare goals—at the very least, for those regulations not based on existing competition laws—that would otherwise enable enforcers to differentiate anticompetitive exclusion of rivals from those market exits that result from rivals’ inferior product offerings.
This focus on protecting competitors can also be seen in DCRs’ pursuit of “contestability.” As defined by DCRs, promoting contestability entails diminishing the benefits of network effects and the data advantages enjoyed by incumbents because they make it hard for other firms to compete, not because they are harmful in and of themselves or because they have been acquired illegally or through deceit. In other words, DCRs pursue contestability—understood as other firms’ ability to challenge incumbent digital platforms’ position—regardless of the efficiency of those challengers or the ultimate effects on consumers.
The other way that DCRs seek to balance power relations and achieve fairness is by “leveling down” the status of the incumbent digital platforms. DCRs directly and indirectly worsen gatekeepers’ competitive position in at least three ways:
For example, prohibitions on the use of nonpublic (third-party) data benefit competitors, but they also negate the massive investments that incumbents have made in harvesting that data. Similarly, data-sharing obligations impose a cost on gatekeepers because data-tracking and sharing is anything but free. Gatekeepers are expected to aid and subsidize competitors and third parties at little or no cost, thereby diminishing their competitive position and dissipating their resources (and investments) for the benefit of another group. The same can be said, mutatis mutandis, for other staples of digital competition regulation, such as prohibitions on self-preferencing and sideloading mandates.
It should be noted, of course, that direct rent redistribution among firms is generally not the goal of competition law. Rent redistribution entails significant risks of judicial error and rent seeking. Regulators may require firms to supply their services at inefficiently low prices that are not mutually advantageous, and may diminish those same firms’ incentives to invest and innovate. Those difficulties are compounded in the fast-moving digital space, where innovation cycles are faster, and yesterday’s prices and other nonprice factors may no longer be relevant today. In short, rent redistribution is difficult to do well in traditional natural-monopoly settings and may be impossible to do without judicial error in the digital world.
Protecting competitors at the expense of competition, as DCRs aim to do, is equally problematic. Competition depresses prices, increases output, leads to the efficient allocation of resources, and encourages firms to innovate. By facilitating competitors—including those that may have fallen behind precisely because they have not made the same investments in technology, innovation, or product offerings—DCRs may dampen incentives to strive to become a so-called gatekeeper, to the ultimate detriment of consumers. Protecting competition benefits the public, but protecting competitors safeguards their special interests at the public’s expense.
This is not only anathema to competition law but also to free competition. As Judge Learned Hand observed 80 years ago in his famous Alcoa decision: “the successful competitor, having been urged to compete, must not be turned upon when he wins.” Critiques of digital competition regulation’s punitive impulse against incumbent platforms flow from this essential premise—which, we contend, is the cornerstone of good competition regulation. The multiplicity of alternative justifications put forward by proponents of such regulations are generally either pretextual or serve as a signal to the voting public. To paraphrase Aldous Huxley: “several excuses are always less convincing than one.”
We end by speculating that digital competition regulation could signal more than just a digression from established principles in a relatively niche, technical field such as competition law. If extended, the DCR approach could mark a new conception of the roles of companies, markets, and the state in society. In this “post-neoliberal” world, the role of the state would not be limited to discrete interventions to address market failures that harm consumers, invoking general, abstract, and reactive rules—such as, among others, competition law. It would instead be free to intercede aggressively to redraw markets, redesign products, pick winners, and redistribute rents; indeed, to function as the ultimate ordering power of the economy.
Ultimately, however, we conclude that it is too early to make any such generalizations, and that only time will tell whether digital competition regulation was truly a sign of things to come, or merely a small but ultimately insignificant abrupt dirigiste turn in the zig-zagging of antitrust history.
Inspired by the European Union’s Digital Markets Act (“DMA”),[1] a growing number of jurisdictions around the globe either have adopted or are considering adopting a framework of ex-ante rules to more closely regulate the business models and behavior of online platforms.
These “digital competition regulations”[2] (“DCRs”) share two key features. The first is that they target so-called “gatekeepers” who control the world’s largest online platforms. Such regulations assume that these firms have accumulated a degree of economic and political power that allows them to harm competition, exclude rivals, exploit users, and possibly inflict a broader range of social harms in ways that cannot be adequately addressed through existing competition laws.[3] Typically cited as examples of gatekeepers are the main platforms of Google, Amazon, Facebook/Meta, Apple, and Microsoft.
The second common feature these DCR regimes share is that they impose similar, if not identical, per-se prohibitions and obligations on gatekeepers. These often include prohibitions on self-preferencing and the use of third-party party data, as well as obligations for interoperability and data sharing. These two basic characteristics set DCRs apart from other forms of “digital regulation”—e.g., those dealing with AI,[4] privacy,[5] or content moderation and misinformation.[6]
It is not, however, always entirely clear what DCRs aim to achieve. A cursory survey suggests that these rules pursue different goals, without an immediately apparent unifying theme. For example, some DCRs have been integrated into existing competition laws and ostensibly pursue the same goals: the protection of competition and consumer welfare. Others aim for a range of goals—including, but not limited to, competition—such as the protection of small and medium-sized enterprises (“SMEs”); regional equality; social participation; and improving the lot of business users who operate on online platforms. Some DCRs purposefully and explicitly sidestep competition-oriented considerations, aiming instead for such adjacent but ultimately distinct goals as “fairness” and “contestability.”[7]
What emerges is a seeming patchwork of goals and objectives. In this paper, we seek to assess those disparate goals and objectives, drawing on many of the major proposed and enacted DCRs.
Part I examines the goals that DCRs claim to pursue. It takes those goals at face value and offers a largely descriptive account of the objectives offered. Where necessary (such as, for example, where those goals are cryptic or not clearly articulated), reference is made to public statements by those who promulgated them.
Part II argues that DCRs are best understood as a new form of law, grounded in ideas that have found limited success in competition law itself. To some extent, DCRs are based on a common narrative that has transformed some of the core principles and themes of antitrust law. As such, DCRs partially jibe with antitrust law, but ultimately diverge from it in subtle but consequential ways.
Part III argues that, despite superficial differences, DCRs share three common goals. The first is a desire to redistribute rents from some companies to others. At the most fundamental level, DCRs all seek to address what are perceived to be extreme power imbalances between digital platforms and the rest of society—especially business users and competitors. Thus, they seek to redistribute rents away from so-called “gatekeepers” and toward the business users that operate on those platforms, and to promote competitors (including, but not limited to, via rent redistribution).
DCRs are particularly concerned with ensuring that competitors, even if they are less efficient, enter or remain in the market. This is evidenced by a lack of overarching efficiency or consumer-welfare goals—even in those regulations that are based on existing competition laws—that would otherwise enable enforcers to differentiate between anticompetitive exclusion of rivals and market exit that results from rivals’ inferior product offerings. The focus on protecting competitors also stems from DCRs’ pursuit of “contestability.” In this context, promoting contestability entails diminishing the benefits of the network effects and the data advantages enjoyed by incumbents on the theory that they make it difficult for other firms to compete—not because they are harmful to consumers or because they have been acquired illegally or through deceit.
The third way that DCRs seek to balance power relations and achieve fairness is by “leveling down” the status of the incumbent digital platforms. DCRs worsen the competitive position of gatekeepers in at least three ways:
Essentially, gatekeepers are expected to aid and subsidize competitors and third parties at little or no cost. This, in turn, diminishes their competitive position and dissipates their resources (and investments) for the benefit of another group.
Part IV concludes. It speculates that DCRs might signal the advent of a new paradigm in political economy: a redrawing of the existing lines and roles between states, markets, and firms, with greater emphasis on the role of the state as the ultimate ordering power of the economy. In hindsight, one expression of this could turn out to be the overturning (if only partial) of the essential principles of modern competition policy: the protection of competition rather than competitors, a policy emphasis on maximizing economic output rather than rent redistribution among firms, and a commitment to merit, rather than fairness and equity. It is difficult to overstate how deeply at loggerheads this conception of the role of competition is from the existing, predominant paradigm long found in competition law.
Most DCRs pursue multiple overlapping objectives. The global picture is even more complex, as there is only partial overlap among the various goals pursued by DCRs in different jurisdictions.
Some DCRs are an extension of competition-law frameworks and are sometimes even formally embedded into existing competition laws. In principle, this means that the standard goals and rationale of competition law apply. Germany, for instance, recently amended its Competition Act, emphasizing the need to “intervene at an early stage in cases where competition is threatened by certain large digital companies.”[8] According to the Bundeskartellamt:
The newly introduced Section 19a probably represents the most important change as the Bundeskartellamt will now be able to intervene at an early stage in cases where competition is threatened by certain large digital companies. As a preventive measure the Bundeskartellamt can prohibit certain types of conduct by companies which, due to their strategic position and their resources, are of paramount significance for competition across markets.[9]
Similarly, Turkey currently is looking to amend the Turkish Competition Act with the objectives of promoting competition and innovation in digital markets; protecting consumer and business rights; and ensuring that gatekeepers do not engage in anticompetitive practices.[10] Proponents argue that the current Turkish Competition Act is not adequately equipped to address anticompetitive conduct in digital markets—such as, e.g., that the process of defining relevant markets is inappropriate for dynamic and global digital ecosystems and that specific regulations are needed due to the network effects that digital platforms confer.[11] These are all nominally competition-related concerns.[12] Other proposed changes to the Turkish Competition Act similarly reflect an increased emphasis on competition. For instance, in merger analysis, the current “dominance test” would be substituted with a “significant impediment to effective competition test,” similar to that in the EU merger-control regime. A “de minimis” rule would also be added to Article 41 to exempt agreements “that do not significantly impede competition.”
Other DCRs appear, at least to some extent, to pursue competition-law-inspired goals, despite not being formally incorporated into existing competition laws. In South Korea, for example, the Korean Fair Trade Commission (“KFTC”) recently proposed a draft DMA-style bill, the Platform Competition Promotion Act, whose purpose is establish ex-ante rules to restore competition rapidly in designated markets “without the tedious process of defining a relevant market through economic analysis.”[13] According to the KFTC, digital competition regulation is necessary to combat monopolization in digital markets, where monopolies tend to become entrenched.[14] As some observers have noted,[15] the Platform Competition Promotion Act covers conduct already addressed by South Korea’s existing Monopoly Regulation and Fair Trade Act.[16] Thus, while the draft bill is likely to be passed as a separate piece of legislation, there appears to be a continuum between it and South Korean competition law.
In the United Kingdom, the 2023 Digital Markets, Competition, and Consumer Bill (“DMCC”) is in the final stages of legislative approval.[17] The DMCC aims to “provide for the regulation of competition in digital markets” and, in theory, dovetails with goals pursued by competition law (it even invokes familiar competition-law themes, such as market power).[18] The DMCC would grant the UK antitrust enforcer, the Competition and Markets Authority (“CMA”), power to take “pro-competition interventions” where it has reasonable grounds to believer there may be an adverse effect on competition.[19]
The DMCC has, however, also been touted as a tool to “stamp out unfairness in digital markets.”[20] This could refer to the bill’s consumer-protection provisions, which would prohibit, inter alia, unfair commercial practices.[21] But it may also suggest that the DMCC goes beyond the remit of traditional competition law, in which “unfairness” is generally not central, except within the relatively narrow confines of the abuse-of-dominance provision under S.18 of the Competition Act.[22]
Further, in a press release welcoming the DMCC draft, the CMA enumerated the bill’s benefits as falling into the three categories of “consumer protection,” “competition,” and “digital markets.”[23] The second category grants the CMA increased powers to “identify and stop unlawful anticompetitive conduct more quickly.”[24] The third, however, proposes that the bill will “[enable] all innovating businesses to compete fairly.”[25] This could imply that competition rules in “digital markets” would be governed by different principles than those that apply in “traditional” markets—that is, those that do not involve the purchase or sale of goods over the internet, or the provision of digital content.[26] The DMCC’s provisions on “digital markets” are also formally separate from those on “competition.”[27]
In Australia, the Australian Competition and Consumers Commission (“ACCC”) is conducting a five-year digital-platform-services inquiry (“DPS Inquiry”), set to be finalized in March 2025.[28] The ACCC recommended, as part of the inquiry’s fifth interim report, service-specific obligations (similar to the UK’s proposed ex-ante rules) for “designated” digital platforms.[29] These would serve to address “anticompetitive conduct, unfair treatment of business users and barriers to entry and expansion that prevent effective competition in digital platform markets.”[30] Thus, alongside competition law’s traditional concerns (e.g., harms and benefits to consumers, innovation, efficiency, and “effective competition”), the ACCC would also incorporate concerns over “fairness” and, especially, the protection of business users.
In the United States, several bills have been put forward that are formally separate from existing antitrust law, but cover some of the same conduct as would typically be addressed under U.S. antitrust law—albeit with seemingly different goals and standards. Some of these new goals and standards represent only slight variations on the usual goals of competition law. Three main pieces of legislation have so far been put forward: the American Innovation and Choice Online Act (“AICOA”),[31] the Open App Market Act (“OAMA”),[32] and the Augmenting Compatibility and Competition by Enabling Service Switch Act (“ACCESS Act”)[33] (together, “U.S. tech bills”).
Although the U.S. tech bills largely fail to describe their underlying goals, the titles of the bills and statements made by their sponsors suggest a set of overlapping concerns, such as preventing “material harm to competition,”[34] reducing “gatekeeper power in the app economy,”[35] and “increasing choice, improving quality, and reducing costs for consumers.”[36] These goals appear to fall relatively well within the traditional remit of antitrust law.
But there are others. According to U.S. Sen. Amy Klobuchar (D-Minn.), the primary sponsor or cosponsor of several of the U.S. tech bills, AICOA is intended to “restore competition online by establishing commonsense rules of the road,” “ensure small businesses and entrepreneurs still have the opportunity to succeed in the digital marketplace,” and “create a more even playing field,” all “while also providing consumers with the benefit of greater choice online.”[37] “Fairness,” “fair prices,” and “innovation” all have also been invoked by the bills’ supporters.[38]
At the same time, for three out of the 10 types of challenged conduct, AICOA would require demonstrating “material harm to competition,” which would suggest that one of that bill’s goals is to protect competition. As the American Bar Association’s Antitrust Section has observed, however, there is no “material harm to competition” standard in U.S. antitrust law.[39] This suggests that AICOA may posit a different interpretation of what it means to protect competition, or of what sort of competition should be protected, than does traditional U.S. antitrust law.
OAMA, on the other hand, aims to open competitive avenues for startup apps, third-party app stores, and payment services in existing digital ecosystems.[40] Its title reads: “to promote competition and reduce gatekeeper power in the app economy, increase choice, improve quality, and reduce costs for consumers.” Unlike AICOA, however, OAMA would not require a showing of harm to competition—material or otherwise—to establish liability, which appears to suggest that competition might be less of a concern than the bill’s title implies.
Finally, the ACCESS Act is intended to “promote competition, lower entry barriers and reduce switching costs for consumers and businesses online.”[41] U.S. Sen. Mark Warner (D-Va.), the bill’s primary sponsor, has said that the ACCESS Act will promote competition, allow startups to “compete on equal terms with the biggest social media companies,” and “level the playing field between consumers and companies” by giving them more control over who manages their privacy.[42] Again, these are antitrust-adjacent objectives, but with a flavor (“equal terms,” “level playing field,” etc.) that is largely foreign to U.S. antitrust law.
Other DCRs pursue a mix of competition and noncompetition goals. The South African Competition Commission’s (“SACC”) Final Report on the Online Intermediation Platforms Market Inquiry, for example, found that remedial actions similar to the ex-ante rules contemplated in the DMA and elsewhere are needed to grant “[g]reater visibility and opportunity for smaller South African platforms” to compete with international players; “[e]nabl[e] more intense platform competition,” offer “more choice and innovation”; reduce prices for consumers and business users; “[p]rovid[e] a level playing field for small businesses selling through these platforms, including fairer pricing and opportunities”; and “[p]rovid[e] a more inclusive digital economy” for historically disadvantaged peoples.[43]
In a similar vein, Brazil’s proposed law PL 2768/2022 (“PL 2768”) pursues an expansive grab-bag of social and economic goals.[44] Article 4 states that targeted digital platforms must operate based on the following principles: freedom of initiative, free competition, consumer protection, a reduction in regional and social inequality, combatting the abuse of economic power, and widening social participation in matters of public interest.[45] In addition, PL 2768 also states as objectives that it will enable access to information, knowledge, and culture; foster innovation and mass access to new technologies and access models; promote interoperability among apps; and enable data portability.[46]
Finally, there are those DCRs that claim not to pursue competition-oriented goals at all. The DMA has two stated goals: “fairness” and “contestability,”[47] and explicitly denies being bound by, or even pursuing, the traditional goals of competition law: protecting competition and consumer welfare.[48] According to the DMA, competition, consumer welfare, and efficiency considerations such as those that underpin antitrust law are not relevant under the new framework. This is, according to the DMA’s text, because the goals of competition law and the DMA “are complimentary but ultimately distinct.”[49]
Interestingly, however, few other DCRs have so steadfastly disavowed competition considerations, even those that copy the DMA’s provisions verbatim. India is a case in point. In 2023, a report by the Standing Committee on Finance argued that, if digital competition regulation was not passed, “interconnected digital markets will rapidly demonstrate monopolistic outcomes that prevent fair competition. This will restrict consumer choice, inhibit business users, and prevent the rise of dynamic new companies.”[50] These concerns jibe with traditional antitrust goals, as indicated inter alia by the report’s title (“anti-competitive practices by big tech companies”). Later, another report—the Report of the Committee on Digital Competition Law (“CDC Report”)—proposed a Draft Digital Competition Bill (“DCB”).[51] According to the CDC Report, DMA-style digital competition regulation was needed to supplement the 2002 Indian Competition Act (“ICA”),[52] which—and here is the interesting part—supposedly also aims to promote “fairness and contestability.”[53]
But the ICA’s stated aims were the protection of competition, the interests of consumers, and free trade.[54] The Report of the High-Powered Expert Committee on Competition Law and Policy (“Raghavan Committee Report”),[55] which served as the basis for the ICA, modernized Indian competition law by moving it away from the structure-based paradigm of the earlier Anti-Monopolies and Restrictive Trade Practices Act of 1969 and toward an economic-effects-based analysis. The Raghavan Committee Report was unequivocal in its support of consumer welfare as the system’s ultimate goal.[56] Moreover, the report advised against a plurality of goals, including, specifically, “bureaucratic perceptions”[57] of equity and fairness, which, it argued, were mutually contradictory, difficult to quantify, and potentially opposed to the sustenance of free, unfettered competition.[58] It is therefore curious, to say the least, that the CDC Report would now, in hindsight, recast the ICA’s goals to support essentially the opposite idea.
The multiplicity of goals and their unclear, partially overlapping relationship with competition law raises questions about how we should think about these laws and, indeed, whether we can even think of them as a coherent, unified group. In the next section, we seek to untangle the nature and classification of digital competition regulation.
DCRs are likely best understood as a new form of competition regulation. As some authors have noted, the precise relationship between competition law and the EU’s DMA is difficult to pinpoint.[59] In a similar vein, it is evident that many DCRs incorporate themes and concepts familiar to the competition lawyer, such as barriers to entry, exclusionary conduct, competitive constraints, monopolistic outcomes, and, in some cases, even market power. At first blush, this may suggest a direct relationship between digital competition regulation and competition law. While not entirely incorrect, that assessment comes with considerable caveats.
In this section, we argue that DCRs are a new form of competition regulation that diverges in subtle but definitive ways from mainstream notions of competition law. In essence, DCRs take plausible competition-law themes and alter and subvert them in fundamental ways, creating what could be described as sector-specific[60] or enforcer-friendly[61] competition laws. Due to their blend of competition principles and prescriptive, top-down regulatory provisions, we have opted for the term “digital competition regulation.” To understand their nature, we must start with their underlying assumptions and the ills they claim to address.
A starting assumption of all DCRs is that there is an extreme imbalance of power between large digital platforms and virtually every other stakeholder with whom they deal—from other industries to the businesses that operate on digital platforms to their competitors to, finally, end-users.[62] Even governments are often presumed to be virtually powerless in the face of the depredations of so-called “Big Tech.”[63] The adage that “big tech has too much power” has been almost universally endorsed by proponents of DCRs and strong antitrust enforcement;[64] is explicitly or implicitly embedded into those DCRs;[65] and now also permeates popular discourse, media, and entertainment.[66] The corollary is that asymmetric regulation is needed to help those other actors that have been “dispossessed” by big-tech platforms.
This notion is widespread and underpins a range of other policy proposals, not just DCRs. For example, the EU is considering a “Fair Share” regulation that would address the supposed power imbalance between tech companies and telecommunications operators, by forcing the former to pay for the infrastructure of the latter.[67] Similarly, various “bargaining codes” either already have been adopted or are currently under consideration to force tech companies to pay news publishers. In Australia, the Treasury Laws Amendment (News Media and Digital Platforms Mandatory Bargaining Code) Act 2021 (“Bargaining Code”) was put in place to address the supposed bargaining-power imbalance between digital platforms and news-media businesses.[68] According to the ACCC, digital-advertisement regulation was necessary to support the sustainability of the Australian news-media sector, “which is essential to a well-functioning democracy.”[69] Laws with a similar rationale have also been passed or are under consideration in other jurisdictions.[70]
All these initiatives originate from the same foundational assumption, which is that tech companies are more powerful than anyone else, and are therefore able to get away with imposing draconian conditions unilaterally that allow them to benefit disproportionately at the expense of all other parties, business users, complementors, and consumers. While it is not always easy to identify a coherent thread running through the rules and prohibitions contained in DCRs and other initiatives to regulate “Big Tech,” a good rule of thumb to understand the unifying logic behind these initiatives is that digital platforms should have less “power,” and other stakeholders should have more “power.”
Sometimes—but by no means always—this also encompasses familiar notions of “market power,” i.e., firms’ ability to profitably raise prices because of the absence of sufficient competition. In fact, in most DCRs, “power” stems from the fact that an online platform is an important gateway for business users to reach consumers.[71] This is considered manifestly evident by the platform’s size, turnover, or “strategic” importance.[72] As Bundeskartellamt (the German competition authority) President Andreas Mundt has put it: “we shouldn’t talk about this narrow issue of price, we should talk about power.”[73]
DCRs embody this principle. They seek to extract better deals for the party or parties that are considered to suffer from an imbalance of bargaining power vis-à-vis digital platforms—such as, for instance, through interoperability and data-sharing mandates. As we argue in Section III, these beneficiaries are intended to be the platform’s business users and competitors.
The reasoning is as follows. The asymmetrical power relations between digital platforms and other actors are presumed to lead to unfair outcomes in how these stakeholders are treated and the ways that rents are allocated across the supply chain. As the DMA explains in its preamble:
The combination of those features of gatekeepers is likely to lead, in many cases, to serious imbalances in bargaining power and, consequently, to unfair practices and conditions for business users, as well as for end users of core platform services provided by gatekeepers, to the detriment of prices, quality, fair competition, choice and innovation in the digital sector.[74]
Once it is accepted that power relations between digital platforms and other stakeholders are unfairly skewed, any outcome resulting from the interaction of the two groups must also, by definition, be “unfair.” For example, under the DMA, “unfairness” is broadly defined as “an imbalance between the rights and obligations of business users where the gatekeeper obtains a disproportionate advantage.”[75] A “fair” outcome would be one in which market participants—including, but not limited to, business users—“adequately” capture the benefits from their innovations or other efforts, something the DMA assumes is currently not taking place due to gatekeepers’ superior bargaining power.
In the world of digital competition regulation, “unfairness” is a foregone conclusion. And, sure enough, the concept of “fairness” is the central normative value driving these regulations. Proponents liberally invoke it[76] and it features prominently in DCRs.[77] This narrative, however, is built on premises that differ markedly from those of antitrust law. We discuss these below.
The DMA is the original blueprint for all digital competition regulation that has followed in its wake. The DMA’s text states that it is distinct from competition law:
This Regulation pursues an objective that is complementary to, but different from that of protecting undistorted competition on any given market, as defined in competition-law terms, which is to ensure that markets where gatekeepers are present are and remain contestable and fair, independently from the actual, potential or presumed effects of the conduct of a given gatekeeper covered by this Regulation on competition on a given market. This Regulation therefore aims to protect a different legal interest from that protected by those rules and it should apply without prejudice to their application.[78]
Other DCRs are rarely so candid about their break with competition law. On the contrary, some are even outwardly couched in competition-based terms. But in the end, DCRs replicate all or most of the prohibitions and obligations pioneered by the DMA.[79] DCRs also apply largely to the same companies as the DMA or, at the very least, use the same thresholds to establish which companies should be subject to regulation.[80]
This leads to a curious “Schrödinger’s DCR” scenario, where the same substantive rules simultaneously are and are not competition law. In the EU, for example, they are not; but in Turkey and Germany, they are. India’s DCB is a verbatim copy of the DMA, yet it is presented as a specific competition law.[81] This apparent contradiction is salvageable only if one thinks of digital competition regulation neither as competition law, strictu sensu, nor as an entirely separate regulation, but rather, as a partially overlapping tool that regulates competition and competition-related conduct in a different—and sometimes fundamentally different—manner.
Consider the example of the EU. EU competition law seeks to protect competition and consumer welfare. The DMA, on the other hand, is guided by the twin goals of “fairness” and “contestability.” As such, under the DMA (as under all other DCRs) the relevant standards are inverted. Under most DCRs, market power—understood as a firm’s ability to raise praises profitably—is either immaterial or not essential to establish whether a firm is a gatekeeper.[82] The competition-law practice of defining relevant markets on a case-by-case basis to determine whether a company has market power is, therefore, likewise moot.[83]
That approach is instead substituted for a list of pre-determined “core platform services,” which are thought to be sufficiently unique that they necessitate special and more stringent regulation.[84] Notably, and unlike in competition law, this presumption admits no evidence to the contrary. Once a good or service is marked as a core platform service, all a company can do to escape digital competition regulation is to argue either that it is not a gatekeeper, or that its services do not fall into the definition of a core platform service.
A corollary of this is that it is typically irrelevant whether a firm is dominant, or even a monopolist. Instead, DCRs apply to companies with high turnover and many business- or end-users—in other words, to “big” companies or companies people currently rely on or like to use.
Lastly, consumer-welfare considerations, which are central under competition law,[85] play only a marginal role in digital competition regulation, both in imposing prohibitions and mandates and in exempting companies from fulfilling those prohibitions or obligations.[86] While DCR supporters applaud this shift toward a broader conception of power,[87] it is important to understand how this approach differs from competition law.[88]
Competition law generally does not engage companies for being big or “important”—even if they are of “paramount importance”—except in very narrow instances, such as those prescribed by the essential-facilities doctrine.[89] Rather, antitrust targets conduct that restricts competition to the ultimate detriment of consumers. To establish whether a company has the ability and incentive to restrict competition, an assessment of market power is typically required, and definitions of relevant product and geographic markets are instrumental to that end.
Even the concept of dominance in competition law eschews crude arithmetic in favor of evidence-based analysis of market power, including the dynamics of the specific market; the extent to which products are differentiated; and shifts in market-share trends over time.[90] As one leading EU competition-law textbook puts it:
The assessment of substantial market power calls for a realistic analysis of the competitive pressure both from within and from outside the relevant market. A finding of a dominant position derives from a combination of several factors which, taken separately, are not necessarily determinative.[91]
Well-established competition-law principles—such as the prevention of free-riding,[92] the protection of competition rather than competitors,[93] and the freedom of even a monopolist to set its own terms and choose with whom it does business[94]—all preclude the imposition of hard-and-fast prohibitions and obligations without a robust case-by-case analysis or consideration of countervailing efficiencies. The narrow exceptions are those few cases where (substantive) experience shows that per-se prohibitions are warranted. But note that even cartels, “the cancers of the market economy,”[95] can generally be exempted under EU competition law.[96]
There exists no such consensus about the harms inflicted by the sort of gatekeeper conduct covered by DCRs.[97] Yet in digital competition regulation, strict (often per-se) prohibitions and obligations based on a company’s size are the norm.
Even those DCRs that explicitly allude to competition-related objectives—such as the protection of competition and consumers—modify those objectives in subtle, but important ways. The U.S. tech bills are a case in point. AICOA would introduce a new “material harm to competition” standard. This facially sounds like it could be an existing standard under U.S. antitrust law, but it is not.[98]
DCRs also combine traditional competition-law objectives with considerations that would not be cognizable under antitrust law. For example, Brazilian competition law is guided by the constitutional principles of free competition, freedom of initiative, the social role of property, consumer protection, and prevention of the abuse of economic power.[99] PL 2768, however, would add two exogenous elements to these relatively mainstream antitrust goals: a reduction in regional and social inequality and increased social participation in matters of public interest.[100]
Other DCRs—like the UK’s or Australia’s prospective efforts to regulate digital platforms—also combine “fairness” goals with consumer welfare and competition considerations.[101] India’s DCB even offers an ex-post rationalization of competition law that brings it in line with the “fairness and contestability” goals of the new digital competition regulation.[102]
It is also questionable whether the protection of consumers and business users under DCRs accords with antitrust notions of “consumer welfare.” It should be noted that competition law, unlike consumer-protection law, protects consumers only indirectly, through the suppression of anticompetitive practices that may affect them through increased prices or decreased quality. Thus, antitrust law is generally uninterested in a company’s deceptive practices, unless they stem directly from a competitive restraint or the misuse of market power.[103] In this scenario, market power acts as a filter to determine where a company’s conduct can be corrected by market forces, and where intervention may be necessary.[104]
By contrast, most DCRs that claim to protect consumers[105] seek to do so through mandates of increased transparency, explicit consent, choice screens, and the like, imposed independently of market power.[106] While some of the focus on consumers remains (at least nominally), the ways in which DCRs protect consumers are more in line with consumer-protection law than competition law.
As for the protection of business users, according to some interpretations, antitrust law protects both consumers and other trading parties (customers).[107] This could, in principle, also include “business users.” Unlike digital competition regulation, however, antitrust law does not generally protect a predetermined group of businesses such that, for example, business users of online platforms would be afforded special protection. Any trading party—regardless of size, industry, or position in the supply chain, and whether a small developer or a large online platform—could theoretically benefit from the protection afforded by antitrust law to those harmed by the misuse of market power.
While digital competition regulation’s approach to competition diverges from that of mainstream competition law, and may even be anathema to it, the arguments it espouses are not new. To the contrary, digital competition regulation, in many ways, codifies ideas that have been repeatedly tried and spurned by competition law.
The fountainhead of these ideas is that size alone should be the determining factor for antitrust action and liability.[108] On this historically recurring view—which is championed today most fervently by American “neo-Brandeisians” and European “ordoliberals”—big business inherently harms smaller companies, consumers, and democracy. It is therefore the role of antitrust law to combat this pernicious influence through structural remedies, merger control, and other interventions intended to disperse economic power.[109]
In a similar vein, digital competition regulation targets companies that, a priori, have little in common. Digital competition regulation applies to information-technology firms that specialize in online advertising, such as Google and Meta, but also to electronics companies that focus on hardware, such as Apple.[110] It covers voice assistants and social media, which are vastly different products. Cloud computing, another “core platform service,” is arguably not even a platform; yet, it was included in the DMA at the 11th hour.[111] In the end, what these “gatekeepers” have in common is that they all enjoy significant turnover, large user bases, are disruptors of legacy industries (such as, for example, news media), and are—possibly for these precise reasons—politically convenient targets.[112]
One corollary of this school of thought is that antitrust law should abandon (or, at least, drastically reduce) its reliance on the consumer-welfare standard as the lodestar of competition.[113] The law’s fixation on consumer welfare, the argument goes, has turned a blind eye to rampant economic concentration and to any form of abuse or exploitation that does not result in decreased output or higher prices.[114] Instead of this “myopic” focus on economic efficiency, proponents argue, antitrust law should strive to uphold a pluralistic market structure, which necessarily implies protecting companies from more efficient competitors.[115] This, they claim, was the Sherman Act’s original intent, which was subverted, in time, by the Chicago School’s emphasis on economic efficiency.[116]
Shunning consumer welfare also has implications for the role of market power in antitrust analysis. At the most fundamental level, competition law is concerned with controlling market power.[117] However, on the neo-Brandeisian view, antitrust’s historical concern with delineating efficient and inefficient market exit gives way to the unitary goal of controlling size and maintaining a certain market structure, regardless of companies’ ability to restrict competition and profitably raise prices.[118] This disenfranchises market power or, at the very least, redefines it as synonymous with size and market concentration.[119] This is familiar ground for digital competition regulation, which, as we have seen, generally does not target companies with market power, but companies with a certain size and “economic significance.”
Throughout antitrust law’s storied history, it has often been argued that antitrust law pursues, or should pursue, a plurality of goals and values.[120] Today, these arguments posit that antitrust law must look beyond a “narrow focus” on consumer welfare,[121] which is still enshrined as the dominant paradigm in most jurisdictions. Some of the alternative goals posited to inform the adjudication of competition-law cases include, but are not limited to, democracy, protection of competitors (especially SMEs), pluralism, social participation, combating undue corporate size, and equality. In turn, many of these goals are mentioned in digital competition regulation. In Section III, we argue that wealth redistribution (equality), the protection of competitors, and combatting size are truly shared goals of DCRs.
Digital competition regulation is a bridge between competition law and regulation. That bridge is built on old but persistent ideas that have found limited success in antitrust law and that have largely been precluded by decades of case-law and the progressively mounting exigencies of robust, effects-based economic analysis.[122] It is therefore perhaps unsurprising that digital competition regulation spurns both in favor or new legislation and per-se rules.
Its break with antitrust law, however, is not total, and was arguably never intended to be. Instead, digital competition regulation revises modern competition law to bring it in line with the regulatory philosophy it seeks to resuscitate, selectively plucking those bits and pieces that conform to that vision, and discarding those that do not.
The partial continuity between competition law and digital competition regulation is not merely hypothetical, either. Consider the example of the DMA. According to EU Commissioner of Competition Margrethe Vestager, “the Digital Markets Act is very different to antitrust enforcement under Article 102 TFEU. First, the DMA is not competition law. Its legal basis is Article 114 TFEU. Therefore, it pursues objectives pertaining to the internal market.”[123]
But observe that the DMA covers conduct identical to that which the Commission has pursued under EU competition law. For instance, Google Shopping is a self-preferencing case that would fall under Article 6(5) DMA.[124] Cases AT.40462 and AT.40703, which related to Amazon’s use of nonpublic trader data when competing on Marketplace, and its supposed bias when awarding the “Buy Box,” would now be caught by Articles 6(2) and 6(5) DMA.[125] The fine issued against Apple for its anti-steering provisions, which would be prohibited by Article 5(4) DMA, mere days before the law’s entry into force, is another case in point.[126]
This casts doubt on the assertion that the DMA and EU competition law are two distinctly different regimes. It suggests instead that the DMA is simply a more stringent, targeted, and enforcer-friendly form of competition regulation, intended specifically to cover certain products, certain companies, and certain markets. Or, as some have put it, “the DMA is just antitrust law in disguise.”[127] Indeed, Australia’s ACCC may have said the quiet part out loud when it contended that its proposed DCR would be both a “compliment to, and an expansion of, existing competition rules.”[128]
Or consider the example of India. In India, digital competition regulation would also be implemented though separate legislation. According to a 2023 report of the Standing Committee on Finance, a “Digital Competition Act”[129] is needed to prevent monopolistic outcomes and anticompetitive practices in “digital markets,” which are thought to differ in important ways from “traditional” markets:
India’s competition law must be enhanced so that it can meet the requirements of restraining anti-competitive behaviours in the digital markets. To that end, it is also necessary to strengthen the Competition Commission of India to take on the new responsibilities. India needs to enhance its competition law to address the unique needs of digital markets. Unlike traditional markets, the economic drivers that are rampant in digital markets quickly result in a few massive players dominating vast swathes of the digital ecosystem.[130]
But it seems that, based on the relevant Report of the Standing Committee on Finance, this new regime would be inspired by goals similar to Indian competition law. One important difference is that, according to Indian ministers, the new Digital Competition Act would adopt a “whole government approach.”[131] Pursuant to the Digital Competition Act, the government would have the power to override any decisions taken by the Competition Commission of India on public-policy grounds. This, again, underscores the “subtle” but significant differences between the competition regimes that would essentially apply in parallel to digital platforms and all other companies, as India’s Competition Act does not otherwise adopt a “whole government approach” to anticompetitive conduct.[132]
A separate question, beyond the scope of this paper, is whether the sui generis logic of digital competition regulation will eventually be transferred to standard competition law. Now that they have the weight of the law—in jurisdictions like Turkey and Germany, even formally incorporated into competition law—ideas that have hitherto remained at the fringes of mainstream competition law may start to be seen as more respectable. Further, the goals of competition law may even be reconfigured, a posteriori, in accordance with the rationale of digital competition regulation.
This possibility cannot be discarded as entirely hypothetical. For example, Andreas Mundt recently remarked that competition law “has always been about fairness and contestability,”[133] thus de facto extrapolating the logic of the DMA’s sector-specific competition regulation to all competition law.
When populist arguments about equality, fairness, and “anti-bigness” previously have reared their head in competition law, they have largely (though not entirely) failed. It is thus somewhat ironic that such ideas should now be spurred by passage of the DMA, a regulation that is—by its own terms—not even a competition law, sensu proprio.
Notwithstanding certain differences, DCRs are largely animated by a common narrative and seek to achieve, on the whole, similar goals. At the most basic level, DCRs seek to tip the balance of power away from digital platforms (see Section IIA); to scatter rents, especially toward app developers and complementors; and to make it easier for potential competitors to contest incumbents’ positions. In this context, traditional antitrust conceptions of competition and consumer welfare are afforded, at best, a ceremonial role.
Despite the apparent discrepancies identified in Section I, it becomes evident on closer examination that DCRs share a common set of assumptions, rationales, and goals. The first of these goals is direct rent redistribution among firms.
The central conceit of DCRs is that asymmetrical power relations between digital platforms and virtually everyone else produce “unfair” outcomes where, in a zero-sum game, “big tech” gets a big slice of the piece of the pie at the expense of every other stakeholder.[134] Thus, DCRs must step in to reallocate rents across the supply chain, so that other actors receive a share of benefits in line with regulators’ understanding of what constitutes a “fair” distributive outcome.
Indeed, as the OECD has noted, the concept of “fairness” is strongly tied to redistribution.[135] As Pablo Ibanez Colomo wrote of the then-draft DMA: “the proposal is crafted to grant substantial leeway to restructure digital markets and re-allocate rents.”[136] This notion is accepted even by DCR proponents, who have admitted that “the regime is not designed to regulate infrastructure monopolies, but rather to create competition as well as to redistribute some rents.”[137]
As to whom should benefit principally from such interventions, the answer varies across jurisdictions, and may depend on the effectiveness of various groups’ rent-seeking efforts, or the particular country’s political priorities.[138] In countries like Korea and South Africa, there has been an explicit emphasis on SMEs, with attempts made to “equalize” their bargaining position vis-à-vis large digital platforms.[139] Other jurisdictions, such as the EU, emphasize competitors (see Section IIIB) and companies that “depend” on the digital platform to do business—such as, e.g., app developers and complementors that “depend” on access to users through iOS; logistics operators that “depend” on Amazon to reach customers; and shops that “depend” on Google for exposure.[140] Granted, these companies may also be SMEs, but they need necessarily not be.[141] In fact, many of the DMA’s expected beneficiaries, including Spotify, Booking.com, Epic, and Yelp,[142] are not small companies at all.[143]
Elsewhere, it is explicitly recognized that DCRs seek to abet the market position of national companies. Prior to the DMA’s adoption, many leading European politicians touted the act’s text as a protectionist industrial-policy tool that would hinder U.S. firms to the benefit of European rivals. As French Minister of the Economy Bruno Le Maire stated:
Digital giants are not just nice companies with whom we need to cooperate, they are rivals, rivals of the states that do not respect our economic rules, which must therefore be regulated…. There is no political sovereignty without technological sovereignty. You cannot claim sovereignty if your 5G networks are Chinese, if your satellites are American, if your launchers are Russian and if all the products are imported from outside.[144]
This logic dovetails neatly with the EU’s broader push for digital and technology sovereignty, a strategy intended to reduce the continent’s dependence on technologies that originate abroad. This strategy has already been institutionalized at different levels of EU digital and industrial policy.[145] In fact, the European Parliament’s 2020 briefing on “Digital Sovereignty for Europe” explicitly anticipated an ex-ante regulatory regime similar to the DMA as a central piece of that puzzle.[146]
The fact that no European companies were designated as gatekeepers lends credence to theories about the DMA’s protectionist origins.[147] But while protectionism is not explicitly embedded in EU law, it likely will be in South Africa’s digital competition regulation. The understanding of “free competition” that underpins the SACC’s DCR proposal hinges on forcing large, foreign digital platforms to elevate local competitors and complementors, even if it means granting them unique advantages.[148] Moreover, unlike other DCRs, SACC’s proposal explicitly notes that its proposed remedies are designed to redistribute wealth from the targeted digital companies or downstream business users toward certain social groups—namely, South African companies, historically disadvantaged peoples (“HDPs”), and SMEs, especially those owned by HDPs.
For instance, to address the “unfair” advantage enjoyed by larger competitors who are displayed more prominently in Google’s search results and are able to invest in search-engine optimization,[149] the SACC would oblige Google to introduce “new platform sites unit (or carousel) to display smaller SA platforms relevant to the search (e.g., travel platforms in a travel search) for free and augment organic search results with a content-rich display.”[150] In addition, Google would be forced to add a South African flag identifier and South African platform filter to “aid consumers to easily identify and support local platforms in competition to global ones.”[151]
The SACC’s proposal is chock full of similar, blatantly redistributive policies that—despite being formally integrated into competition law—flip its logic on its head by requiring distortions of competition in order to (putatively) preserve undistorted competition. Thus, the SACC’s proposal would require gatekeepers to give free credit to South African SMEs; offer promotional rebates; waive fees; provide direct funding for the identification, onboarding, promotion, and growth of SMEs owned by HDPs; force app stores to have a “local curation of apps” aimed at circumventing “automated curation based on sales and downloads for the SA storefronts, and some geo-relevance criteria”; and ban both volume-based discounts that benefit larger companies (relative to SMEs) and promotions that would otherwise “decimate” local competitors.[152]
One reading is that the SACC’s report deviates from the “standard” in digital competition regulation. Another is that the SACC is simply more forthright about accomplishing the goals implicit in the DMA. Indeed, the SACC targets the same types of digital platforms as the DMA, includes many of the same prohibitions and obligations (e.g., self-preferencing, interoperability, cross-use of data, price parity clauses), and openly references the DMA.[153]
In conclusion, despite some distributional differences, the overarching implication of digital competition regulation is generally the same: competitors and business-users (e.g., app store and app developers in the case of Apple’s iOS; sellers and logistics operators in the case of Amazon’s marketplace; competing search and service providers in the case of Google search) should be propped up by gatekeepers. These parties, DCR proponents argue, should get more and easier access to the platforms, feature more prominently therein, be entitled to a larger slice of the transactions facilitated by those platforms,[154] and pay gatekeepers less (or nothing at all).
In some countries, the beneficiaries are intended to be primarily national companies or SMEs. Ultimately, like many other questions surrounding digital competition regulation, the question of cui bono—who benefits?—is not an economic, but a political one, hinging on whatever parties lawmakers want to favor, and at the expense of whatever parties they wish to disfavor.[155] The bottom line, however, goes back to the same, simple idea: gatekeepers should get less, and other businesses should get more.
Consider, for example, the reaction to Apple’s DMA-compliance plan.[156] Most of the backlash concerned the (frustrated) expectations that Apple would, as a result of the obligations imposed by the DMA, take a smaller cut from in-app payments and paid downloads on its platform.[157] If one strips away the rhetoric, the reaction was not about competitive bottlenecks, competition, fairness, contestability, or any other such lofty ambitions, but about the very simple arithmetic of rent seeking, whereby those who invest in lobbying legislators expect a return on their investments.[158]
Or consider the UK’s DMCC. The DMCC includes a “final offer mechanism” that the CMA can use in some cases where a conduct requirement relating to fair and reasonable payment has been breached, and where the CMA considers other powers would not resolve the breach within a reasonable time period.[159] A key aspect of the mechanism is that the two parties to a transaction (at least one of them being a gatekeeper, or a firm with “strategic market status”) submit suggested payment terms for the transaction. The CMA then decides between the two offers, with no option to take a third or intermediate course.
Under the DMCC, however, this mechanism could be applied to any SMS business relationship with third parties. While, as the British government says, this does not involve “direct price setting,”[160] it does mean the CMA would be empowered to decide between two alternative offers and, thus, will determine the distribution of revenues between gatekeepers and, potentially, any third party.[161]
DCRs share a common aim not just to protect business users, but to benefit competitors directly.[162] In contrast with modern notions of competition law, which readily accept that protecting competition often forces less-efficient competitors to depart the market,[163] DCRs are chiefly concerned with ensuring that even inferior competitors enter or remain on the market. Simply put: if a designated digital platform acts “unfairly,” its actions are illegal. But it is generally—save limited exceptions—irrelevant whether its behavior is efficient or if it enhances consumer welfare. These are the very questions that typically serve to delineate pro-competitive from anti-competitive conduct in the context of competition law (and competition on the merits from anti-competitive conduct).[164]
This makes sense if one recognizes that digital competition regulation and competition law have fundamentally different goals: the former seeks to make it easier for nonincumbent digital platforms to succeed and stay on the market, regardless of the costs either to consumers or to the regulated platforms; the latter seeks to protect competition to the ultimate benefit of consumers, which often implies (and requires) weeding out laggard competitors (see Section II).[165]
As former Federal Trade Commission (“FTC”) Commissioner Maureen Ohlhausen has observed:
Some recent legislative and regulatory proposals appear to be in tension with this basic premise. Rather than focusing on protection of competition itself, they appear to impose requirements on some companies designed specifically to facilitate their competitors, including those competitors that may have fallen behind precisely because they had not made the same investments in technology, innovation or product offerings. For example, the Digital Markets Act (DMA) would force a ‘gatekeeper’ company to provide business users of its service, as well as those who provide complementary services, access to and interoperability with the same operating system, hardware, or software features that are available to or used by the gatekeeper. While this would restrain gatekeepers and presumably facilitate the interests of the gatekeeper’s rivals, it is not clear how this would protect consumers, as opposed to competitors.[166]
That is because the two kinds of legislation pursue mutually exclusive goals. DCRs aim to facilitate competitors by making covered digital markets more “contestable.” The assumption is that, because consumers consistently use certain dominant platforms, “digital markets” must not contestable, or not sufficiently contestable.[167] The putative reason for this low level of contestability allegedly lies in certain advantages that have accrued to incumbent platforms and that competitors purportedly cannot reasonably replicate, such as network effects, data accumulation, and data-driven economies of scale. Consumer cognitive biases and lock-in are asserted as further cementing incumbents’ positions. Because digital markets are also said to be “winner-takes-all,” the corollary is that currently dominant firms will remain dominant unless regulators intercede swiftly and decisively to bolster contestability.
DCRs seek to achieve this state of contestability by “equalizing” the positions of gatekeepers and competitors in two interconnected ways: by diminishing incumbents’ advantages and by forcing them to share some of those advantages with competitors. Making digital markets more contestable therefore requires undercutting the benefits of network effects and advantages enjoyed by “data-rich” incumbents,[168] not because data harvesting is inherently bad or because incumbents have acquired such data illegally or through deceit; but because it makes it hard for other firms to compete. Contestability—understood as other firms’ ability to challenge incumbent digital platforms’ positions—is therefore put forward as a goal in itself, regardless of those challengers’ relative efficiency or what effects the contestability-enhancing obligations have on consumers (see Section IIID).
It is not hard to see how the deontological focus on contestability is narrowly connected to the protection of competitors. Many, if not most, of the obligations and prohibitions in DCRs are best understood as attempts to improve contestability by facilitating competitors, while stifling incumbents. For instance, data-sharing obligations—such as those included in Article 19a of the German Competition Act and Art.6(j) DMA—make it harder for incumbents to accumulate data, while also forcing them to share the data they harvest with competitors. The objective is clearly not to tackle data harvesting because it is noxious, but to disperse users and data across smaller competitors and thereby make it easier for those competitors to stay on the market and contest the incumbents’ position.
Similarly, so-called “self-preferencing” provisions seek to prohibit designated companies from preferencing their own products’ position ahead of that granted to competitors, even if consumers ultimately benefit from such positioning (e.g., because the incumbent’s package is more convenient).[169]
Interoperability obligations likewise require incumbents to make their products and services compatible with those offered by competitors, often with very limited scope for affirmative defenses grounded solely in objective security and privacy considerations. The logic is that interoperability reduces switching costs and allows competitors to attract more easily the previously “locked-in” users.
There are also prohibitions on the use of data generated by a platform’s business users, which essentially ignore the potentially pro-competitive cost reductions and product improvements that may result from the cumulative use of such data. Instead, the goal is to preclude gatekeepers from outperforming—including through more vigorous competition, such as better products or more relevant offers—the third parties who have generated such data on gatekeepers’ platforms.
Ultimately, what all these provisions have in common is that they primarily seek to increase the number of competitors on the market and to enhance their ability to gain market share at the incumbent’s expense, regardless of the effects on the quality of competition, end products, or concerns related to free-riding on incumbents’ legitimate business investments, superior management decisions, or product design (all of which are considerations that would be cognizable under antitrust law—on which, see Section II).[170] “Contestability” in digital competition regulation thus means an erosion, through regulatory means, of incumbents’ competitive advantages, regardless of how those competitive advantages have been achieved.
Digital competition regulation is therefore inherently competitor-oriented, regardless of its stated goals, and this focus is often enshrined in law in other, subtler ways. For instance, the DMCC explicitly invites potential or actual competitors to provide testimony to the CMA before it imposes or revokes a conduct requirement. It requires the CMA to initiate consultations on the imposition or removal of such conduct requirements (S. 24), as well as on “procompetitive interventions” (S. 48).
The proposed ACCESS Act in the United States likewise gives competitors a privileged seat at the table.[171] According to Sec.4(e) of the bill, if a covered platform wishes to make any changes to its interoperability interface, it must ask the FTC for permission. In deciding the question, the FTC is to consult with a “technical committee” formed by, among others, representatives of businesses that utilize or compete with the covered platform.[172] Representatives of the covered platform also would sit on the technical committee, but have no vote.[173]
Importantly, the FTC’s decision in these matters would be dependent on whether competitors’ interests have been harmed—i.e., “that the change is not being made with the purpose or effect of unreasonably denying access or undermining interoperability for competing businesses or potential competing businesses.”[174] This is tantamount to asking competitors for permission to make product-design decisions on a company’s own platform, based on the vested interests of those competitors.
Finally, less than a month after the DMA’s entry into force, the European Commission launched investigations into four gatekeepers for noncompliance. Critical to the Commission’s decision to investigate these companies was feedback received from stakeholders,[175] most of whom are competing firms who hoped to benefit from its provisions.
There are two ways to promote equality: one is to lift up Party A, the other is to drag down Party B.[176] DCRs typically do both, all in service of suppressing the presumably illegitimate levels of gatekeeper power. In the previous subsection, we argued that DCRs facilitate competitors. But it is just as important to note that they also—sometimes concomitantly and sometimes separately—seek to worsen gatekeepers’ competitive position in at least three ways: by imposing costs on gatekeepers that are not borne by competitors, by negating their ability to capitalize on key investments, and by facilitating free riding by third parties on those investments.
For example, prohibitions on the use of nonpublic third-party data benefit competitors, but they also negate the massive investments made by incumbents to harvest that data. They preclude gatekeepers from monetizing the investments made in their platforms by, say, using that data to improve their own products and product lineup in response to new information about users’ changing tastes. This directly undermines gatekeepers’ competitive position, which depends on their ability to improve and adapt their products (see Section IIID). But this is a feature, not a bug, of DCRs. DCRs seek to dissipate gatekeepers’ “power,” where power does not necessarily mean “market power,” but simply their ability to compete effectively. For example, even if allowing gatekeepers to use nonpublic data would improve their products, to consumers’ ultimate benefit, it would also “harm” competitors in the sense that it would make it harder for them to compete with the gatekeeper. In other words, it would not be anticompetitive, but it would be “unfair.” By contrast, in the moral lexicon of digital competition regulation, free riding and effectively expropriating gatekeepers’ investments is not considered “unfair.”
Nor are data-sharing obligations. Data-sharing obligations clearly impose costs on gatekeepers: tracking and sharing data is anything but free. Nonetheless, gatekeepers are expected to aid and subsidize competitors and third parties at little or no cost,[177] thereby diminishing their competitive position and dissipating their resources (and investments) for the benefit of another group.
Similar arguments can be made about the other prohibitions and obligations that form part of the standard DCR package. Sideloading mandates allow third parties to free ride on gatekeepers’ investments in developing popular and functioning operating systems.[178] Insofar as they worsen gatekeepers’ ability to curate content and monitor safety and privacy risks, they also deprecate platforms’ overall quality and integrity, thereby potentially harming even the very companies they seek to aid.[179] Sideloading and interoperability mandates also essentially turn closed platforms into open ones (or, at the very least, they bring the two much closer together), thus forcing closed platforms to forfeit their competitive benefits relative to the primary alternatives.[180]
Antitrust law is unequivocal in its preference for inter-brand over intra-brand competition.[181] But under digital competition regulation, this principle gives way to a de-facto harmonization toward the model preferred by regulators—i.e., the one that makes every successful platform as open and accessible to competitors as possible, regardless of tradeoffs.
For example, self-preferencing prohibitions destroy one of the primary incentives for (and benefits of) vertical integration, which is the ability to prioritize a company’s own upstream or downstream products.[182] Such prohibitions also allow third parties that without the foresight to invest in a platform to accrue the same benefits as those that have. They also limit a platform’s ability to offer goods whose quality and delivery it can more readily guarantee,[183] another bane for competitiveness recast as a desirable symptom of “fairness and contestability.”
Some DCRs are considerably more candid than others about their intent to hamstring gatekeepers. The Turkish E-Commerce Law includes some provisions that differ from the DMA, despite being evidently inspired by it.[184] Among those provisions are regulations that would not only prevent electronic-commerce intermediary-service providers (“ECISPs”) from gaining significant market power, but also require that those already in a dominant position must lose this power.[185] Moreover:
Another example of atypical regulations envisaged in the E-Commerce Law is the limitations imposed on the advertising and discount budgets of large-scale ECISPs. Under Additional Article 2/3(a), the annual advertising budget of large-scale ECISPs is limited to the sum of 2% of the amount of 45 Billion Turkish Liras of the net transaction volume of the previous calendar year applied to the twelve-month average Consumer Price Index change rate for the same calendar year and 0.03% of the amount above 45 Billion Turkish Liras. This limit constitutes the total advertising budget for all ECISPs within the same economic unit and for all ECSPs operating in the e-commerce marketplace within the same economic unity.[186]
According to Kadir Bas and Kerem Cen Sanli:
The amended E-Commerce Law goes beyond prohibiting gatekeepers’ behavior that restricts fair and effective competition, and introduces provisions that prevent undertakings in the e-commerce sector from gaining market power through organic internal growth without distorting competition or committing any unfair practices. In this context, the E-Commerce Law gradually imposes obligations and restrictions on undertakings based on their transaction volumes, which are not directly related to market power, and some restrictions significantly limiting the ability to compete are imposed on all undertakings in the sector. When those features of the E-Commerce Law are evaluated together, it can be said that the legislator aims to structurally design the competition conditions and business models in the Turkish e-commerce sector.[187]
Bas and Sanli argue that this distinguishes the E-Commerce Directive from the DMA. While it technically true that the DMA does not impose measures that would, e.g., directly limit a firm’s advertising expenditure or tax additional transactions beyond a certain threshold, it does nevertheless “level down” gatekeepers’ ability to compete and grow organically in other ways. On this view, the Turkish E-Commerce Directive takes the DMA’s logic to its natural conclusion and, much like the SACC’s proposal, simply says the quiet part out loud.
Similarly, the UK’s DMCC is designed to foreclose activities that would otherwise bolster gatekeepers’ “strategic significance.”[188] A company with strategic significance is defined as one that fulfills one or several of the following conditions: has achieved significant size or scale; is used by a significant number of other undertakings in carrying out their business; has a position that allows it to determine or substantially influence the ways in which other undertakings conduct themselves; or is in a position to extend its market power to different activities. At least three of these conditions (the first three) can easily result from organic growth or procompetitive behavior. There are many investments and innovations that would, if permitted, benefit consumers—either immediately or over the longer term—but which may enhance a platform’s “strategic significance,” as defined by the DMCC.[189] Indeed, improving a firm’s products and thereby increasing its sales will often naturally lead to increased size or scale.
The inverse is also true: product improvements, innovation, and efficiencies can result from size or scale.[190] This is especially relevant in the context of digital platforms, where a product’s attractiveness often comes precisely from its size and scope. In two-sided markets like digital platforms, product quality often derives from the direct and indirect network effects that result from adding an additional user to the network. In other words, the more consumers use a product or service, the more valuable that product or service becomes to consumers on both sides of the platform.[191] Capping scale and size thus curtails one of the primary (if not the main) spurs of digital platforms’ growth and competitiveness.
Which, of course, arguably was the intent behind DCRs all along. In this context, some DCRs contain provisions that allow enforcers to impose a moratorium on mergers and acquisitions involving a gatekeeper, even where such concentrations would not ordinarily fall within the scope of merger-control rules.[192]
This degree of animosity may seem puzzling.[193] but one’s priors matter quite a bit here. If one accepts, tout court, the dystopian narrative that casts digital platforms as uniquely powerful, unfair, and abusive (see Section IIA),[194] this punitive approach[195] is understandable and, in a sense, even required.
DCRs affect wealth transfers from gatekeepers to other firms (see Section IIIA). But DCRs also affect—or, at least, tacitly accept—wealth transfers from consumers to other firms. First, DCRs generally do not require a finding of consumer harm to intercede. Second, DCRs provide limited scope for efficiency defenses. Generally, only defenses rooted in objective privacy and security concerns are allowed,[196] and even these are subject to a high evidentiary burden.[197]
On the other hand, justifications related to product quality, curation, or that otherwise seek to preserve the consumers’ experience are not typically permitted. For example, the quality-of-life improvements that may come from better curation and selection of apps in a closed platform (e.g., one that does not allow for the sideloading of apps or third-party app stores) are not relevant under the DMA, nor is any other dimension of consumer welfare, including price, quality, aesthetics, or curation. The Turkish DCR goes even further than the DMA, in that does not appear to allow for any exemptions (even on the basis of safety and privacy).[198] The SACC’s proposal likewise does not appear to provide scope for affirmative defenses.
In Australia, the DPI states that exemptions should be put in place to mitigate “unintended consequences.” This could, in principle, include consumer-welfare considerations, but the DPI’s explicit reference to the DMA[199] and various public statements by the ACCC suggest that this is unlikely to be the case. The ACCC said in its Fifth Interim Report that “[t]he drafting of obligations should consider any justifiable reasons for the conduct (such as necessary and proportionate privacy or security justifications).”[200]
The narrow and strict exceptions to the above DCRs confirm the downgraded status of consumer welfare in digital competition regulation (vis-à-vis competition law). German Article 19a, for example, allows for exemptions where there is an “objective justification.”[201] But unlike in every other instance under the German Competition Act, Article 19a reverses the burden of proof and requires the gatekeeper, not the Bundeskartellamt, to prove that the prohibited conduct is objectively justified.
In a similar vein, the AICOA bill in the United States would only require that the plaintiff show “material harm to competition” in provisions related to self-preferencing and service discrimination provisions.[202] The remaining provisions do not contain affirmative-effects requirements, but would not apply if the defendant shows a lack of “material harm to competition.” In other words, the burden of proof is shifted from the plaintiff to the defendant — who must prove a negative.[203]
The UK’s DMCC allows for a “countervailing benefits exception,”[204] which would apply when behavior that breaches a conduct requirement is found to provide sufficient other benefits to consumers without making effective competition impossible, and is “indispensable and proportionate” (s. 29(2)(c)) to the achievement of the benefit.[205] Again, this sets a high bar to clear.[206] For example, a limitation on interoperability might provide a benefit to user security and safety. But the exemption would apply only if the CMA were persuaded that this limitation was the only way to achieve such protection, which could be very hard or impossible to demonstrate.
The marginality of consumer welfare as a relevant policy factor is compounded in the UK by the fact that CMA decisions would only be subject to judicial review. Firms will thus be unable to challenge the authority’s factual assessments on questions such as indispensability and proportionality.[207] Even the chance that such a thing could be shown will be of little value to affected firms since the exemption can apply only once an investigation into a breach of a conduct requirement is underway.[208]
Finally, the Brazilian proposal states that costs, benefits, and proportionality should be observed when establishing an obligation under Art.10, [209] although there is no telling what this would mean in practice, or whether it encompasses consumer welfare (Arts. 10 and 11 of PL 2768 do not mention consumer welfare).[210]
The broader question, however, is whether a pro-consumer approach is even compatible with the overarching goals of digital competition regulation. A corollary of facilitating competitors and levelling down gatekeepers is that successful companies and their products are made worse—often at consumers’ expense. For instance, choice screens may facilitate competitors, but at the expense of the user experience, in terms of the time taken to make such choices. Not integrating products might give a leg up to competing services, but consumers might resent the diminished functionality.[211] Interoperability may similarly reduce the benefits an incumbent enjoys from network effects, but users may prefer the improved safety, privacy, and curation that typically comes with closed or semi-closed “walled-garden” ecosystems, like Apple’s iOS.[212]
In sum, proponents of DCRs appear to see losses in consumer welfare as a valid and potentially even desirable tradeoff for competitors’ increased ability to contest the incumbents’ position, as well as for wealth transfers across the supply chain that are seen as inherently just, equitable, and fair.
While competition enforcement can affect the allocation of rents among firms, this is generally not the goal of competition policy. The only rent redistribution that is, in principle, relevant in competition law is the one between companies that misuse their market power and consumers (or, in some cases, trading parties). But the overarching goal is to prevent distortions of competition that result in deadweight loss and transfer consumer surplus to the monopolist, not to allocate resources among a set of hand-picked “big” firms and their smaller rivals in way that legislators or regulators consider “fair.” It is the market, not the government, that determines what is “fair.” Competition laws exist to preserve, not to rewrite, that outcome.
Indeed, even some advocates of incorporating political goals into antitrust law, such as Robert Pitofsky, have opposed using the law to protect small businesses and redistribute income to achieve social goals.[213] This is for good reason. Rent redistribution among firms entails significant risks of judicial error and rent seeking. Regulators may require firms to supply their services at inefficiently low prices that are not mutually advantageous, which may in turn diminish those firms’ incentives to invest and innovate.
DCR backers may retort that rent redistribution is the goal of most natural-monopoly regulations (such as those in the telecommunications and energy-distribution industries), which generally rely on both price regulation and access regimes to favor downstream firms and (ultimately) consumers.[214] But digital markets tend to be very different to those traditionally subject to price regulation and access regimes. And even in those industries, price regulation and access regimes raise many difficulties—such as identifying appropriate price/cost ratios and fleshing out the nonprice aspects of the goods/services or regulated firms.
Those difficulties are compounded in the fast-moving digital space, where innovation cycles are faster and yesterday’s prices and other nonprice factors may no longer be relevant today.[215] In short, rent redistribution is difficult to do well in traditional natural-monopoly settings, and may be impossible to do without judicial error in the digital world.
Assuming that such redistribution was to take place, what would a fair redistribution entail? “Fairness” is subjective and, as such, in the eye of the beholder.[216] Moreover, reasonable people may and often do disagree on what is and is not fair. What is “unfair” for the app distributor who pays a commission to use in-app payments may seem “fair” to the owner of the operating system and the app store that makes significant investments to maintain them.[217] Because fairness is such an inherently elusive concept,[218] DCRs ultimately define “fair” and “unfair” by induction—i.e., from the bottom up, in a “you know it when you see it” approach that is difficult to square with any cogent normative theory or limiting principle.[219]
For example, in response to claims that Apple must allow competing in-app purchases (“IAPs”) on its App Store in order to make its 30% IAP fee more competitive (cheaper), Apple could allow independent payment processors to compete, charge an all-in fee of 30% when Apple’s IAP is chosen and, in order to recoup the costs of developing and running its App Store, charge app developers a reduced, mandatory per-transaction fee (on top of developers’ “competitive” payment to a third-party IAP provider) when Apple’s IAP is not used. Indeed, where such a remedy has already been imposed, that is exactly what Apple has done. In the Netherlands, where Apple is required by the Authority for Consumers and Markets (“ACM”) to uncouple distribution and payments for dating apps, Apple adopted the following policy:
Developers of dating apps who want to continue using Apple’s in-app purchase system may do so and no further action is needed…. Consistent with the ACM’s order, dating apps that . . . use a third-party in-app payment provider will pay Apple a commission on transactions. Apple will charge a 27% commission on the price paid by the user, net of value-added taxes. This is a reduced rate that excludes value related to payment processing and related activities.[220]
The company responded similarly to the DMA.[221] It is not hard to see the fundamental problem with this approach. If a 27% commission plus competitive payment-provider fee permits more “competition,” or is fairer, than complete exclusion of third-party providers, then surely a 26% fee would permit even more competition, or be even fairer. And a 25% fee fairer still. Such a hypothetical exercise logically ends only where a self-interested competitor or customer wants it to end, and is virtually impossible to measure.[222]
Even if it were possible, it would entail precisely the kind of price management that antitrust law has long rejected as being at loggerheads with a free market.[223] Without a measurable market failure, what is the frontier of fairness? When does a complaint stop being a competition or gatekeeper issue and become a private dispute about wanting to pay less—or nothing—for a service?[224]
Another obvious problem with facilitating competitors and levelling down gatekeepers is that it discourages investment, innovation, and competition on the merits. Having been encouraged to bring new, innovative products to market and compete for consumers’ business, successful companies—now branded with the “gatekeeper” epithet—are subject to punitive regulation.[225] The benefits that they have legitimately and arduously acquired are dissipated across the supply chain and their competitors, who lacked the foresight and business acumen to make the same or similar investments, are rewarded for their sluggishness.[226] This stifles the mechanisms that propel competition. As Justice Learned Hand observed almost 80 years ago, “the successful competitor, having been urged to compete, must not be turned upon when he wins.”[227] There is no reason why digital competition regulation should be impervious to that logic.
The abrupt shift from competition law to digital competition regulation also sends investors the wrong message by creating commitment issues.
Commitment issues arise where a government commits itself in one period to behaving in certain ways in the future but, when it comes to a future point in time, reneges on the earlier commitment to reflect its preferences at that later point in time.[228]
For example, today’s gatekeepers have made significant investments in data processing, vertical integration, scaling, and building ecosystems. Many of these investments are sunk, meaning that they can no longer be recouped or can be recouped only partially. With the various DCRs’ entry into force, however, gatekeepers can no longer fully utilize those investments. For instance, they cannot self-preference and thereby reap the full benefits of vertical integration;[229] they cannot use third-party data generated on the platforms they have built and in which they have invested; and they must now allow third-parties and competitors to free ride on those investments in a plethora of ways, ranging from allowing sideloading to mandated data sharing (see Section IIIB).
In dynamic contexts, time-inconsistency can obviously affect firms’ actions and decisions, leading to diminished investments.[230] From a less consequentialist and more deontological perspective, however, it is also questionable how “fair” (to use the mot du jour of digital competition regulation) it is to expropriate a company’s sunk-cost investments by abruptly shifting the regulatory goalposts under a new paradigm of competition regulation that essentially subverts the logic of the previous one, and penalizes what was until recently seen as permissible and even desirable conduct (see Section II).
Aldous Huxley once wrote that several excuses are always less convincing than one.[231] His point was that multiple justifications may often conceal the fact that none of them are entirely convincing in their own right. This maxim aptly captures the doubts that persist surrounding DCRs.
On the surface, DCRs pursue a variety of sometimes overlapping, sometimes contradictory, and sometimes disparate goals and objectives (Section I). Some of these goals and objectives hearken back to familiar antitrust themes, but it would be a mistake to treat DCRs as either an appendix to or extension of competition law (Section II). Unlike mainstream competition laws, DCRs address a moral, rather than an economic failure. DCRs emphasize notions of power that are foreign to competition law, essentially promulgating a new form of competition regulation that subverts the logic, rationale, and goals of the existing paradigm.
This approach to regulating competition may be new, but it is not original. To the contrary, the use of antitrust law to castigate concerns seen as “too big and powerful,” promote visions of social justice, and facilitate laggard competitors (even if it comes at the expense of competition, total, or consumer welfare) have been around since the inception of the Sherman Act.[232] In this sense, those who say that digital competition regulation is not competition law, and should therefore not be judged by competition-law standards, [233] are correct on the form but wrong on the substance.[234] They miss the bigger and more important point, which is that—regardless of its legal classification—digital competition regulation is competition regulation, just not the kind we have known for (at least) the last half a century.
The rationale that underpins digital competition regulation can be explained as follows. (Section III). Competition is no longer about consumer-facing efficiency, but about fairness, equality, and inclusivity. In practice, this means improving the lot of some, while “levelling down” others—regardless of the respective merits or demerits of each group (or their products). In this world, “contestability” is not so much the ability to displace an incumbent through competition on the merits, but very much the reverse. It is about lowering the competitive bar to increase the number of companies on the market—full stop. Whether or not this benefits consumers is largely immaterial, as the normative lodestars of digital competition regulation—fairness and contestability—are seen as having inherent and deontological value and thus removed from any utilitarian calculi of countervailing efficiencies (except, arguably, increases in competitors’ market shares).
Ultimately, however, this “new” approach to competition will have to reckon with the same problems and contradictions as the erstwhile antitrust paradigms from which it draws inspiration. The minefield of redistributive policies is likely to hamstring investment and innovation by targeted digital platforms significantly, while simultaneously encouraging rent-seeking behavior by self-interested third parties. Enabling competitors and purposefully harming incumbents also sends the message that equitable outcomes are preferred to excellence, which could encourage even more free riding and rent seeking and further stifle procompetitive conduct.
Finally, the irony is likely not lost on even the most casual observer that, for regulations so obsessed with “fairness,” it is fundamentally unfair for DCRs to syphon rents away from some companies and into others by fiat; and to force those companies to share their hard-earned competitive advantages with others who have not had the foresight or business acumen to make the same investments in a timely fashion.
It is difficult to overstate how big of a departure from competition law this approach to competition regulation is. But digital competition regulation is potentially more than just a digression from established principles in a relatively niche, technical field like competition law. Under the most expansive version of this interpretation, digital competition regulation heralds a new conception of the role and place of companies, markets, and the state in society.
In this “post-neoliberal” world,[235] the role of the state would not be to address market failures that harm consumers through discrete interventions guided by general, abstract, and reactive rules (such as competition law). Instead, it would be to intercede aggressively to redraw markets, redesign products, pick winners, and redistribute rents; indeed, to act as the ultimate ordering power of the economy.[236] It is not difficult to see how “old” competition-law principles, such as the consumer-welfare standard, effects-based analysis, and the procedural safeguards designed to cabin enforcers’ discretion could disrupt this system.
But for now, this remains just a hypothesis, and some would say—perhaps rightly so—an alarmist one. Yet there are unmistakable signs—as unmistakable as social science will allow—that a new paradigm of political philosophy is in the making: from the rehabilitation of once-maligned industrial policy to the rise of neo-Brandeisianism to recurrent proclamations of the “death of neoliberalism”[237] and its “idols,” including the consumer-welfare standard in antitrust law.[238]
Only time will tell if the digital competition regulation is truly sign of things to come, or merely a small but ultimately insignificant and abrupt dirigiste turn in the zig-zagging of antitrust history.[239] And only time will tell whether the approach to competition regulation promulgated by digital competition regulation will stay confined to the activities of a few large concerns and a handful of core platform services, or whether its logic will, in the end, seep into other spheres of policy and social life.
[1] Regulation (EU) 2022/1925 of the European Parliament and of the Council of 14 September 2022 on Contestable and Fair Markets in the Digital Sector and amending Directives (EU) 2019/1937 and (EU) 2020/1828, 2022 O.J. (L 265) 1 (hereinafter “Digital Markets Act” or “DMA”).
[2] “Digital competition regulation” or “DCR” will be used throughout to refer both to rules already in place and to rules currently under consideration. Context on legislative status will be given where available and appropriate.
[3] The terms “competition law” and “antitrust law” will be used interchangeably.
[4] See, e.g., Proposal for a Regulation of the European Parliament and of the Council Laying Down Harmonised Rules on Artificial Intelligence (Artificial Intelligence Act) and Amending Certain Union Legislative Acts, COM (2021) 206 final (Apr. 21, 2021).
[5] Regulation (EU) 2022/2065 of the European Parliament and of the Council of 19 October 2022 on a Single Market for Digital Services and Amending Directive 2000/31/EC, 2022, O.J. (L 277) 1 (hereinafter “Digital Services Act” or “DSA”).
[6] Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the Protection of Natural Persons with Regard to the Processing of Personal Data and on the Free Movement of Such Data, and Repealing Directive 95/46/EC, 2016 O.J. (L 119) 1 (hereinafter “General Data Protection Regulation” or “GDPR”).
[7] See, e.g., DMA, supra note 1.
[8] Press Release, Amendment of the German Act Against Restraints of Competition, Bundeskartellamt (Jan. 19, 2021), https://www.bundeskartellamt.de/SharedDocs/Meldung/EN/Pressemitteilungen/2021/19_01_2021_GWB%20Novelle.html.
[9] Id.
[10] The Act on the Protection of Competition No. 4054, Official Gazette (Dec. 13, 1994) (Turk.).
[11] See, E-Pazaryeri Platformari Sektor Incelemesi Nihai Raporu, Turkish Competition Authority (2022), available at https://www.tpf.com.tr/dosyalar/2022/06/e-pazaryeri-si-raporu-pdf.pdf (Turkish language only).
[12] Arguably, however, there is an increased emphasis on “business rights.”
[13] See, KFTC Proposes Ex-Ante Regulation of Platforms Under the “Platform Competition Promotion Act,” Legal 500 (Jan. 4, 2024), https://www.legal500.com/developments/thought-leadership/kftc-proposes-ex-ante-regulation-of-platforms-under-the-platform-competition-promotion-act.
[14] Park So-Jeong & Lee Jung-Soo, S. Korea Speeds Up to Regulate Platform Giants Such as Google or Apple, The Chosun Daily (Feb. 4, 2024), https://www.chosun.com/english/national-en/2024/02/04/MCCJQZTJ3ZC5JJ7NVDM46D6R2I.
[15] Id.
[16] Monopoly Regulation and Fair Trade Act, Act. No, 3320, Dec. 31, 1980, amended by Act No. 18661, Dec. 28, 2021 (S. Kor.).
[17] Digital Markets Competition and Consumer Bill, 2023-24, H.L. Bill (53) (U.K.) (hereinafter “DMCC”).
[18] See, e.g., id. at Part 1, S. 2, which defines companies with “strategic market status” as those with “substantial and entrenched market power.” By contrast, Recital 5 of the DMA states: “Although Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU) apply to the conduct of gatekeepers, the scope of those provisions is limited to certain instances of market power, for example dominance on specific markets and of anti-competitive behaviour, and enforcement occurs ex post and requires an extensive investigation of often very complex facts on a case by case basis. Moreover, existing Union law does not address, or does not address effectively, the challenges to the effective functioning of the internal market posed by the conduct of gatekeepers that are not necessarily dominant in competition-law terms.”
[19] DMCC, supra note 18, at Part 1, Chapter 4.
[20] Press Release, New Bill to Stamp Out Unfair Practices and Promote Competition in Digital Markets, UK Competition and Markets Authority (Apr. 25, 2023), https://www.gov.uk/government/news/new-bill-to-stamp-out-unfair-practices-and-promote-competition-in-digital-markets.
[21] DMCC, supra note 18, at Part 4.
[22] Competition Act 1998 c.41 (U.K.).
[23] See Press Release, supra note 21.
[24] Id.
[25] Id. (emphasis added).
[26] The DMCC defines “digital activities” as those involving the purchase or sale of goods over the internet, or the provision of digital content. DMCC, Part 1, S.3.
[27] The provisions on digital markets are covered in Part 1 of the DMCC. DMCC, Part 2 covers competition.
[28] Digital Platform Services Inquiry 2020-25, Australian Competition and Consumer Commission, https://www.accc.gov.au/inquiries-and-consultations/digital-platform-services-inquiry-2020-25 (last accessed May 13, 2024).
[29] Digital Platform Services Inquiry, Interim Report 5, Australian Competition and Consumer Commission (2022), at 5 (“The ACCC recommends a new regulatory regime to promote competition in digital platform services. The regime would introduce new competition measures for digital platforms.”). The term “digital regime” has also been used to describe the authority granted to the UK’s newly created Digital Markets Unit. See Moritz Godel, Mayumi Louguet, Paula Ramada, & Rhys Williams, Monitoring and Evaluating the Digital Markets Unit (DMU) and New Pro-Competition Regime for Digital Markets, London Economics (Jan. 2023), available at https://assets.publishing.service.gov.uk/media/64538076c33b460012f5e65d/monitoring_and_evaluating_the_new_pro-competition_regime_for_digital_markets.pdf.
[30] Digital Platform Services Inquiry, Interim Report 5, id. at 5.
[31] American Innovation and Choice Online Act, S. 2992, 117th Cong. (2022), (hereinafter “AICOA”).
[32] Open App Market Act, S. 2710, 117th Cong. (2022), (hereinafter “OAMA”).
[33] ACCESS Act of 2021, H.R. 3849, 117th Cong. (2021).
[34] AICOA, § 3.
[35] OAMA.
[36] Id.
[37] Press Release, Klobuchar, Grassley, Colleagues to Introduce Bipartisan Legislation to Rein in Big Tech, U.S. Sen. Amy Klobuchar (Oct. 14, 2021), https://www.klobuchar.senate.gov/public/index.cfm/2021/10/klobuchar-grassley-colleagues-to-introduce-bipartisan-legislation-to-rein-in-big-tech. The bill’s title is somewhat ambiguous, as it reads: “to provide that certain discriminatory conduct by covered platforms shall be unlawful, and for other purposes.” See AICOA, supra note 36.
[38] See id.
[39] Comments of the American Bar Association Antitrust Law Section Regarding the American Innovation and Choice Online Act (S. 2992), American Bar Association Antitrust Law Section (Apr. 27, 2022) at 5, available at https://appliedantitrust.com/00_basic_materials/pending_legislation/Senate_2021/S2992_aba_comments2022_04_27.pdf (hereinafter “ABA Letter”).
[40] Press Release, Klobuchar Statement on Judiciary Passage of Legislation to Set App Store Rules of the Road, U.S. Senator Amy Klobuchar (Feb. 3, 2022), https://www.klobuchar.senate.gov/public/index.cfm/2022/2/klobuchar-statement-on-judiciary-committee-passage-of-legislation-to-set-app-store-rules-of-the-road.
[41] This is stated in the title of the bill. The ACCESS Act also claims to “encourage entry by reducing or eliminating the network effects that limit competition with the covered platform.” See ACCESS ACT at § 6(c).
[42] Press Release, Lawmakers Reintroduce Bipartisan Legislation to Encourage Competition in Social Media, U.S. Sen. Mark R. Warner (May 25, 2022), https://www.warner.senate.gov/public/index.cfm/2022/5/lawmakers-reintroduce-bipartisan-legislation-to-encourage-competition-in-social-media; see also, The ACCESS Act of 2022, U.S. Senator Mark R. Warner, available at https://www.warner.senate.gov/public/_cache/files/9/f/9f5af2f7-de62-4c05-b1dd-82d5618fb843/BA9F3B16A519F296CAEDE9B7EFAB0B7A.access-act-one-pager.pdf.
[43] Online Intermediation Platforms Market Inquiry, Summary of Final Report and Remedial Actions, South African Competition Commission (2023), 13, available at https://www.compcom.co.za/wp-content/uploads/2023/07/CC_OIPMI-Summary-of-Findings-and-Remedial-action.pdf.
[44] Projeto de Lei PL 2768/2022, https://www.camara.leg.br/proposicoesWeb/fichadetramitacao?idProposicao=2337417 (Braz.) (Portuguese language only).
[45] Id. at Art. 4.
[46] Id. at Art. 5.
[47] DMA, supra note 2 at recitals 2, 31. On the two objectives being intertwined, see Recital 34.
[48] Id., at Recital 10.
[49] Id.
[50] Anti-Competitive Practices by Big Tech Companies, Fifty Third Report, Standing Committee on Finance, 17th Lok Sahba (India), (2022-23), available at https://eparlib.nic.in/bitstream/123456789/1464505/1/17_Finance_53.pdf, at 29.
[51] Report of the Committee on Digital Competition Law (India), Annexure IV: Draft Digital Competition Bill (2024), https://www.mca.gov.in/bin/dms/getdocument?mds=gzGtvSkE3zIVhAuBe2pbow%253D%253D&type=open.
[52] The Competition Act, No. 12 of 2003, INDIA CODE (1993).
[53] CDC Report, at 4, 42.
[54] ICA, preamble. The ICA does not mention “contestability.”
[55] Report of the High-Powered Expert Committee on Competition Law and Policy (India) (1999), available at https://theindiancompetitionlaw.wordpress.com/wp-content/uploads/2013/02/report_of_high_level_committee_on_competition_policy_law_svs_raghavan_committee.pdf.
[56] Raghavan Committee Report, at 1.1.9. “The ultimate raison d’être of competition is the interest of the consumer”; see also at 1.2.0.
[57] Raghavan Committee Report, at 2.4.1.
[58] Raghavan Committee Report, at 3.2.8. “If multiple objectives are allowed to rein in the Competition Policy, conflicts and inconsistent results may surface detriment to the consumers… In addition, such concerns as community breakdown, fairness, equity and pluralism cannot be quantified easily or even defined acceptably… it needs to be underscored that attempts to incorporate such concerns may result in inconsistent application and interpretation of Competition Policy, besides dilution of competition principles. The peril is that the competitive process may be undermined, if too many objectives are built into the Competition Policy and too many exemptions/exceptions are laid down in dilution of competition principles.”
[59] See, e.g., Pelle Beems, The DMA in the Broader Regulatory Landscape of the EU: An Institutional Perspective, 19 Eur. Comp. J. 1, 27 (2023); Pierre Larouche & Alexandre De Streel, The European Digital Market: A Revolution Grounded on Traditions, 12 J. Eur. Comp. L. & Practice 542, 542 (2021) (arguing that the DMA’s conceptual nature is in a “difficult epistemological position”).
[60] See Nicolas Petit, The Proposed Digital Markets Act (DMA): A Legal and Policy Review, 12 J. Eur. Competition L. & Practice 529, 530 (2021) (“The DMA is essentially sector-specific competition law.”). The DMA’s competition-law DNA is also explicitly reflected in Section 1.4.1 of the Legislative Financial Statement, which is annexed to the DMA proposal. See id. (“The general objective of this initiative is to ensure the proper functioning of the internal market by promoting effective competition in digital markets.”). See also Beems, supra note 62, at 27 (“In my view, it could be desirable to qualify the DMA as a specific branch of competition law that applies to gatekeepers.”).
[61] See Giuseppe Colangelo, The European Digital Markets Act and Antitrust Enforcement: A Liaison Dangereuse, 5 Eur. L. Rev., 597, 610 (2022) (“In service of this goal of speedier enforcement, the DMA dispenses with economic analysis and the efficiency-oriented consumer welfare test, substituting lower legal standards and evidentiary burdens.”). See also Pablo Iba?n?ez Colomo, The Draft Digital Markets Act: A Legal and Institutional Analysis, 12 J. Eur. Competition L. & Practice 561, 566 (2021).
[62] It should be underscored that “power” here means something much broader and general than the narrow concept of “market power” under competition law. Unlike “market power,” assertions that so-called “Big Tech” wield “power” are not intended to invoke a state-of-the art term, but rather are general references to companies’ size, resources, and capacity. Neo-Brandeisians like Lina Khan and Tim Wu often refer to the “power” of Big Tech in such terms. See generally Tim Wu, The Curse of Bigness: Antitrust in the Gilded Age (2018). For Wu, like Khan, the harmful “power” of Big Tech refers not just to concentrated economic power or market power, but to a range of other mechanisms by which these firms allegedly hold sway over democracy, elections, and society at-large. See also Zephyr Teachout & Lina Khan, Market Structure and Political Law: A Taxonomy of Power, 9 Duke J. Const. L. & Pub. Pol’y 37,74 (2014).
[63] See, e.g., Joshua Q. Nelson, Joe Concha: “Big Tech is More Powerful than Government” in Terms of Speech, Fox News (Jan. 27 2021), https://www.foxnews.com/media/joe-concha-big-tech-more-powerful-government-speech; How 5 Tech Giants Have Become More like Governments than Companies, Fresh Air (Oct. 26, 2017), https://www.npr.org/2017/10/26/560136311/how-5-tech-giants-have-become-more-like-governments-than-companies (“New York Times tech columnist Farhad Manjoo warns that the ‘frightful five’—Amazon, Google, Apple, Microsoft and Facebook—are collectively more powerful than many governments.”).
[64] See, e.g., Press Release, Klobuchar, Grassley Statements on Judiciary Committee Passage of First Major Technology Bill on Competition to Advance to Senate Floor Since the Dawn of the Internet, U.S. Sen. Amy Klobuchar (Jan. 20, 2022), https://www.klobuchar.senate.gov/public/index.cfm/2022/1/klobuchar-grassley-statements-on-judiciary-committee-passage-of-first-major-technology-bill-on-competition-to-advance-to-senate-floor-since-the-dawn-of-the-internet (“Everyone acknowledges the problems posed by dominant online platforms.”).
[65] See, e.g., DMA recitals 3, 4, 33, and 62.
[66] See, e.g., The Social Dilemma (Exposure Labs, Argent Pictures & The Space Program, 2020); Tech Monopolies: Last Week Tonight with John Oliver (HBO, 2022); Yanis Varoufakis, Technofeudalism: What Killed Capitalism (2023); Shoshana Zuboff, The Age of Surveillance Capitalism: The Fight for a Human Future at the New Frontier of Power (2019).
[67] See Luca Bertuzzi, EU Commission Launches Connectivity Package with ‘Fair Share‘ Consultation, EurActiv (Feb. 28, 2023), https://www.euractiv.com/section/digital/news/eu-commission-launches-connectivity-package-with-fair-share-consultation; see also Daniele Condorelli, Jorge Padilla, & Zita Vasas, Another Look at the Debate on the “Fair Share” Proposal: An Economic Viewpoint, Compass Lexecon (2023), available at https://www.telefonica.com/en/wp-content/uploads/sites/5/2023/05/Compass-Lexecon-Report-on-the-fair-share-debate.pdf. On the supposed bargaining-power imbalance between large traffic originators and telecommunications companies, see id. at point 1.34(d). “There is a risk that the current unregulated arrangements result in no payments from LTOs due to asymmetries of information between industry participants, free-riding among LTOs, and the large imbalance in bargaining power between LTOs and TELCOs.” See also id. at points 3.77, 3.78 and 3.79-3.84 for the argument that the power imbalances require intervention. For a different view of “fair share,” see Giuseppe Colangelo, Fair Share of Network Costs and Regulatory Myopia: Learning from Net Neutrality Mistakes, Int’l. Ctr. for Law & Econ. (Jul. 18, 2023) (forthcoming in Law, Innovation and Technology), available at https://ssrn.com/abstract=4452280.
[68] See Treasury Laws Amendment (News Media and Digital Platforms Mandatory Bargaining Code) Act 2021 (Austl.); for a defense of legislation forcing digital platforms to compensate media companies, see Zephyr Teachout, The Big Unfriendly Tech Giants, The Nation (Dec. 25, 2023), https://www.thenation.com/article/society/big-tech-nondiscrimination.
[69] News Media Bargaining Code, Australian Competition and Consumer Commission, https://www.accc.gov.au/focus-areas/digital-platforms/news-media-bargaining-code/news-media-bargaining-code (last accessed May 14, 2024).
[70] See, e.g., Journalism and Competition Preservation Act of 2023, S. 1094, 118th Cong. (2023); Online News Act (S.C. 2023, c.23) (Can.).
[71] See, e.g., DMA at recitals 1, 15, 20, 62, and Art.1(b); DMCC at s.6(b); PL 2768 at Art. 2, which defines the regulation’s targets as companies with the “power to control essential access”; Competition Act in the version published on 26 June 2013 (Bundesgesetzblatt (Federal Law Gazette) I, 2013, p. 1750, 3245), as last amended by Article 1 of the Act of 25 October 2023 (Federal Law Gazette I, p. 294), Art.19(a) (1)5 (Ger.) (hereinafter “German Competition Act”).
[72] See, e.g., DMA at Recital 23, Art.3 and Art.3(8)(a); DMCC at s.6(a); German Competition Act, Art.19(a); but see DSA, Section 5, which imposes special obligations on “very large online platforms.”
[73] “From Price to Power”? Reorienting Antitrust for the New Political Economy, panel at Antitrust, Regulation and the Next World Order conference, Youtube.com (Feb. 2, 2024), https://www.youtube.com/watch?v=rWNIhGA8Rx8&ab_channel=Antitrust%2CRegulationandtheNextWorldOrder.
[74] DMA, at recital 4 (emphasis added).
[75] DMA, at recital 33.
[76] See Press Release, Digital Markets Act: Commission Welcomes Political Agreement on Rules to Ensure Fair and Open Digital Markets, European Commission (Mar. 25, 2022), https://ec.europa.eu/commission/presscorner/detail/en/ip_22_1978 (“What we want is simple: Fair markets also in digital. We are now taking a huge step forward to get there—that markets are fair, open and contestable…. This regulation, together with strong competition law enforcement, will bring fairer conditions to consumers and businesses for many digital services across the EU.”) (emphasis added); see also Press Release, Klobuchar, Grassley, Colleagues to Introduce Bipartisan Legislation to Rein in Big Tech, U.S. Sen. Amy Klobuchar (Oct. 14, 2021), https://www.klobuchar.senate.gov/public/index.cfm/2021/10/klobuchar-grassley-colleagues-to-introduce-bipartisan-legislation-to-rein-in-big-tech (joint statement by Sens. Amy Klobuchar and Chuck Grassley with references to “fair competition,” “fair prices,” “unfairly preferencing their own products,” “fairer prices,” “unfairly limiting consumer choices,” “fair rules for the road”).
[77] For example, the DMA mentions the term “fairness,” or some variation thereof, 90 times in 66 pages.
[78] DMA, at Recital 11 (emphasis added).
[79] See DMA, Arts. 5-7.
[80] See DMA, Art. 3.
[81] CDC Report, at 2.
[82] See, e.g., German Competition Act, at Section 19a(1), stating that, in determining the paramount significance for competition across an undertaking’s markets, there shall be particular account taken of its dominant position; financial strength or access to other resources; vertical integration; access to data relevant to competition; and the relevance of its activities for third-party access to supply and sales markets. See also DMCC, at S. 5 and S.6 (substantial and entrenched market power is a cumulative criterion, together with a position of strategic significance); DMA, at Recital 5 and Art. 3 (market power is irrelevant because the criteria for designation are (a) having a significant impact on the internal market; (b) providing a core platform service that is an important gateway for business users to reach end users; and (c) enjoying an entrenched and durable position). PL 2768 does not mention market power, and instead references control of essential access; the U.S. tech bills do not define covered platforms on the basis of market power either.
[83] The DMA explicitly rejects it. See Recital 23.
[84] Examples include online-intermediation services, online search engines, online social-networking services, and video-sharing platform services. See DMA, at Art. 2.
[85] See Elise Dorsey, Geoffrey A. Manne, Jan M. Rybnicek, Kristian Stout, and Joshua D. Wright, Consumer Welfare & the Rule of Law: The Case Against the New Populist Antitrust Movement, 47 Pepp. L. Rev. 861, 916 (2020).
[86] There are some exceptions to this. Some digital competition regulations seem to incorporate consumer-welfare considerations. One example is the KFTC’s recently proposed digital competition regulation, which is putatively aimed at protecting business users and consumers, and would allow for an efficiency defense. See Lee & Ko, supra note 21.
[87] See supra note 76.
[88] See infra Sections II.C and II.D.
[89] On the essential-facilities doctrine in the United States, see Philip K. Areeda, Essential Facilities: An Epithet in Need of Limiting Principles, 58 Antitrust L.J. 841 (1990); ever since the Supreme Court’s ruling in Trinko, no plaintiff has successfully litigated an essential-facilities claim to judgment. See, Verizon Communications, Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398 (2003) (“As a general matter, the Sherman Act “does not restrict the long recognized right of [a] trader or manufacturer engaged in an entirely private business, freely to exercise his own independent discretion as to parties with whom he will deal.’”) (citations omitted).
[90] Communication from the Commission — Guidance on the Commission’s enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings (2009), at recital 13.
[91] Richard Whish & David Bailey, Competition Law (10th ed. 2021), at 142-3.
[92] See, e.g., Christopher M. Seelen, The Essential Facilities Doctrine: What does it Mean to be Essential? 80 Marq. L. Rev. 1117, 1123 (1997), discussing free-riding and the moral-hazard considerations implicit in defining essential facilities as essential to a competitor, rather than to competition. (“[A]pplication of the doctrine often focuses unduly on the effect of the denial of access on the plaintiff’s ability to compete-not on the infringement of competition which is the objective of the antitrust law.” (citations omitted), and at 1124 (“There exists a moral hazard when plaintiffs bring an essential facility claim against a single competitor. Indeed, firms might try to use the doctrine to take a ‘free ride’ on the efforts of a competitor.”). See also, Verband Deutscher Wetterdienstleister v. Google, Reference No. 408 HKO 36/13, Court of Hamburg (Apr. 4, 2013), 4, available at http://deutschland.taylorwessing.com/documents/get/150/court-order-googleweatherinbox-english-unofficial-translation.pdf (“[A]pplicant’s members have been participating and will continue to participate in Google Search as ‘free riders.’ They demand favorable positioning without offering compensation.”); Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36 (1977) (applying the rule of reason to territorial restrictions because they might be imposed by a manufacturer who wishes to prevent dealers from free-riding on point-of-sale services provided by another dealer).
[93] See, e.g., Brown Shoe Co. v. United States, 370 U.S. 294, 344 (1962) (“It is competition, not competitors, which the Act protects.”). See also Donna E. Patterson and Carl Shapiro, Transatlantic Divergence in GE/Honeywell: Causes and Lessons, Antitrust 18 (2001); Maureen K. Ohlhausen & John M. Taladay, Are Competition Officials Abandoning Competition Principles?, 13 J. Comp. L. & Practice 463 (2022).
[94] See, e.g., Trinko at 408; Pac. Bell Tel. Co. v. Linkline Commc’ns, Inc., 555 U.S. 438, 448 (2009); Chavez v. Whirlpool Corp., 113 Cal. Rptr. 2d, 182-83 (Ct. App. 2001); Foremost Pro Color, Inc. v. Eastman Kodak Co., 703 F.2d 534, 545 (9th Cir. 1983) (“The antitrust laws [do] not impose a duty on [firms] . . . to assist [competitors] . . . to ‘survive or expand.’”) (citations omitted).
[95] Mario Monti, Speech at the Third Nordic Competition Policy Conference, Stockholm: Fighting Cartels Why and How? Why Should We be Concerned with Cartels and Collusive Behaviour? (Sept. 11, 2000); see also Trinko at 408 (characterizing cartels as “the supreme evil of antitrust”).
[96] Although there is a rebuttable presumption to the contrary, undertakings can argue that agreements containing hardcore restrictions should benefit from an individual exemption under Article 101(3) TFEU. See Judgment of 13 October 2011, Pierre Fabre, C?439/09, ECLI:EU:C:2011:649. Moreover, “hardcore restrictions,” like cartels, need to be restrictions of competition “by object,” within the meaning of Art. 101(1) TFEU. Undertakings can hence try to demonstrate that a given hardcore restriction, examined in its economic and legal context, is objectively justified and does not fall within the prohibition laid down in Article 101(1) TFEU. See Opinion of Advocate General Wahl delivered on 16 July 2017, Coty, C-230/16, ECLI:EU:C:2017:603.
[97] For an extensive set of views opposing those endorsed by proponents of digital competition regulations, see, e.g., The Global Antitrust Institute Report on the Digital Economy (Joshua D. Wright & Douglas H. Ginsburg, eds., Nov. 11, 2020), https://gaidigitalreport.com.
[98] See ABA letter, supra note 41.
[99] Law No. 12.529 of 30 November, 2011 (Braz.), available at https://www.icao.int/sustainability/Documents/Compendium_FairCompetition/LACAC/LAW_12529-2011_en.pdf.
[100] PL 2768, art. 4.
[101] See Section I.
[102] See Section I.
[103] See, e.g., Rambus v. Fed. Trade Comm’n, 522 F.3d 456, 459 (D.C. Cir. 2008) (“[D]eceit merely enabling a monopolist to charge higher prices than it otherwise could have charged—would not in itself constitute monopolization.”). See also Judgment of 4 August 2023, Meta Platforms v. Bundeskartellamt, Case C 252-21, ECLI:EU:C:2023:537.
[104] For example, where a small company increases prices or downgrades its product, this can generally be corrected through competition, as the company will lose market share and be forced out of the market unless it changes its behavior. But when the same outcome is achieved through restrictions of competition or the misuse of market power, the market may be unable to respond effectively, and intervention may become necessary.
[105] We question whether this was ever the true intent behind digital competition regulation, see Section IIII.C.
[106] See also Section IIB.
[107] See, e.g., Svend Albaek, Consumer Welfare in EU Competition Policy, in Aims and Values in Competition Law, 67, 75 (Caroline Heide-Jørgensen, Ulla Neergaard, Christian Bergqvist, & Sune T. Poulsen eds., 2013) (“In practice it turns out that we should understand ‘consumers’ as customers rather than ‘real’ or ‘final’ consumers. Paragraph 84 of the General Guidelines takes a first step towards clarifying this: ‘[C]onsumers within the meaning of Article 81(3) are the customers of the parties to the agreement and subsequent purchasers.”); see also Article 102 (c) TFEU, which prohibits dominant companies from “applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage” (emphasis added). For a U.S. perspective, see, e.g., Kenneth Heyer, Welfare Standards and Merger Analysis: Why Not the Best? 2 Comp. Pol’y Int’l 29 (2006).
[108] In the United States, the clearest exponent of these ideas was Justice Louis D. Brandeis, who coined the term “curse of bigness” to refer to the material, social, and political ills that accompanied large corporations. See, e.g., Louis D. Brandeis, The Curse of Bigness: Miscellaneous Papers of Louis D. Brandeis (Osmond K. Fraenkel ed., 1934); in Europe, the notion is associated with the ordoliberal school. See, e.g., Wilhelm Roepke, A Humane Economy: The Social Framework of the Free Market (2014) at 32 (“If we want to name a common denominator for the social disease of our times, then it is concentration”).
[109] See, e.g. Wu, 2018 supra note 65; Sally Lee, Tim Wu Explains How Big Tech is Crippling Democracy, Columbia Magazine (Spring 2019) https://magazine.columbia.edu/article/how-mega-corporations-are-crippling-democracy. Asked whether bigness must be bad by its very nature, Tim Wu replies: “well, it’s designed to put its own interests over human interests, to grow like a cancer, and to never die. I once heard someone say that if a corporation were a person, it would be a sociopath. Which brings us to the real question: who is this country for? For humans or these artificial entities?”; See also Khan & Teachout, 2014, supra note 65, at 37. “Ever-increasing corporate size and concentration undercut democratic self-governance by disproportionately influencing governmental actors, as recognized by campaign finance reformers.”; and at 40-1. “Antitrust means, for us, government power to limit company size and concentration; this incarnation is an ethos, not a legal term.”
[110] See, e.g., Amanda Lotz, “Big Tech” Isn’t One Big Monopoly — It’s 5 Companies All in Different Businesses, The Conversation (Mar. 23, 2018), https://theconversation.com/big-tech-isnt-one-big-monopoly-its-5-companies-all-in-different-businesses-92791; Isobel A. Hamilton, Tim Cook Says He‘s Tired of Big Tech Being Painted as a Monolithic Force That Needs Tearing Apart, Business Insider (May 7, 2019), https://www.businessinsider.com/apple-ceo-tim-cook-tired-of-big-tech-being-viewed-as-monolithic-2019-5. (“Tech is not monolithic. That would be like saying ‘all restaurants are the same,’ or ‘all TV networks are the same.’”) See also Nicolas Petit, Big tech and the Digital Economy: The Moligopoly Scenario (2022); Frank H. Easterbrook, Cyberspace and the Law of the Horse, 1996 U. Chi. Leg. Forum 207 (1996).
[111] See Friso Bostoen, Understanding the Digital Markets Act, 68 Antitrust Bull. 263, 282 (2023) (“It is difficult to find a common thread here. For starters, NIICS and cloud services are one-sided rather than multisided, so they can hardly be core platform services”).
[112] See Lazar Radic, Gatekeeping, the DMA, and the Future of Competition Regulation, Truth on the Market (Nov. 8, 2023), https://truthonthemarket.com/2023/11/08/gatekeeping-the-dma-and-the-future-of-competition-regulation. On tech disruption of traditional industries, see Adam Hayes, 20 Industries Threatened by Tech Disruption, Investopedia (Jan. 23, 2022), https://www.investopedia.com/articles/investing/020615/20-industries-threatened-tech-disruption.asp; on the bipartisan hostility toward “Big Tech” in the United States, see Nitasha Tiku, How Big Tech Became a Bipartisan Whipping Boy, Wired (Oct. 23, 2017), https://www.wired.com/story/how-big-tech-became-a-bipartisan-whipping-boy.
[113] See, e.g., Lina Khan, Amazon’s Antitrust Paradox, 126 Yale L.J. 710 (2017); Zephyr Teachout & Lina Khan, Market Power and Political Law: A Taxonomy of Power, 9 Duke J. Const. L. & Pub. Pol’y 37 (2014); Kirk Ott, Event Notes: The Consumer Welfare Standard is Dead, Long Live the Standard, ProMarket (Nov.1, 2022), https://www.promarket.org/2022/11/01/event-notes-the-consumer-welfare-standard-is-dead-long-live-the-standard; Zephyr Teachout, The Death of the Consumer Welfare Standard, ProMarket (Nov. 7, 2023), https://www.promarket.org/2023/11/07/zephyr-teachout-the-death-of-the-consumer-welfare-standard.
[114] See, e.g., Rana Foohar, The Great US-Europe Antitrust Divide, Financial Times (Feb. 5, 2024), https://www.ft.com/content/065a2f93-dc1e-410c-ba9d-73c930cedc14.
[115] Neo-Brandeisians often argue that antitrust law should strive to uphold a dispersed market structure and protect small business. See, e.g., Lina Khan & Sandeep Vaheesan. Market Power and Inequality: The Antitrust Counterrevolution and its discontents, 11 Harv. L. & Pol’y Rev. 235 (2017), at 237. “Antitrust laws must be reoriented away from the current efficiency focus toward a broader understanding that aims to protect consumers and small suppliers from the market power of large sellers and buyers, maintain the openness of markets, and disperse economic and political power.”
[116] See Khan & Vaheesan, supra note 122 at 236-7 (2017). “Antitrust laws historically sought to protect consumers and small suppliers from noncompetitive pricing, preserve open markets to all comers, and disperse economic and political power. The Reagan administration—with no input from Congress—rewrote antitrust to focus on the concept of neoclassical economic efficiency”; and, at 294, “It is important to trace contemporary antitrust enforcement and the philosophy underpinning it to the Chicago School intellectual revolution of the 1970s and 1980s, codified into policy by President Reagan. By collapsing a multitude of goals into the pursuit of narrow ‘economic efficiency,’ both scholars and practitioners ushered in standards and analyses that have heavily tilted the field in favor of defendants.”
[117] See, e.g., Nicolas Petit, Understanding Market Power (Robert Schuman Centre for Advanced Studies Working Paper No. RSC 14, 1, 2022) (“Antitrust laws are concerned with undue market power. In an economic conception of the law, antitrust rules of liability strike down anticompetitive business conduct or mergers that represent illegitimate market power strategies.”).
[118] On inefficient and efficient market exit, see Dirk Auer & Lazar Radic, The Growing Legacy of Intel, 14 J. Comp. L. & Prac. 15 (2023).
[119] According to some, the interpretation of market power as synonymous with size and concentration is the European reading of the concept. See Petit, supra note 124, at 1 (“When European antitrust lawyers think about market power, they do not direct their attention to consumer prices. They think about corporate size and industrial concentration, see giant American firms, and deduce that they have a domestic market power problem.”).
[120] See, e.g., Or Brook, Non-Competition Interests in EU Antitrust Law: An Empirical Study of Article 101 TFEU (1st ed. 2023), discussing the different goals and values of EU competition law throughout the years; Konstantinos Stylianou & Marcos Iacovides, The Goals of EU Competition Law: A Comprehensive Empirical Investigation, 42 Legal Studies 1, 17-8 (2020). “EU competition law is not monothematic but pursues a multitude of goals historically and today;” In the United States, see Robert H. Bork, The Antitrust Paradox: A Policy at War with Itself, 7 (1978) (finding the collection of socio-political goals at the time to be “mutually incompatible”); Joshua D. Wright & Douglas H. Ginsburg, The Goals of Antitrust: Welfare Trumps Choice, 81 Fordham L Rev 2405, 2405 (2013). “The Court interpreted the Sherman and Clayton Acts to reflect a hodgepodge of social and political goals…”; Thomas A. Lambert & Tate Cooper, Neo-Brandeisianism’s Democracy Paradox, University, 49 Journal of Corporation Law, 18 (2023).“In the mid-Twentieth Century, U.S. courts embraced the sort of multi-goaled deconcentration agenda Neo-Brandeisians advocate;” and Joshua D. Wright, Elyse Dorsey, Jonathan Klick, & Jan M. Rybnicek, Requiem for a Paradox: The Dubious Rise and Inevitable Fall of Hipster Antitrust, 51 Ariz. St. L. J. 293, 300-1 (2019) (discussing multi-goaled approach of mid-20th-century antitrust).
[121] See, e.g., Ioannis Lianos, Polycentric Competition Law, 71 Current Legal Problems 161 (2019); Maurice E. Stucke, Reconsidering Antitrust’s Goals, 53 B.C.L. Rev. 551, 551 (2012), “[t]he quest for a single economic goal has failed…this article proposes how to integrate antitrust’s multiple policy objectives into the legal framework.”; The Consumer Welfare Standard in Antitrust: Outdated or a Harbor in a Sea of Doubt?: Hearing Before the Subcomm. on Antitrust, Competition and Consumer Rights of the S. Comm. on the Judiciary, 115th Cong. (2017) (statement of Barry Lynn), arguing for the return to a “political antitrust”; Dina I. Walked, Antitrust as Public Interest Law: Redistribution, Equity, and Social Justice, 65 Antitrust Bull 87, 87 (2020), “[o]nce we frame antitrust as public interest law, in its broadest sense, we are empowered to use it to address inequality;” Saksham Malik, Social Justice as a Goal of Competition Policy, Kluwer Competition Law Blog (Feb. 23, 2024), https://competitionlawblog.kluwercompetitionlaw.com/2024/02/23/social-justice-as-a-goal-of-competition-policy.
[122] It is no coincidence that critics of the “status quo” consistently attempt to cast economic analysis and (certain) antitrust case-law as a mistake brought about by judges adhering to the ideology of “neoliberalism,” rather than as the result of organic, piecemeal progression. See Khan & Vaheesan, supra note 122.
[123] Magrethe Vestager, Keynote of EVP Vestager at the European Competition Law Tuesdays: A Principles Based Approach to Competition Policy (Oct. 25, 2022), https://ec.europa.eu/commission/presscorner/detail/en/SPEECH_22_6393; See also Ohlhausen & Taladay, supra note 70 at 465.
[124] See, supra note 8.
[125] See also Press Release, Antitrust: Commission Accepts Commitments by Amazon Barring It from Using Marketplace Seller Data and Ensuring Equal Access to BuyBox and Prime, European Commission (Dec. 20, 2022), https://ec.europa.eu/commission/presscorner/detail/en/ip_22_7777.
[126] For commentary, see Lazar Radic, Apple Fined at the 11th Hour Before DMA Enters into Force, Truth on the Market (Mar. 5 2024), https://truthonthemarket.com/2024/03/05/apple-fined-at-the-11th-hour-before-the-dma-enters-into-force.
[127] Giuseppe Colangelo (@GiuColangelo), Twitter (Oct. 5, 2023, 2:37 PM), https://x.com/GiuColangelo/status/1709910565496172793?s=20.
[128] Digital Platform Services Inquiry, supra note 18 at 14.
[129] Standing Committee on Finance, supra note 22, at 28, 38-39.
[130] Id. at 30.
[131] Shivi Gupta & Mansi Raghav, Digital Competition Law Committee to Finalise Report by August 2023, Lexology (Jul. 31, 2023), https://www.lexology.com/library/detail.aspx?g=70b95f94-1ee2-4b11-bfc2-96155a8c333d; Whole Government Approach to be Adopted for Digital Competition Laws, The Economic Times (Jul. 4 2023), https://economictimes.indiatimes.com/tech/technology/whole-government-approach-to-be-adopted-for-digital-competition-laws/articleshow/101495358.cms.
[132] The Competition Act, 2002, No.12 of 2003 (India), available at https://www.cci.gov.in/images/legalframeworkact/en/the-competition-act-20021652103427.pdf.
[133] Antitrust, Regulation, and the Next World Order, supra note 53.
[134] See, e.g., the DMA’s definition of “fairness.” DMA, Recital 4.
[135] Ex Ante Regulation in Digital Markets – Background Note, DAF/COMP(2021)15, 16, OECD (Dec. 1, 2021) (“Framing regulations in terms of fairness may therefore also refer to redistribution, better treatment of users, or a host of other goals”). See also id. at 19.
[136] Pablo Ibanez Colomo, The Draft Digital Markets Act: A Legal and Institutional Analysis, 12 Journal of Competition Law & Practice 561, 562 (2021). See also id. at 565(“The driver of many disputes that may superficially be seen as relating to leveraging can be more rationalised, more convincingly, as attempts to re-allocate rents away from vertically-integrated incumbents to rivals”).
[137] See, e.g., Fiona Scott Morton & Cristina Caffarra, The European Commission Digital Markets Act: A Translation, VoxEU (Jan. 5, 021), https://cepr.org/voxeu/columns/european-commission-digital-markets-act-translation. We contest the assertion that the DMA and other digital competition regulations aim to create competition, rather than aid competitors, in Section IIIB.
[138] On the relationship between rent seeking and ex-ante regulation, see generally Thom Lambert, Rent-Seeking and Public Choice in Digital Markets, in The Global Antitrust Institute Report on the Digital Economy (Joshua D. Wright & Douglas H. Ginsburg, eds., Nov. 11, 2020). https://gaidigitalreport.com/2020/08/25/rent-seeking-and-public-choice-in-digital-markets.
[139] See, e.g., Making the Digital Market Easier to Use: The Act on Improving Transparency and Fairness of Digital Platforms (TFDPA), Japanese Ministry of Economy, Trade, and Industry (Apr. 23, 2021), https://www.meti.go.jp/english/mobile/2021/20210423001en.html. The Ministry of Economy, Trade, and Industry specifically links the TFDPA to benefits for SMEs; see also Ebru Gokce Dessemond, Restoring Competition in ”Winner-Took-All” Digital Platform Markets, UNCTAD (Feb. 4, 2020), https://unctad.org/news/restoring-competition-winner-took-all-digital-platform-markets (“Competition law provisions on unfair trade practices and abuse of superior bargaining position, as found in competition laws of Japan and the Republic of Korea, would empower competition authorities in protecting the interests of smaller firms vis-à-vis big platforms”).
[140] See DMA, Recital 2, referring to a significant degree of dependence of both consumers and business users. See, in a similar vein, DMA Recitals 20, 43, 75. On self-inflicted dependence, see Geoffrey A. Manne, The Real Reason Foundem Foundered, Int’l. Ctr. for Law & Econ. (2018), available at https://laweconcenter.org/wp-content/uploads/2018/05/manne-the_real_reaon_foundem_foundered_2018-05-02-1.pdf.
[141] For commentary on how bans on self-preferencing benefit large, but less-efficient competitors, see Lazar Radic & Geoffrey A. Manne, Amazon Italy’s Efficiency Offense, Truth on the Market (Jan. 11, 2022), https://truthonthemarket.com/2022/01/11/amazon-italys-efficiency-offense.
[142] Adam Kovacevich, The Digital Markets Act’s “Statler & Waldorf” Problem, Medium (Mar. 7 2024), https://medium.com/chamber-of-progress/the-digital-markets-acts-statler-waldorf-problem-2c9b6786bb55 (arguing that the companies who lobbied for the DMA are content aggregators like Yelp, Tripadvisor, and Booking.com; big app makers like Spotify, Epic Games, and Match.com; and rival search engines like Ecosia, Yandex, and DuckDuckGo).
[143] For example, Epic Games’ revenue in 2023 was roughly $5.6 billion. In 2023, Epic Games employed about 4,300 workers. See, respectively, https://www.statista.com/statistics/1234106/epic-games-annual-revenue and https://www.statista.com/statistics/1234218/epic-games-employees. According to the OECD, a small and medium-sized enterprise is one that employs fewer than 250 people. Enterprises by Business Size (Indicator), OECD https://data.oecd.org/entrepreneur/enterprises-by-business-size.htm#:~:text=In%20small%20and%20medium%2Dsized,More, (last accessed May 14, 2024).
[144] Mathieu Pollet, France to Prioritise Digital Regulation, Tech Sovereignty During EU Council Presidency, EurActiv (Dec. 14, 2021), https://www.euractiv.com/section/digital/news/france-to-prioritise-digital-regulation-tech-sovereignty-during-eu-council-presidency.
[145] See, e.g., Matthias Bauer & Fredrik Erixon, Europe’s Quest for Technology Sovereignty: Opportunities and Pitfalls, ECIPE (2020), https://ecipe.org/publications/europes-technology-sovereignty; see also Dennis Csernatoni et al., Digital Sovereignty: From Narrative to Policy?, EU Cyber Direct (2022), https://eucyberdirect.eu/research/digital-sovereignty-narrative-policy.
[146] Digital Sovereignty for Europe, European Parliament (2020), available at https://www.europarl.europa.eu/RegData/etudes/BRIE/2020/651992/EPRS_BRI(2020)651992_EN.pdf. For further discussion, see Lazar Radic, Gatekeeping, the DMA, and the Future of Competition Regulation, Truth on the Market (Nov. 8, 2023), https://truthonthemarket.com/2023/11/08/gatekeeping-the-dma-and-the-future-of-competition-regulation.
[147] Press Release, Digital Markets Act: Commission Designates Six Gatekeepers, European Commission (Sep. 6, 2023), https://ec.europa.eu/commission/presscorner/detail/en/ip_23_4328.
[148] Online Intermediation Platforms Market Inquiry, Summary of Final Report, South African Competition Commission (2023), https://www.compcom.co.za/online-intermediation-platforms-market-inquiry.
[149] Note that the unfairness here stems from having the resources to invest in search-engine optimization.
[150] Id. at 3.
[151] Id.
[152] Id. at 10.
[153] Id, at 6, 9, 23, 32, and 67.
[154] It is becoming clearer and clearer that the test for compliance with DMA’s rules will be whether competitors and complementors enjoy an increase in market share. See Foo Yun Chee & Martin Coulter, EU’s Digital Markets Act Hands Boost to Big Tech’s Smaller Rivals, Reuters (Mar. 11 2024) https://www.reuters.com/technology/eus-digital-markets-act-hands-boost-big-techs-smaller-rivals-2024-03-08. The public-policy chief of Ecosia, one of Google’s competitors in search, had this to say about the implementation of the DMA: “the implementation of these new rules is a step in the right direction, but the proof of the pudding is always in the eating, and whether we see any meaningful changes in market share.”
[155] Even the DMA’s supporters accept that the regulation is not grounded in economics. Cristina Caffarra, Europe’s Tech Regulation is Not Economic Policy, Project Syndicate (Oct. 11, 2023), https://www.project-syndicate.org/commentary/european-union-digital-markets-act-will-not-tame-big-tech-by-cristina-caffarra-2023-10?barrier=accesspaylog.
[156] Press Release, Apple Announces Changes to iOS, Safari, and the App Store in the European Union, Apple Inc., (Jan. 25, 2024), https://www.apple.com/newsroom/2024/01/apple-announces-changes-to-ios-safari-and-the-app-store-in-the-european-union.
[157] Andy Yen, Apple’s DMA Compliance Plan Is a Trap and a Slap in the Face for the European Commission, Proton (2024), https://proton.me/blog/apple-dma-compliance-plan-trap; Press Release, Apple’s Proposed Changes Reject the Goals of the DMA, Spotify (Jan. 26, 2024), https://newsroom.spotify.com/2024-01-26/apples-proposed-changes-reject-the-goals-of-the-dma; Morgan Meaker, Apple Isn’t Ready to Release Its Grip on the App Store (Jan. 26, 2024), https://www.wired.com/story/apple-app-store-sideloading-europe-dma.
[158] See, supra note 125 (discussing who lobbied for the DMA).
[159] DMCC, S. 38-45.
[160] See, A New Pro-competition Regime for Digital Markets: Policy Summary Briefing, UK Department for Business & Trade & Department for Science Innovation & Technology (2023), https://www.gov.uk/government/publications/digital-markets-competition-and-consumers-bill-supporting-documentation/a-new-pro-competition-regime-for-digital-markets-policy-summary-briefing;
see also, A New Pro-Competition Regime for Digital Markets. Consultation Document, UK Department for Culture, M. S. and Department for Business Energy & Industrial Strategy (2022), available at https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1003913/Digital_Competition_Consultation_v2.pdf.
[161] Dirk Auer, Matthew Lesh, & Lazar Radic, Digital Overload: How the Digital Markets, Competition and Consumers Bill’s Sweeping New Powers Threaten Britain’s Economy, Institute of Economic Affairs (Sep. 18, 2023), https://iea.org.uk/publications/digital-overload-how-the-digital-markets-competition-and-consumers-bills-sweeping-new-powers-threaten-britains-economy.
[162] See also Alfonso Lamadrid & Pablo Ibáñez Colomo, The DMA – Procedural Afterthoughts, Chillin’ Competition (Sep. 5, 2022), https://chillingcompetition.com/2022/09/05/the-dma-procedural-afterthoughts (“Unlike competition law, the DMA is not so much about protecting consumers, but competitors/ third parties”); Chee & Coulter, supra note 137. “As the world’s biggest tech companies revamp their core online services to comply with the European Union’s landmark Digital Markets Act, the changes could give some smaller rivals and even peers a competitive edge.”
[163] See, e.g., Judgment of 6 September 2016, Intel v. Commission, Case C?413/14 P, EU:C:2017:632, para. 134 (“Thus, not every exclusionary effect is necessarily detrimental to competition. Competition on the merits may, by definition, lead to the departure from the market or the marginalisation of competitors that are less attractive to consumers from the point of view of, among other things, price, choice, quality or innovation”) (emphasis added).
[164] See, Auer & Radic, supra note 91.
[165] See, e.g., Competition on the Merits, DAF/COMP(2005)27, 9, OECD (2005), available at https://www.oecd.org/competition/abuse/35911017.pdf (“It is widely agreed that the purpose of competition policy is to protect competition, not competitors”).
[166] Ohlhausen & Taladay, supra note 70 at 465.
[167] See e.g., Questions and Answers, Digital Markets Act: Ensuring Fair and Open Digital Markets, European Commission (Sep. 6, 2023), https://ec.europa.eu/commission/presscorner/detail/en/qanda_20_2349 (“[Gatekeepers] will therefore have to proactively implement certain behaviours that make the markets more open and contestable”).
[168] Jan Krämer & Daniel Schnurr, Big Data and Digital Markets Contestability: Theory of Harm and Data Access Remedies, 18 Journal of Competition Law & Economics 255 (2021).
[169] On self-preferencing in the context of antitrust, see Radic & Manne, supra note 113.
[170] On data portability and free-riding, see Sam Bowman, Data Portability: The Costs of Imposed Openness, Int’l. Ctr. for Law & Econ. (2020), available at https://laweconcenter.org/wp-content/uploads/2020/09/ICLE-tldr-Data-Portability.pdf.
[171] H.R. 3849, supra note 29.
[172] Id. at § 7.
[173] Id. at § 7(b)(4).
[174] Id. at § 4(e)(1).
[175] Remarks by Executive-Vice President Vestager and Commissioner Breton on the Opening of Non-Compliance Investigations under the Digital Markets Act, European Commission (Mar. 25 2024), https://ec.europa.eu/commission/presscorner/detail/es/speech_24_1702. “Stakeholders provided feedback on the compliance solutions offered. Their feedback tells us that certain compliance measures fail to achieve their objectives and fall short of expectations.”
[176] The terms “levelling down” and “levelling up” are, to our knowledge, not normally deployed in the fields of antitrust law and digital competition regulation. They are, however, used frequently in areas of constitutional law, such as equality and free speech. In the context of equality law, see generally Deborah L. Brake, When Equality Leaves Everyone Worse Off: The Problem of Levelling Down in Equality Law, 46 Wm. & Mary L. Rev. 513 (2004). Examples include achieving equality between men and women by levelling down men’s opportunities until they reach parity with women’s, or levelling down public spending in wealthier school districts to reach equality with poorer districts.
[177] See, e.g., DMA Art. 6(7), establishing a duty to provide interoperability with the gatekeepers’ services, free of charge; see also arts.5(4), 5(10), 6(8), 6(9), and 7(1).
[178] See, e.g., Dirk Auer & Geoffrey A. Manne, TL;DR: Apple v Epic: The Value of Closed Systems, Int’l. Ctr. for Law & Econ. (Apr. 20, 2021), available at https://laweconcenter.org/wp-content/uploads/2021/04/tldr-Apple-v-Epic.pdf.
[179] This argument was accepted in the context of in-app payment systems by the U.S. District Court in Epic Games, Inc. v. Apple Inc., 4:20-cv-05640-YGR (N.D. Cal. Nov. 9, 2021). On the security and privacy risks posed by sideloading and interoperability, see, e.g., Mikolaj Barczentewicz, Privacy and Security Implications of Regulation of Digital Services in the EU and in the U.S., Stanford-Vienna Transatlantic Technology Law Forum TTLF Working Papers No. 84 (2022); Bjorn Lundqvist, Injecting Security into European Tech Policy, CEPA (2023), https://cepa.org/comprehensive-reports/reining-in-the-gatekeepers-and-opening-the-door-to-security-risks.
[180] “Open” and “closed” platforms are not synonymous with “good” and “bad” platforms. These are legitimate differences in product design and business philosophy, and neither is inherently more restrictive than the other. Andrei Haigu, Proprietary vs. Open Two-Sided Platforms and Social Efficiency, Harvard Business School Strategy Unit Working Paper No. 09-113 (2007), 2-3 (explaining that there is a “fundamental welfare tradeoff between two-sided proprietary . . . platforms and two-sided open platforms, which allow ‘free entry’ on both sides of the market” and thus “it is by no means obvious which type of platform will create higher product variety, consumer adoption and total social welfare”); see also Jonathan M. Barnett, The Host’s Dilemma: Strategic Forfeiture in Platform Markets for Informational Goods, 124 Harv. L. Rev. 1861, 1927 (2011).
[181] See, e.g., Bus. Elecs. Corp. v. Sharp Elecs. Corp., 485 U.S. 717, 748– 49 (1988) (Stevens, J., dissenting) (“A demonstrable benefit to interbrand competition will outweigh the harm to intrabrand competition that is caused by the imposition of vertical nonprice restrictions on dealers”); Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877 (2007) (“For, as has been indicated already, the antitrust laws are designed primarily to protect interbrand competition, from which lower prices can later result”).
[182] Issue Spotlight: Self-Preferencing, Int’l. Ctr. for Law & Econ. (last updated Nov. 10, 2022), https://laweconcenter.org/spotlights/self-preferencing.
[183] Sam Bowman & Geoffrey A. Manne, Platform Self-Preferencing Can be Good for Consumers and Even Competitors, Truth on the Market (Mar. 4, 2021), https://laweconcenter.wpengine.com/2021/03/04/platform-self-preferencing-can-be-good-for-consumers-and-even-competitors.
[184] Kadir Bas & Kerem Cem Sanli, Amendments to E-Commerce Law: Protecting or Preventing Competition?, Marmara University Law School Journal (2024) (forthcoming).
[185] Id. at 10.
[186] Id. at 21.
[187] Id. at 5 (emphasis added).
[188] DMCC, S. 20(3)(c).
[189] Auer, Lesh, & Radic, supra note 128.
[191] Two-sided markets connect distinct sets of users whose demands for the platform are interdependent—i.e., consumers’ demand for a platform increases as more products are available and, conversely, sellers’ demand for a platform increases as additional consumers use the platform, increasing the overall potential for transactions. These network effects can be direct (more consumers on one side attract more consumers on the same side), or indirect (more consumers on one side attract more consumers on the other side). See Bruno Jullien, Alessandro Pavan, & Marc Rysman, Two-Sided Markets, Pricing and Network Effects, 4 Handbook of Industrial Organization 485, 487 (2021)(“A central aspect of platform economics is the role of network effects, which apply when a product is valued based on the extent to which other market participants adopt or use the same product”); OECD Policy Roundtables, Two-Sided Markets 11 (Dec. 17, 2009), available at https://www.oecd.org/daf/competition/44445730.pdf.
[192] Art. 14 DMA establishes a duty to report mergers that would ordinarily fall under the relevant EU merger-control rules threshold. Art. 18(2) also empowers the Commission to prohibit gatekeepers from entering into future concentrations concerning core platform services or any digital products or services, in cases where gatekeepers have engaged in “systematic non-compliance.” Systemic noncompliance occurs when a gatekeeper receives as few as three noncompliance decisions within eight years (Art. 18(3)); S. 55 of the DMCC mandates companies with SMS to notify certain mergers, even though the UK does not have a compulsory notification regime.
[193] For a tongue-in-cheek remark, see Herbert Hovenkamp (@Sherman1890), Twitter (Jan. 15, 2024, 7:22 AM), https://x.com/Sherman1890/status/1746870481393762534?s=20; see also Robert Armstrong & Ethan Wu, What Big Tech Antitrust Gets Wrong, An Interview with Herbert Hovenkamp, Financial Times (Jan. 19, 2024), https://www.ft.com/content/4eec8bc3-c892-4704-ae66-a4432c6d4fd7 (“With Big Tech, we’re looking at probably the most productive part of the economy. The rate of innovation is high. They spend a lot of money on R&D. They are among the largest patent holders. There’s very little evidence of collusion. They seem to be competing with each other quite strongly. They pay their workers relatively well and have fairly educated workforces. None of this is a sign that these are industries we should be pursuing. That doesn’t mean they don’t do some anti-competitive things. But the whole idea that we should be targeting Big Tech strikes me as fundamentally wrong-headed”). It should be noted that Hovenkamp’s comment is made within the context of antitrust law. But the general sentiment about the unique hostility of certain regulators and legislatures toward certain tech companies could be extrapolated, mutatis mutandis, to digital competition regulation, especially with respect to the competition-oriented elements of DCRs (see Section II).
[194] See also Dirk Auer & Geoffrey Manne, Antitrust Dystopia and Antitrust Nostalgia: Alarmist Theories of Harm in Digital Markets and their Origins, 28(4) Geo. Mason L. Rev. 1279 (2023), https://lawreview.gmu.edu/print__issues/antitrust-dystopia-and-antitrust-nostalgia-alarmist-theories-of-harm-in-digital-markets-and-their-origins.
[195] Oles Andriychuk, Do DMA Obligations for Gatekeepers Create Entitlements for Business Users?, 11 Journal of Antitrust Enforcement 123 (2022) (Referring to the DMA as “punitive” and “interventionist,” and suggesting that exceptionally demanding obligations are put in place to slow down gatekeepers). See also at 127 (“the means for allowing the second-tier ersatz-Big Tech to scale up is punitive: to slow down the current gatekeepers by imposing upon them a catalogue of exceptionally demanding obligations”) and at 131 (“This punitive nature of the DMA also means that the obligations can be blatantly arduous and interventionist”) (emphasis added).
[196] DMA, Art. 7(9). There is also a limited exemption in which the gatekeeper can show that, due to exceptional circumstances beyond its control, complying with the obligations of the DMA endangers the economic viability of its operation in the EU. DMA, Art. 9(1).
[197] Id. (“…provided that such measures are strictly necessary and proportionate and are duly justified by the gatekeeper”) (emphasis added).
[198] Digital Markets Regulation Handbook, Cleary Gottlieb (Thomas Graf, et al., eds. 2022), 59, https://www.clearygottlieb.com/-/media/files/rostrum/22092308%20digital%20markets%20regulation%20handbookr16.
[199] See Digital Platform Services Inquiry, supra note 18 at § 7.2.4.
[200] Id. at 123 (emphasis added).
[201] German Competition Act, supra note 50 at Art. 19a(7).
[202] As discussed in Section II, “material harm to competition” already establishes a lower (but also fundamentally different) threshold for the plaintiff than the standard typically applied in antitrust law, as it implies a showing of harm to competitors, rather than to competition.
[203] Cleary Gottlieb, supra note 162 at 76.
[204] DMCC at S. 29; see also, A New Pro-Competition Regime for Digital Markets: Advice for the Digital Markets Taskforce section 4.40, CMA (2020), available at https://assets.publishing.service.gov.uk/media/5fce7567e90e07562f98286c/Digital_Taskforce_-_Advice.pdf (“Conduct which may in some circumstances be harmful, in others may be permissible or desirable as it produces sufficient countervailing benefits”).
[205] Auer, Lesh, & Radic, supra note 128.
[206] Id.
[207] Id.
[208] This is implied by the fact such an exemption arises only in S. 29, which concerns investigations into breaches of conduct requirements.
[209] PL 2768, supra note 32 at Art. 11.
[210] As discussed in Section I, PL 2768 pursues a multiplicity of goals, and there is no telling how much weight would be afforded to consumer protection under Art. 10.
[211] There is some evidence that this has already happened with Google and Google Maps. See Edith Hancock, “Severe Pain in the Butt”: EU’s Digital Competition Rules Make New Enemies on the Internet, Politico (Mar. 25 2024), https://www.politico.eu/article/european-union-digital-markets-act-google-search-malicious-compliance (“Before [the DMA], users could search for a location on Google by simply clicking on the Google Map link to expand it and navigate it easily. That feature doesn’t work in the same way in Europe anymore and users are irritated.”).
[212] For the importance of interbrand competition between closed and open platforms, see ICLE Brief for the 9th Circuit in Epic Games v. Apple, No. 21-16695 (9th Cir.), ID: 12409936, Dkt Entry: 98, Int’l. Ctr. for Law & Econ. (Mar. 31, 2022), https://laweconcenter.org/resources/icle-brief-for-9th-circuit-for-epic-games-v-apple. See also id. at 26 (“Even if an open platform led to more apps and IAP options for all consumers, some consumers may be better off as a result and others may be worse off. More vigilant users may avoid downloading apps and using IAP systems that are unreliable or which impose invasive data-sharing obligations, but less vigilant users will fall prey to malware, spyware, and other harmful content invited by an open system. The upshot is, “a more competitive market may be better at delivering to vigilant consumers what they want, but may end up exploiting more vulnerable consumers”). See also Mark Armstrong, Interactions Between Competition and Consumer Policy, Competition Policy International (2008), https://ora.ox.ac.uk/objects/uuid:ff166fcf-c3c1-4057-9cf5-10e295b66468/files/m4cc2cf988db14b5da92bb20f1f1a838b.
[213] Robert Pitofsky, The Political Content of Antitrust, 127 Penn. L. Rev. 1051, 1058 (1979).
[214] See, generally, Christopher Decker, Modern Economic Regulation (2014).
[215] In the context of the DMCC, see Auer, Lesh, & Radic, supra note 128.
[216] Pinar Akman, Regulating Competition in Digital Platform Markets: A Critical Assessment of the Framework and Approach of the EU Digital Markets Act, 47(1) European Law Review 85, 110 (2023) ( “The description of “(un)fairness” as provided for in the DMA cannot be said to improve upon the position of the concept in competition law, as it, too, relies on an assessment that is ultimately subjective and involves a value judgement”). See also id. at n. 134 (“This is because it involves establishing what counts as an ‘imbalance of rights and obligations’ on the business users of a gatekeeper and what counts as an ‘advantage’ obtained by the gatekeeper from its business users that is ‘disproportionate’ to the service provided by the gatekeeper to its business users’; see DMA (n 2) Article 10(2)(a) DMA. On the vagueness of the ‘fairness’ concept embodied in the DMA from an economics perspective, see also Monopolkommission (n 38) [23].”). The report Akman references is: Recommendations for an Effective and Efficient Digital Markets Act, Special Report 82, Monopolkommission (2021), https://www.monopolkommission.de/en/reports/special-reports/specialreports-on-own-initiative/372-sr-82-dma.html.
[217] On the in-app payment commission being a legitimate way to recoup investments, see ICLE Brief in Epic Games v. Apple, supra note 177.
[218] Giuseppe Colangelo, In Fairness we (Should Not) Trust. The Duplicity of the EU Competition Policy Mantra in Digital Markets, 68 Antitrust Bulletin 618, 622 (2023) (“Despite its appealing features, fairness appears a subjective and vague moral concept, hence useless as a tool in decisionmaking”).
[219] As an example, Chapter III of the DMA is appropriately entitled: “Practices of Gatekeepers that Limit Contestability or are Unfair.” The chapter sets out practices that are, by definition, unfair.
[220] Distributing Dating Apps in the Netherlands, Apple Developer Support, https://developer.apple.com/support/storekit-external-entitlement (last visited Mar. 10, 2024),
[221] Press Release, Apple Announces Changes to IOS, Safari, and the App Store in the European Union, Apple Inc. (Jan. 25, 2024), https://www.apple.com/newsroom/2024/01/apple-announces-changes-to-ios-safari-and-the-app-store-in-the-european-union.
[222] Adam Kovacevich has referred to this as the “Stalter and Waldorf” problem. See, supra note 125.
[223] Trinko at 407 (2003) (“The mere possession of monopoly power, and the concomitant charging of monopoly prices, is not only not unlawful; it is an important element of the free-market system […] Firms may acquire monopoly power by establishing an infrastructure that renders them uniquely suited to serve their customers […] Enforced sharing also requires antitrust courts to act as central planners, identifying the proper price, quantity, and other terms of dealing—a role for which they are ill-suited”); see also Brian Albrecht, Imposed Final Offer Arbitration: Price Regulation by Any Other Name, Truth on the Market (Dec. 7, 2022), https://truthonthemarket.com/2022/12/07/imposed-final-offer-arbitration-price-regulation-by-any-other-name.
[224] See, ICLE Brief in Epic Games v. Apple, supra note 174 (“In essence, Epic is trying to recast its objection to Apple’s 30% commission for use of Apple’s optional IAP system as a harm to consumers and competition more broadly”); on a similar trend in antitrust that we believe is even more relevant in the context of DCRs, see Jonathan Barnett, Antitrustifying Contract: Thoughts on Epic Games v. Apple and Apple v. Qualcomm, Truth on the Market (Oct. 26 2020) https://truthonthemarket.com/2020/10/26/antitrustifying-contract-thoughts-on-epic-games-v-apple-and-apple-v-qualcomm.
[225] Andriychuk, supra note 159.
[226] See also Ohlhausen & Taladay supra note 69.
[227] United States v. Aluminum Co. of America, 148 F.2d 416, 430 (2d Cir. 1945).
[228] Decker, supra note 176.
[229] Many companies vertically integrate to have the ability to preference their own downstream or upstream products or services. See generally Eric Fruits, Geoffrey Manne, & Kristian Stout, The Fatal Economic Flaws of the Contemporary Campaign Against Vertical Integration, 68 Kan. L. Rev. 5 (2020), https://kuscholarworks.ku.edu/handle/1808/30526; Sam Bowman & Geoffrey Manne, Tl;DR: Self-Preferencing: Building an Ecosystem, Int’l. Ctr. for Law & Econ. (Jul. 21, 2020).
[230]Decker, supra note 176 at 190-1.
[231] Aldous Huxley, Point Counter Point (1928).
[232] As discussed, these ideas are, at least to some extent, redolent of the neo-Brandeisian school of thought in the United States and ordoliberalism in Europe. See e.g., Joseph Coniglio, Why the “New Brandeis Movement Gets Antitrust Wrong, Law360 (Apr. 24, 2018), https://www.law360.com/articles/1036456/why-the-new-brandeis-movement-gets-antitrust-wrong (“The [neo-Brandeisian movement] is not a new entrant in the marketplace of ideas”); see also Daniel Crane, How Much Brandeis Do the Neo-Brandeisians Want?, 64 Antitrust Bulletin 4 (2019).
[233] See, e.g., Rupprecht Podszun, Philipp Bongartz, & Sarah Langenstein, Proposals on How to Improve the Digital Markets Act, 3, (Feb. 18, 2021), https://ssrn.com/abstract=3788571 (“Critics who wish to place the tool into the realm of competition law miss the point that this is a fundamentally different approach”).
[234] In the EU, for example, the DMA was proposed on the basis of Article 114 TFEU, rather than Article 352 TFEU. The consequence is that, for the purpose of EU law, the DMA is considered internal market regulation, rather than competition legislation. It has been argued that Article 352 TFEU, or Article 114 TFEU in conjunction with Article 103 TFEU, would have been the more appropriate legal mechanism. See, e.g., Alfonso Lamadrid de Pablo & Nieves Bayón Fernández, Why the Proposed DMA Might be Illegal Under Article 114 TFEU, and How to Fix It, 12 J. Competition L. & Prac. 7, (2021). One reason why the Commission might have preferred to use Art.114 TFEU over Art.352 TFEU is that the process under Art.114 TFEU is less cumbersome. Unlike Art. 114 TFEU, Article 352 TFEU requires unanimity among EU member states and would not enable the European Parliament to function as co-legislator. Alfonso Lamadrid de Pablo, The Key to Understand the Digital Markets Act: It’s the Legal Basis, Chilling Competition (Dec. 03, 2020), https://chillingcompetition.com/2020/12/03/the-key-to-understand-the-digital-markets-act-its-the-legal-basis.
[235] The term is used often in the literature and media. For an example of the former, see William Davies & Nicholas Gane, Post-Neoliberalism? An Introduction, 38 Theory, Culture & Soc’y 3 (2021); for an example of the latter, see Rana Fohar, The New Rules for Business in a Post-Neoliberal World, Financial Times (Oct. 9, 2022), https://www.ft.com/content/e04bc664-04b2-4ef6-90f9-64e9c4c126aa.
[236] Thomas Biebricher and Frieder Vogelmann have used the term in describing the views of ordoliberals on the role of the market and the state. Thomas Biebricher and Frieder Vogelmann, The Birth of Austerity: German Ordoliberalism and Contemporary Neoliberalism, 138-139 (2017).
[237] Davies and Gane, supra note 198 at 1 (“While events of 2020–21 have facilitated new forms of privatization of many public services and goods, they also signal, potentially, a break from the neoliberal orthodoxies of the previous four decades, and, in particular, from their overriding concern for the market”); see also Edward Luce, It’s the End of Globalism As We Know It, Financial Times (May 8, 2020), https://www.ft.com/content/3b64a08a-7d91-4f09-9a31-0157fa9192cf (“The past 40 years have been predicated on a complex system of neoliberalism that is slowly but surely coming undone, but as of yet, we don’t have any global replacement”); Paolo Gerbaudo, A Post-Neoliberal Paradigm is Emerging: Conversation with Felicia Wong, El Pais (Nov. 4, 2022), https://agendapublica.elpais.com/noticia/18303/post-neoliberal-paradigm-is-emerging-conversation-with-felicia-wong.
[238] Zephyr Teachout, The Death of the Consumer Welfare Standard, ProMarket (Nov. 07, 2023), https://www.promarket.org/2023/11/07/zephyr-teachout-the-death-of-the-consumer-welfare-standard.
[239] After Hillary Clinton lost the 2016 U.S. presidential election to Donald Trump, Barack Obama referred to history and progress in the United States as zig-zagging, rather than moving in a straight line. See, Statement by the President, White House Office of the Press Secretary (Nov. 09, 2016), https://obamawhitehouse.archives.gov/the-press-office/2016/11/09/statement-president.
TOTM Among the less-discussed requirements of the European Union’s Digital Markets Act (DMA) is the data-sharing obligation created by Article 6(11). This provision requires firms designated . . .
Among the less-discussed requirements of the European Union’s Digital Markets Act (DMA) is the data-sharing obligation created by Article 6(11). This provision requires firms designated under the law as “gatekeepers” to share “ranking, query, click and view data” with third-party online search engines, while ensuring that any personal data is anonymized.
Given how restrictively the notion of “anonymization” has been interpreted under the EU’s General Data Protection Regulation (GDPR), the DMA creates significant tension without pointing to a clear resolution. Sophie Stalla-Bourdillon and Bárbara da Rosa Lazarotto recently published a helpful analysis of the relevant legal questions on the European Law Blog. In this post, I will examine Google’s proposed solution.
Read the full piece here.
Regulatory Comments We are grateful for the opportunity to respond to the California Law Revision Commission’s Study of Antitrust Law with these comments on the Single-Firm Conduct . . .
We are grateful for the opportunity to respond to the California Law Revision Commission’s Study of Antitrust Law with these comments on the Single-Firm Conduct Working Group’s report (the “Expert Report”).[1]
The International Center for Law & Economics (ICLE) is a nonprofit, nonpartisan global research and policy center based in Portland, Oregon. ICLE was founded with the goal of building the intellectual foundations for sensible, economically grounded policy. ICLE promotes the use of law & economics methodologies to inform public-policy debates, and has longstanding expertise in the evaluation of competition law and policy. ICLE’s interest is to ensure that competition law remains grounded in clear rules, established precedents, a record of evidence, and sound economic analysis.[2]
The urge to treat antitrust as a legal Swiss Army knife—capable of correcting all manner of economic and social ills—is difficult to resist. Conflating size with market power, and market power with political power, recent calls for regulation of large businesses are often framed in antitrust terms, although they rarely are rooted in cognizable legal claims or sound economic analysis.
But precisely because antitrust is such a powerful regulatory tool, we should be cautious about its scope, process, and economics, as well as its politicization. For the last 50 or so years, U.S. law has maintained a position of relative restraint in the face of novel, ambiguous conduct, while many other jurisdictions (particularly the European Union) have tended to read uncertainty as the outward expression of a lurking threat. This has led to a sharp policy divergence in the area of competition policy, with the EU passing the Digital Markets Act,[3] while the United States has, to date, continued to rely on tried-and-tested principles crafted by courts over years on a case-by-case basis.
Despite—or perhaps because of—this divergence, many advocates of more aggressive antitrust intervention assert that the United States or individual states should emulate the EU’s approach. This disposition underpins much of the California Law Review Commission’s Report on Single Firm Conduct.[4] Despite some reassuring conclusions—such as the recognition that “protecting competing businesses, even at the expense of consumers and workers” would not “provide a good model for California”[5]—the policies that the report proposes would significantly broaden California antitrust law, bringing it much closer to the European model of competition enforcement than the U.S. one.
Unfortunately, this European-inspired approach to competition policy is unlikely to serve the interests of California consumers. As explained below, the European model of competition enforcement has at least three features that tend to chill efficient business conduct, with few competitive benefits in return (relative to the U.S. approach).
Differentiating pro- from anticompetitive conduct has always been the central challenge of antitrust. When the very same conduct can either benefit or harm consumers, depending on complex and often unknowable circumstances, the potential cost of overenforcement is at least as substantial as the cost of underenforcement.
The U.S. Supreme Court has repeatedly recognized that the cost of “false positive” errors might be greater than those attributable to “false negatives” because, in the words of Judge Frank Easterbrook, “the economic system corrects monopoly more readily than it corrects judicial errors.”[6] The EU’s “precautionary principle” approach is the antithesis of this. It is rooted in a belief that markets are generally unlikely to function well, and certainly are not better at mitigating harm than technocratic regulatory intervention.
The key question is whether, given the limits of knowledge and the errors that such limits may engender, consumers are better off with a more discretionary regime or one in which enforcement is limited to causes of action that policymakers are fairly certain will serve consumer interests. This is a question about changes at the margin, but it is far from marginal in its significance. As we explain below, the U.S. approach to antitrust law performs better in this respect. Departing from it would not benefit California consumers.
EU antitrust rests heavily on presumptions of harm, while U.S. courts require plaintiffs to demonstrate that the conduct at-issue actually has anticompetitive effects.
Crucially, the U.S. approach is more consistent with learnings from modern economics, which almost universally counsel against presuming competitive harm on the basis of industry structure and, in particular, in favor of presuming benefit from vertical conduct. Indeed, the EU approach often disregards these findings and presumes the contrary. As evidenced by its recent Intel decision, even the EU’s highest court has finally recognized the paucity of the European Commission’s analysis in this area. But because judicial review of antitrust decisions in the EU is so attenuated, it is not clear if the high court’s admonition will actually affect the Commission’s approach in any substantial way.
California policymakers would be wrong to emulate the European model by introducing more presumptions to California antitrust law.
U.S. monopolization law prohibits only predatory or exclusionary conduct that results in harm to consumers. The EU, by contrast, also regularly punishes the mere possession of monopoly power, even where lawfully obtained. Indeed, the EU goes so far as to target companies that may lack monopoly power, but merely possess an innovative and successful business model. For example, in actions involving companies ranging from soda manufacturers to digital platforms, the EU repeatedly has required essential-facilities-style access to companies’ private property for less-successful rivals.
As we explain below, the Expert Report essentially calls on California lawmakers to replicate the European model by seeking to protect even those competitors that are less efficient, thus challenging the very existence of legitimately earned monopolies. Unfortunately, this approach would diminish the incentives to create successful businesses in the first place. Such an outcome would be particularly unfortunate for California, which is host to arguably the most vibrant startup ecosystem in the world.
In endorsing the European approach to antitrust in order to justify high-profile cases against large firms, California would effectively be prioritizing political expediency over the rule of law and consumer well-being.
The risk of an EU-like approach in California is that it would thwart technological progress and enshrine mediocrity. This is particularly true in the digital economy, where innovative practices with positive welfare effects—such as building efficient networks or improving products and services as technologies and consumer preferences evolve—are often the subject of demagoguery, especially from inefficient firms looking for a regulatory leg up.
While advocates for a more European approach to antitrust assert that their proposals would improve economic conditions in California (and the United States, more generally), economic logic and the available evidence suggest otherwise, especially in technology markets.
Once antitrust is expanded beyond its economic constraints, it ceases to be a uniquely valuable tool to address real economic harms to consumers, and becomes instead a tool for evading legislative and judicial constraints. This is hardly the promotion of democratic ideals that proponents of a more EU-like regime claim to desire.
In the following sections, we expand upon these distinctions between EU and U.S. law and explain how elements of the Expert Report’s analysis and proposed statutory language would shift California’s antitrust law toward the EU model in problematic ways. We urge the California Law Revision Commission to consider not just whether emulating the EU approach would permit the state to reach a preconceived outcome—i.e., placing large firms under increased antitrust scrutiny—but whether doing so would ultimately benefit California and its consumers.
The U.S. Supreme Court has repeatedly recognized the limitations that courts face in distinguishing between pro- and anticompetitive conduct in antitrust cases, and particularly the risk this creates of reaching costly false-positive (Type I) decisions in monopolization cases.[7] As the Court has noted with respect to the expansion of liability for single-firm conduct, in particular:
Against the slight benefits of antitrust intervention here, we must weigh a realistic assessment of its costs…. Mistaken inferences and the resulting false condemnations “are especially costly because they chill the very conduct the antitrust laws are designed to protect.” The cost of false positives counsels against an undue expansion of § 2 liability.[8]
The Court has also expressed the view—originally laid out in Judge Frank Easterbrook’s seminal article “The Limits of Antitrust”—that the costs to consumers arising from Type I errors are likely greater than those attributable to Type II errors, because “the economic system corrects monopoly more readily than it corrects judicial errors.”[9]
The EU’s more “precautionary” approach to antitrust policy is the antithesis of this.[10] It is rooted in a belief that markets do not—or, more charitably, are unlikely to—function well in general, and certainly not sufficiently to self-correct in the face of monopolization.
While the precautionary principle may generally prevent certain fat-tailed negative events,[11] these potential benefits come, almost by definition, at the expense of short-term growth.[12] Adopting a precautionary approach is thus a costly policy stance in those circumstances where it is not clearly warranted by underlying risk and uncertainty. This is an essential issue for a state like California, whose economy is so reliant on the continued growth and innovation of its vibrant startup ecosystem.
While it is impossible to connect broad macroeconomic trends conclusively to specific policy decisions, it does seem clear that Europe’s overarching precautionary approach to economic regulation has not served it well.[13] In that environment, the EU’s economic performance has fallen significantly behind that of the United States.[14] “[I]n 2010 US GDP per capita was 47 percent larger than the EU while in 2021 this gap increased to 82 percent. If the current trend of GDP per capita carries forward, in 2035, the average GDP per capita in the US will be $96,000 while the average EU GDP per capita will be $60,000.”[15]
Of course, no one believes that markets are perfect, or that antitrust enforcement can never be appropriate. The question is the marginal, comparative one: Given the realities of politics, economics, the limits of knowledge, and the errors to which they can lead, which imperfect response is preferable at the margin? Or, phrased slightly differently, should we give California antitrust enforcers and private plaintiffs more room to operate, or should we continue to cabin their operation in careful, economically grounded ways, aimed squarely at optimizing—not minimizing—the extent of antitrust enforcement?
This may be a question about changes at the margin, but it is far from marginal. It goes to the heart of the market’s role in the modern economy.
While there are many views on this subject, arguments that markets have failed us in ways that more antitrust would correct are poorly supported.[16] We should certainly continue to look for conditions where market failures of one kind or another may justify intervention, but we should not make policy on the basis of mere speculation. And we should certainly not do so without considering the likelihood and costs of regulatory failure, as well. In order to reliably adopt a sound antitrust policy that might improve upon the status quo (which has evolved over a century of judicial decisions, generally alongside the field’s copious advances in economic understanding), we need much better information about the functioning of markets and the consequences of regulatory changes than is currently available.
To achieve this, antitrust law and enforcement policy should, above all, continue to adhere to the error-cost framework, which informs antitrust decision making by considering the relative costs of mistaken intervention compared with mistaken nonintervention.[17] Specific cases should be addressed as they come, with an implicit understanding that, especially in digital markets, precious few generalizable presumptions can be inferred from the previous case. The overall stance should be one of restraint, reflecting the state of our knowledge.[18] We may well be able to identify anticompetitive harms in certain cases, and when we do, we should enforce the current laws. But we should not overestimate our ability to finetune market outcomes without causing more harm than benefit.
Allegations that the modern antitrust regime is insufficient take as a given that there is something wrong with antitrust doctrine or its enforcement, and cast about for policy “corrections.” The common flaw with these arguments is that they are not grounded in robust empirical or theoretical support. Indeed, as one of the influential papers that (ironically) is sometimes cited to support claims for more antitrust puts it:
An alternative perspective on the rise of [large firms and increased concentration] is that they reflect a diminution of competition, due to weaker U.S. antitrust enforcement. Our findings on the similarity of trends in the United States and Europe, where antitrust authorities have acted more aggressively on large firms, combined with the fact that the concentrating sectors appear to be growing more productive and innovative, suggests that this is unlikely to be the primary explanation, although it may be important in some industries.[19]
Rather, such claims are little more than hunches that something must be wrong, conscripted to serve a presumptively interventionist agenda. Because they are merely hypotheses about things that could go wrong, they do not determine—and rarely even ask—if heightened antitrust scrutiny and increased antitrust enforcement are actually called for in the first place. The evidence strongly contradicts the basis for these hunches.
Critics of U.S. competition policy sometimes contend that markets have become more concentrated and thus less competitive.[20] But there are good reasons to be skeptical of the national-concentration and market-power data.[21] Even more importantly, the narrative that purports to find a causal relationship between these data and reduced competition is almost certainly incorrect.
Competition rarely takes place in national markets; it takes place in local markets. Recent empirical work demonstrates that national measures of concentration do not reflect market structures at the local level.[22] To the extent that national-level firm concentration may be growing, these trends are actually driving increased competition and decreased concentration at the local level, which is typically what matters for consumers:
Put another way, large firms have materially contributed to the observed decline in local concentration. Among industries with diverging trends, large firms have become bigger but the associated geographic expansion of these firms, through the opening of more plants in new local markets, has lowered local concentration thus suggesting increased local competition.[23]
The rise in national concentration is predominantly a function of more efficient firms competing in more—and more localized—markets. Thus, rising national concentration, where it is observed, is a result of increased productivity and competition that weed out less-efficient producers. Indeed, as one influential paper notes:
[C]oncentration increases do not correlate to price hikes and correspond to increased output. This implies that oligopolies are related to an offsetting and positive force—these oligopolies are likely due to technical innovation or scale economies. My data suggest that increases in market concentration are strongly correlated with innovations in productivity.[24]
Another important paper finds that this dynamic is driven by top firms bringing productivity increases to smaller markets, to the substantial (and previously unmeasured) benefit of consumers:
US firms in service industries increasingly operate in more local markets. Employment, sales, and spending on fixed costs have increased rapidly in these industries. These changes have favored top firms, leading to increasing national concentration. Top firms in service industries have grown by expanding into new local markets, predominantly small and mid-sized US cities. Market concentration at the local level has decreased in all US cities, particularly in cities that were initially small. These facts are consistent with the availability of new fixed-cost-intensive technologies that yield lower marginal costs in service sectors. The entry of top service firms into new local markets has led to substantial unmeasured productivity growth, particularly in small markets.[25]
Similar results hold for labor-market effects. According to one recent study, while the labor-market power of firms appears to have increased:
labor market power has not contributed to the declining labor share. Despite the backdrop of stable national concentration, we… find that [local labor-market concentration] has declined over the last 35 years. Most local labor markets are more competitive than they were in the 1970s.[26]
In short, it is inappropriate to draw conclusions about the strength of competition and the efficacy of antitrust laws from national-concentration measures. This is a view shared by many economists from across the political spectrum. Indeed, one of the Expert Report’s authors, Carl Shapiro, has raised these concerns regarding the national-concentration data:
[S]imply as a matter of measurement, the Economic Census data that are being used to measure trends in concentration do not allow one to measure concentration in relevant antitrust markets, i.e., for the products and locations over which competition actually occurs. As a result, it is far from clear that the reported changes in concentration over time are informative regarding changes in competition over time.[27]
It appears that overall competition is increasing, not decreasing, whether it is accompanied by an increase in national concentration or not.
Implicitly shunning the evidence that demonstrates markets have become more, not less, competitive, the Expert Report proposes that California adopt a firm stance in favor of false positives over false negatives—in other words, that it tolerate erroneously condemning procompetitive behavior in exchange for avoiding the risk of erroneously accepting anticompetitive conduct:
Whereas the policy of California is that the public is best served by competition and the goal of the California antitrust laws is to promote and protect competition throughout the State, in interpreting this Section courts should bear in mind that the policy of California is that the risk of under-enforcement of the antitrust laws is greater than the risk of over-enforcement.[28]
Of course, it is possible that, in some markets, there are harms being missed and for which enforcers should be better equipped. But advocates of reform have yet to adequately explain much of what we need to know to make such a determination, let alone craft the right approach to it if we did. Antitrust law should be refined based on an empirical demonstration of harms, as well as a careful weighing of those harms against the losses to social welfare that would arise if procompetitive conduct were deterred alongside anticompetitive conduct.
Dramatic new statutes to undo decades of antitrust jurisprudence or reallocate burdens of proof with the stroke of a pen are unjustified. Suggesting, as the Expert Report does, that antitrust law should simply “err on the side of enforcement when the effect of the conduct at issue on competition is uncertain”[29] is an unsupported statement of a political preference, not one rooted in sound economics or evidence.
The primary evidence adduced to support the claim that underenforcement (and thus, the risk of Type II errors) is more significant than overenforcement (and thus, the risk of Type I errors) is that there are not enough cases brought and won. But even if superficially true, this is, on its own, just as consistent with a belief that the regime is functioning well as it is with a belief that it is functioning poorly. Indeed, as one of the Expert Report’s authors has pointed out:
Antitrust law [] has a widespread effect on business conduct throughout the economy. Its principal value is found, not in the big litigated cases, but in the multitude of anticompetitive actions that do not occur because they are deterred by the antitrust laws, and in the multitude of efficiency-enhancing actions that are not deterred by an overbroad or ambiguous antitrust.[30]
At the same time, some critics (including another of the Expert Report’s authors) contend that a heightened concern for Type I errors stems from a faulty concern that “type two errors… are not really problematic because the market itself will correct the situation,” instead asserting that “it is economically naïve to assume that markets will naturally tend toward competition.”[31]
Judge Easterbrook’s famous argument for enforcement restraint is not based on the assertion that markets are perfectly self-correcting. Rather, his claim is that the (undeniable) incentive of new entrants to compete for excess profits in monopolized markets operates to limit the social costs of Type II errors more effectively than the legal system’s ability to correct or ameliorate the costs of Type I errors. The logic is quite simple, and not dependent on the strawman notion that markets are perfect:
If the court errs by condemning a beneficial practice, the benefits may be lost for good. Any other firm that uses the condemned practice faces sanctions in the name of stare decisis, no matter the benefits. If the court errs by permitting a deleterious practice, though, the welfare loss decreases over time. Monopoly is self-destructive. Monopoly prices eventually attract entry. True, this long run may be a long time coming, with loss to society in the interim. The central purpose of antitrust is to speed up the arrival of the long run. But this should not obscure the point: judicial errors that tolerate baleful practices are self-correcting while erroneous condemnations are not.[32]
Moreover, anticompetitive conduct that is erroneously excused may be subsequently corrected, either by another enforcer, a private litigant, or another jurisdiction. Ongoing anticompetitive behavior will tend to arouse someone’s ire: competitors, potential competitors, customers, input suppliers. That means such behavior will be noticed and potentially brought to the attention of enforcers. And for the same reason—identifiable harm—it may also be actionable.
By contrast, procompetitive conduct that does not occur because it is prohibited or deterred by legal action has no constituency and no visible evidence on which to base a case for revision. Nor does a firm improperly deterred from procompetitive conduct have any standing to sue the government for erroneous antitrust enforcement, or the courts for adopting an improper standard. Of course, overenforcement can sometimes be corrected, but the institutional impediments to doing so are formidable.
The claim that concern for Type I errors is overblown further rests on the assertion that “more up-to-date economic analysis” has undermined that position.[33] But that learning is, for the most part, entirely theoretical—constrained to “possibility theorems” divorced from realistic complications and the real institutional settings of decision making. Indeed, the proliferation of these theories may actually increase, rather than decrease, uncertainty by further complicating the analysis and asking generalist judges to choose from among competing theories, without any realistic means to do so.[34]
Unsurprisingly, “[f]or over thirty years, the economics profession has produced numerous models of rational predation. Despite these models and some case evidence consistent with episodes of predation, little of this Post-Chicago School learning has been incorporated into antitrust law.”[35] Nor is it likely that the courts are making an erroneous calculation in the abstract. Evidence of Type I errors is hard to come by, but for a wide swath of conduct called into question by “Post-Chicago School” and other theories, the evidence of systematic problems is virtually nonexistent.[36]
Moreover, contrary to the Expert Report’s implications,[37] U.S. antitrust law has not ignored potentially anticompetitive harm, and courts are hardly blindly deferential to conduct undertaken by large firms. It is impossible to infer from the general “state of the world” or from perceived “wrong” judicial decisions that the current antitrust regime has failed or that California, in particular, would benefit from a wholesale shifting of its antitrust error-cost presumptions.[38]
While U.S. antitrust law generally requires a full-blown, effects-based analysis of challenged behavior—particularly in the context of unilateral conduct (monopolization or abuse of dominance) and vertical restraints—the EU continues to rely heavily on presumptions of harm or extremely truncated analysis. Even the EU’s highest court has finally recognized the paucity of the European Commission’s analysis in this area in its recent Intel decision.[39]
The degree to which the United States and EU differ with respect to their reliance on presumptions in antitrust cases is emblematic of a broader tendency of the U.S. regime to adhere to economic principles, while the EU tends to hold such principles in relative disregard. The U.S. approach is consistent with learnings from modern economics, which almost universally counsel against presuming competitive harm on the basis of industry structure—particularly from the extent of concentration in a market. Indeed, as one of the Expert Report’s own authors has argued, “there is no well-defined ‘causal effect of concentration on price,’ but rather a set of hypotheses that can explain observed correlations of the joint outcomes of price, measured markups, market share, and concentration.”[40]
Concerns about excessive concentration are at the forefront of current efforts to expand antitrust enforcement, including through the use of presumptions. There is no reliable empirical support for claims either that concentration has been increasing, or that it necessarily leads to, or has led to, increased market power and the economic harms associated with it.[41] There is even less support for claims that concentration leads to the range of social ills ascribed to it by advocates of “populist” antitrust. Similarly, there is little evidence that the application of antitrust or related regulation to more vigorously prohibit, shrink, or break up large companies will correct these asserted problems.
Meanwhile, economic theory, empirical evidence, and experience all teach that vertical restraints—several of which would be treated more harshly under the Expert Report’s recommendations[42]—rarely harm competition. Indeed, they often benefit consumers by reducing costs, better distributing risk, better informing and optimizing R&D activities and innovation, better aligning manufacturer and distributor incentives, lowering price, increasing demand through the inducement of more promotional services, and/or creating more efficient distribution channels.
As the former Federal Trade Commission (FTC) Bureau of Economics Director Francine Lafontaine explained in summarizing the body of economic evidence analyzing vertical restraints: “it appears that when manufacturers choose to impose [vertical] restraints, not only do they make themselves better off but they also typically allow consumers to benefit from higher quality products and better service provision.”[43] A host of other studies corroborate this assessment.[44] As one of these notes, while “some studies find evidence consistent with both pro- and anticompetitive effects… virtually no studies can claim to have identified instances where vertical practices were likely to have harmed competition.”[45] Similarly, “in most of the empirical studies reviewed, vertical practices are found to have significant pro-competitive effects.”[46]
At the very least, we remain profoundly uncertain of the effects of vertical conduct (particularly in the context of modern high-tech and platform industries), with the proviso that most of what we know suggests that this conduct is good for consumers. But even that worst-case version of our state of knowledge is inconsistent with the presumptions-based approach taken by the EU.
Adopting a presumptions-based approach without a firm economic basis is far more hostile to novel business conduct, especially in the innovative markets that distinguish California’s economy. EU competition policy errs on the side of condemning novel conduct, deterring beneficial business activities where consumers would be better served if authorities instead tried to better understand them. This is not something California should emulate.
European competition law imposes a much less strenuous burden on authorities to quantify anticompetitive harm and establish causation than does U.S. law. This makes European competition law much more prone to false positives that condemn efficiency-generating or innovative firm behavior. The main cause of these false positives is the failure of the EU’s “competitive process” standard to separate competitive from anticompetitive exclusionary conduct.
While the Expert Report rightly recognizes that adopting an abuse-of-dominance standard (similar to that which exists in Europe) would be misguided, its proposed focus on “competitive constraints,” rather than consumer welfare, would effectively bring California antitrust enforcement much closer to the EU model.[47]
At the same time, the Expert Report counsels adopting a “material-risk-of-harm” standard, which is foreign to U.S. antitrust law:
(e) Anticompetitive exclusionary conduct includes conduct that has or had a material risk of harming trading partners due to increased market power, even if those harms have not yet arisen and may not materialize.[48]
While such a standard exists in U.S. standing jurisprudence,[49] antitrust plaintiffs (and private plaintiffs, in particular) must typically meet a higher bar to prove actual antitrust injury.[50] Moreover, the focus is generally on output restriction, rather than the risk of “harm” to a trading partner:
The government must show conduct that reasonably seems capable of causing reduced output and increased prices by excluding a rival. The private plaintiff must additionally show an actual effect producing an injury in order to support a damages action or individually threatened harm to support an injunction. The required private effect could be either a higher price which it paid, or lost profits from market exclusion.[51]
Again, this is a fairly concrete application of the error-cost framework: Lowering the standard of proof required to establish liability increases the risk of false positives and decreases the risk of false negatives. But particularly in California—where so much of the state’s economic success is built on industries characterized by large companies with substantial procompetitive economies of scale and network effects, novel business models, and immense technological innovation—the risk of erroneous condemnation is substantial, and the potential costs significant.
Further, defining antitrust harm in terms of “conduct [that] tends to… diminish or create a meaningful risk of diminishing the competitive constraints imposed by the defendant’s rivals”[52] opens the door substantially to the risk that procompetitive conduct could be enjoined. For example, such an approach would seem at odds with the concept of antitrust injury for private plaintiffs established by the Supreme Court’s Brunswick case.[53] “Competitive constraints” may “tend” to be reduced, as in Brunswick, by perfectly procompetitive conduct; enshrining such a standard would not serve California’s economic interests.
Similarly, the Expert Report’s proposed statutory language includes a provision that would infer not only causation but also the existence of harm from ambiguous conduct:
5) In cases where the trading partners are customers…, it is not necessary for the plaintiff to specify the precise nature of the harm that might be experienced in the future or to quantify with specificity any particular past harm. It is sufficient for the plaintiff to establish a significant weakening of the competitive constraints facing the defendant, from which such harms to direct or indirect customers can be presumed.[54]
The Microsoft case similarly held that plaintiffs need not quantify injury with specificity because “neither plaintiffs nor the court can confidently reconstruct a product’s hypothetical technological development in a world absent the defendant’s exclusionary conduct.”[55] But Microsoft permits the inference only of causation in such circumstances, not the existence of anticompetitive conduct. Most of the decision was directed toward identifying and assessing the anticompetitiveness of the alleged conduct. Inference is permitted only with respect to causation—to the determination that such conduct was reasonably likely to lead to harm by excluding specific (potential) competitors. Establishing merely a “weakening of the competitive constraints facing the defendant,” by contrast, does not permit an inference of anticompetitiveness.
Such an approach is much closer to the European standard of maintaining a system of “undistorted competition.” European authorities generally operate under the assumption that “competitive” market structures ultimately lead to better outcomes for consumers.[56] This contrasts with American antitrust enforcement which, by pursuing a strict consumer-welfare goal, systematically looks at the actual impact of a practice on economic parameters, such as prices and output.
In other words, European competition enforcement assumes that concentrated market structures likely lead to poor outcomes and thus sanctions them, whereas U.S. antitrust law looks systematically into the actual effects of a practice. The main consequence of this distinction is that, compared to the United states, European competition law has established a wider set of per se prohibitions (which are not discussed in the Expert Report) and sets a lower bar for plaintiffs to establish the existence of anticompetitive conduct (which the Expert Report recommends California policymakers emulate).[57] Because of this lower evidentiary threshold, EU competition decisions are also subject to less-stringent judicial review.
The EU’s competitive-process standard is similar to the structuralist analysis that was popular in the United States through the middle of the 20th century. This view of antitrust led U.S. enforcers frequently to condemn firms merely for growing larger than some arbitrary threshold, even when those firms engaged in conduct that, on net, benefited consumers. While EU enforcers often claim to be pursuing a consumer-welfare standard, and to adhere to rigorous economic analysis in their antitrust cases,[58] much of their actual practice tends to engage in little more than a window-dressed version of the outmoded structuralist analysis that U.S. scholars, courts, and enforcers roundly rejected in the latter half of the 20th century.
To take one important example, a fairly uncontroversial requirement for antitrust intervention is that a condemned practice should actually—or be substantially likely to—foster anticompetitive harm. Even in Europe, whatever other goals competition law is presumed to further, it is nominally aimed at protecting competition rather than competitors.[59] Accordingly, the mere exit of competitors from the market should be insufficient to support liability under European competition law in the absence of certain accompanying factors.[60] And yet, by pursuing a competitive-process goal, European competition authorities regularly conflate desirable and undesirable forms of exclusion precisely on the basis of their effect on competitors.
As a result, the Commission routinely sanctions exclusion that stems from an incumbent’s superior efficiency rather than from welfare-reducing strategic behavior,[61] and routinely protects inefficient competitors that would otherwise rightly be excluded from a market. As Pablo Ibanez Colomo puts it:
It is arguably more convincing to question whether the principle whereby dominant firms are under a general duty not to discriminate is in line with the logic and purpose of competition rules. The corollary to the idea that it is prima facie abusive to place rivals at a disadvantage is that competition must take place, as a rule, on a level playing field. It cannot be disputed that remedial action under EU competition law will in some instances lead to such an outcome.[62]
Unfortunately, the Expert Report’s repeated focus on diminished “competitive constraints” as the touchstone for harm may (perhaps unintentionally) even enable courts to impose liability for harm to competitors caused by procompetitive conduct. For example, the Expert Report would permit a determination that:
[C]onduct tends to… diminish or create a meaningful risk of diminishing the competitive constraints… [if it] tends to (i) increase barriers to entry or expansion by those rivals, (ii) cause rivals to lower their quality-adjusted output or raise their quality-adjusted price, or (iii) reduce rivals’ incentives to compete against the defendant.[63]
But market exit is surely an example of a reduced incentive to compete, even if it results from a rival’s intense (and consumer-welfare-enhancing) competition. Depending on how “barrier to entry” is defined, innovation, product improvement, and vertical integration by a defendant—even when they are procompetitive—all could constitute a barrier to entry by forcing rivals to incur greater costs or compete in multiple markets. Similarly, increased productivity resulting in less demand for labor or other inputs or lower wages could enable a “defendant [to] profitably make a less attractive offer to that supplier or worker… than the defendant could absent that conduct,”[64] even though the increase in market power in that case would be beneficial.[65]
It is true that the Expert Report elsewhere notes that “it is sometimes difficult for courts to distinguish between anticompetitive exclusionary conduct, which is illegal, from competition on the merits, which is legal even if it weakens rivals or drives them out of business altogether.”[66] Thus, it is perhaps unintentional that the report’s proposed language could nevertheless support liability in such circumstances. At the very least, California should not adopt the Expert Report’s proposed language without a clear disclaimer that liability will never be based on “diminished competitive constraints” resulting from consumer-welfare-enhancing conduct or vigorous competition by the defendant.
While U.S. monopolization law prohibits only predatory or exclusionary conduct that results in both the unlawful acquisition or maintenance of monopoly power and the creation of net harm to consumers, the EU also punishes the mere exercise of monopoly power—that is, the charging of allegedly “excessive” prices by dominant firms (or the use of “exploitative” business terms). Thus, the EU is willing to punish the mere extraction of rents by a lawfully obtained dominant firm, while the United States punishes only the unlawful extension of market power.
There may be multiple reasons for this difference, including the EU’s particular history with state-sponsored monopolies and its unique efforts to integrate its internal market. Whatever the reason, the U.S. approach, unlike the EU’s, is grounded in a concern for minimizing error costs—not in order to protect monopolists or large companies, but to protect the consumers who benefit from more dynamic markets, more investment, and more innovation:
The mere possession of monopoly power, and the concomitant charging of monopoly prices, is not only not unlawful; it is an important element of the free-market system. The opportunity to charge monopoly prices—at least for a short period is what attracts “business acumen” in the first place; it induces risk taking that produces innovation and economic growth. To safeguard the incentive to innovate, the possession of monopoly power will not be found unlawful unless it is accompanied by an element of anticompetitive conduct.[67]
At the same time, the U.S. approach mitigates the serious risk of simply getting it wrong. This is incredibly likely where, for example, “excessive” prices are in the eye of the beholder and are extremely difficult to ascertain econometrically.
This unfortunate feature of EU competition enforcement would likely be, at least in part, replicated under the reforms proposed by the Expert Report. Indeed, the report’s focus on the welfare of “trading partners”—and particularly its focus on trading-partner welfare, regardless of whether perceived harm is passed on to consumers—comes dangerously close to the EU’s preoccupation with reducing the rents captured by monopolists.[68] While the Expert Report does not recommend an “excessive pricing” theory of harm—like the one that exists in the EU—it does echo the EU’s fixation on the immediate fortunes of trading partners (other than consumers) in ways that may ultimately lead to qualitatively equivalent results.
Beyond the high-level differences discussed above, European and U.S. antitrust authorities also diverge significantly on numerous specific issues. These dissimilarities often result from the different policy goals that animate these two bodies of law. As noted, where U.S. case law is guided by an overarching goal of maximizing consumer welfare (notably, a practice’s effect on output), European competition law tends to favor structural presumptions and places a much heavier emphasis on distributional considerations. In addition, where the U.S. approach to many of these specific issues is deeply influenced by its overwhelming concern with the potentially chilling effects of intervention, this apprehension is very much foreign to European competition law. The result is often widely divergent approaches to complex economic matters in which the United States hews far more closely than does the EU to the humility and restraint suggested by economic learning.
Unfortunately, the recommendations put forward in the Expert Report would largely bring California antitrust law in line with the European approach for many theories of harm. Indeed, the Expert Report rejects the traditional U.S. antitrust-law concern with chilling procompetitive behavior, even proposing statutory language that would hold that “courts should bear in mind that the policy of California is that the risk of under-enforcement of the antitrust laws is greater than the risk of over-enforcement.”[69] Not only is this position unsupported, but it also entails an explicit rejection of a century of U.S. antitrust jurisprudence:
[U]sing language that mimics the Sherman Act would come with a potentially severe disadvantage: California state courts might then believe that they should apply 130 years of federal jurisprudence to cases brought under California state law. In recent decades, that jurisprudence has substantially narrowed the scope of the Sherman Act, as described above, so relying on it could well rob California law of the power it needs to protect competition.[70]
The evidence suggesting that competition has been poorly protected under Sherman Act jurisprudence is generally weak and unconvincing,[71] however, and the same is true for the specific theories of harm that the Expert Report would expand.
Predatory pricing is one area where the Expert Report urges policymakers to copy specific rules in force in the EU. In its model statutory language, the Expert Report proposes that California establish that:
liability [for anticompetitive exclusionary conduct] does not require finding… that any price of the defendant for a product or service was below any measure of the costs to the defendant for providing the product or service…, [or] that in a claim of predatory pricing, the defendant is likely to recoup the losses it sustains from below-cost pricing of the products or services at issue[.][72]
U.S. antitrust law subjects allegations of predatory pricing to two strict conditions: 1) monopolists must charge prices that are below some measure of their incremental costs; and 2) there must be a realistic prospect that they will be able to recoup these first-period losses.[73] In laying out its approach to predatory pricing, the Supreme Court identified the risk of false positives and the clear cost of such errors to consumers. It therefore particularly stressed the importance of the recoupment requirement because, without recoupment, “predatory pricing produces lower aggregate prices in the market, and consumer welfare is enhanced.”[74]
Accordingly, in the United States, authorities must prove that there are constraints that prevent rival firms from entering the market after the predation scheme or that the scheme itself would effectively foreclose rivals from entering in the first place.[75] Otherwise, competitors would undercut the predator as soon as it attempts to charge supracompetitive prices to recoup its losses. In such a situation—without, that is, the strong likelihood of recouping the lost revenue from underpricing—the overwhelming weight of economic learning (to say nothing of simple logic) makes clear that predatory pricing is not a rational business strategy.[76] Thus, apparent cases of predatory pricing in the absence of the likelihood of recoupment are most likely not, in fact, predatory, and deterring or punishing them would likely actually harm consumers.
In contrast, the legal standard applied to predatory pricing in the EU is much laxer and almost certain, as a result, to risk injuring consumers. Authorities must prove only that a company has charged a price below its average variable cost, in which case its behavior is presumed to be predatory.[77] Even when a firm imposes prices that are between average variable and average total cost, it can be found guilty of predatory pricing if authorities show that its behavior was part of “a plan to eliminate competition.”[78] Most significantly, in neither case is it necessary for authorities to show that the scheme would allow the monopolist to recoup its losses.[79]
[I]t does not follow from the case-law of the Court that proof of the possibility of recoupment of losses suffered by the application, by an undertaking in a dominant position, of prices lower than a certain level of costs constitutes a necessary precondition to establishing that such a pricing policy is abusive.[80]
By affirmatively dispensing with each of these limitations, the Expert Report effectively recommends that California legislators shift California predatory-pricing law toward the European model. Unfortunately, such a standard has no basis in economic theory or evidence—not even in the “strategic” economic theory that arguably challenges the dominant, “Chicago School” understanding of predatory pricing.[81] Indeed, strategic predatory pricing still requires some form of recoupment and the refutation of any convincing business justification offered in response.[82] As Bruce Kobayashi and Tim Muris emphasize, the introduction of new possibility theorems, particularly uncorroborated by rigorous empirical reinforcement, does not necessarily alter the implementation of the error-cost analysis:
While the Post-Chicago School literature on predatory pricing may suggest that rational predatory pricing is theoretically possible, such theories do not show that predatory pricing is a more compelling explanation than the alternative hypothesis of competition on the merits. Because of this literature’s focus on theoretical possibility theorems, little evidence exists regarding the empirical relevance of these theories. Absent specific evidence regarding the plausibility of these theories, the courts… properly ignore such theories.[83]
The case of predatory pricing illustrates a crucial distinction between European and American competition law. The recoupment requirement embodied in U.S. antitrust law essentially differentiates aggressive pricing behavior that improves consumer welfare by leading to overall price decreases from predatory pricing that reduces welfare due to ultimately higher prices. In other words, it is entirely focused on consumer welfare.
The European approach, by contrast, reflects structuralist considerations that are far removed from a concern for consumer welfare. Its underlying fear is that dominant companies could, through aggressive pricing—even to the benefit of consumers—by their very success, engender more concentrated market structures. It is simply presumed that these less-atomistic markets are invariably detrimental to consumers. Both the Tetra Pak and France Télécom cases offer clear illustrations of the European Court of Justice’s reasoning on this point:
[I]t would not be appropriate, in the circumstances of the present case, to require in addition proof that Tetra Pak had a realistic chance of recouping its losses. It must be possible to penalize predatory pricing whenever there is a risk that competitors will be eliminated… The aim pursued, which is to maintain undistorted competition, rules out waiting until such a strategy leads to the actual elimination of competitors.[84]
Similarly:
[T]he lack of any possibility of recoupment of losses is not sufficient to prevent the undertaking concerned reinforcing its dominant position, in particular, following the withdrawal from the market of one or a number of its competitors, so that the degree of competition existing on the market, already weakened precisely because of the presence of the undertaking concerned, is further reduced and customers suffer loss as a result of the limitation of the choices available to them.[85]
In short, the European approach leaves much less room for analysis of a pricing scheme’s concrete effects, making it much more prone to false positives than the Brooke Group standard in the United States. It ignores not only the benefits that consumers may derive from lower prices, but also the chilling effect that broad predatory-pricing standards may exert on firms that attempt to attract consumers with aggressive pricing schemes. There is no basis for enshrining such an approach in California law.
Refusals to deal are another area where the Expert Report’s recommendations would bring California antitrust rules more in line with the EU model. The Expert Report proposes in its example statutory language that:
[L]iability… does not require finding (i) that the unilateral conduct of the defendant altered or terminated a prior course of dealing between the defendant and a person subject to the exclusionary conduct; [or] (ii) that the defendant treated persons subject to the exclusionary conduct differently than the defendant treated other persons[.][86]
The Expert Report further highlights “Discrimination Against Rivals, for example by refusing to provide rivals of the defendant access to a platform or product or service that the defendant provides to other third-parties” as a particular area of concern.[87]
U.S. and EU antitrust laws are hugely different when it comes to refusals to deal. While the United States has imposed strenuous limits on enforcement authorities or rivals seeking to bring such cases, EU competition law sets a far lower threshold for liability. The U.S. approach is firmly rooted in the error-cost framework and, in particular, the conclusion that avoiding Type I (false-positive) errors is more important than avoiding Type II (false-negative) errors. As the Supreme Court held in Trinko:
[Enforced sharing] may lessen the incentive for the monopolist, the rival, or both to invest in those economically beneficial facilities. Enforced sharing also requires antitrust courts to act as central planners, identifying the proper price, quantity, and other terms of dealing—a role for which they are ill suited.[88]
In that case, the Court was unwilling to extend the reach of Section 2, cabining it to a very narrow set of circumstances:
Aspen Skiing is at or near the outer boundary of §2 liability. The Court there found significance in the defendant’s decision to cease participation in a cooperative venture. The unilateral termination of a voluntary (and thus presumably profitable) course of dealing suggested a willingness to forsake short-term profits to achieve an anticompetitive end.[89]
This highlights two key features of American antitrust law concerning refusals to deal. To start, U.S. antitrust law generally does not apply the “essential facilities” doctrine—indeed, as the Court held in Trinko, “we have never recognized such a doctrine.”[90] Accordingly, in the absence of exceptional facts, upstream monopolists are rarely required to supply their product to downstream rivals, even if that supply is “essential” for effective competition in the downstream market.
Moreover, as the Court observed in Trinko, the Aspen Skiing case appears to concern only those limited instances where a firm’s refusal to deal stems from the termination of a preexisting and profitable business relationship.[91] While even this is not likely to be the economically appropriate limitation on liability,[92] its impetus—ensuring that liability is found only in situations where procompetitive explanations for the challenged conduct are extremely unlikely—is appropriate for a regime concerned with minimizing the cost to consumers of erroneous enforcement decisions.
As in most areas of antitrust policy, EU competition law is much more interventionist. Refusals to deal are a central theme of EU enforcement efforts, and there is a relatively low threshold for liability.[93] In theory, for a refusal to deal to infringe EU competition law, it must meet a set of fairly stringent conditions: the input must be indispensable, the refusal must eliminate all competition in the downstream market, and there must not be objective reasons that justify the refusal.[94] Moreover, if the refusal to deal involves intellectual property, it must also prevent the appearance of a new good.[95] In practice, however, all of these conditions have been significantly relaxed by EU courts and the Commission’s decisional practice. This is best evidenced by the lower court’s Microsoft ruling. As John Vickers notes:
[T]he Court found easily in favor of the Commission on the IMS Health criteria, which it interpreted surprisingly elastically, and without relying on the special factors emphasized by the Commission. For example, to meet the “new product” condition it was unnecessary to identify a particular new product… thwarted by the refusal to supply but sufficient merely to show limitation of technical development in terms of less incentive for competitors to innovate.[96]
Thus, EU competition law is far less concerned about its potential chilling effect on firms’ investments than is U.S. antitrust law.
The Expert Report’s wording suggests that its authors would like to see California’s antitrust rules in this area move towards the European model. This seems particularly misguided for a state that so heavily relies on continued investments in innovation.
In discussing its concerns with the state of refusal-to-deal law in the United States, the Expert Report notes that:
[E]ven a monopolist can normally choose the parties with which it will deal and [] a monopolist’s selective refusal to deal with another firm, even a competitor, violates antitrust law only in unusual circumstances…. [The Court] explained that courts are ill-equipped to determine the terms on which one firm should be required to deal with another, so a bright line is necessary to preserve the incentives of both the monopolist and the competitor to compete aggressively in the marketplace. Such a rule may have been reasonable in a setting where “dealing” often meant incurring a large fixed cost to coordinate with the other firm. In an economy containing digital “ecosystems” that connect many businesses to one another, and digital markets with standardized terms of interconnection, such as established application program interfaces (APIs), that rule may immunize much conduct that could be anticompetitive.[97]
This approach is unduly focused on the welfare of specific competitors, rather than the effects on competition and consumers. Indeed, in the Aspen Skiing case (which did find a duty to deal on the defendant’s part), the Supreme Court is clear that the assessment of harm to competitors would be insufficient to establish that a refusal to deal was anticompetitive: “The question whether Ski Co.’s conduct may properly be characterized as exclusionary cannot be answered by simply considering its effect on Highlands. In addition, it is relevant to consider its impact on consumers and whether it has impaired competition in an unnecessarily restrictive way.”[98]
The Expert Report’s additional proposal that liability should not turn on whether the defendant treated particular parties differently in exercising exclusionary conduct (including refusal to deal)[99] is a further move away from effects-based analysis and toward the European model. As Einer Elhauge has noted, there is an important distinction between unconditional and discriminatory exclusionary conduct:
Efforts to simply improve a firm’s own efficiency and win sales by selling a better or cheaper product at above-cost prices should enjoy per se legality without any general requirement to share that greater efficiency with rivals. But exclusionary conditions that discriminate on the basis of rivalry by selectively denying property or products to rivals (or buyers who deal with rivals) are not necessary to further ex ante incentives to enhance the monopolist’s efficiency, and should be illegal when they create a marketwide foreclosure that impairs rival efficiency.[100]
By arguing to impose liability regardless of whether conduct is exercised in a discriminatory fashion, the Expert Report would remove the general protection under U.S. antitrust law for unconditional refusals to deal, and would instead apply the conditional standard to all exclusionary conduct.
It seems quite likely, in fact, that this provision is proposed as a rebuke to the 9th U.S. Circuit Court of Appeals’ holding in FTC v. Qualcomm, which found no duty to deal, in part, because the challenged conduct was applied to all rivals equally.[101] At least three of the Expert Report’s authors are on record as vigorously opposing the holding in Qualcomm.[102] But far from supporting a challenge to Qualcomm’s conduct on the grounds that it harmed competition by targeting threatening rivals, the Expert Report authors’ apparent preferred approach to Qualcomm’s alleged refusal to deal was to attempt to force a wholesale change in Qualcomm’s vertically integrated business model.
In other words, the authors would find liability regardless of how Qualcomm enforces its license terms, and would prefer a legal standard that does not condition that finding on exclusionary conduct against only certain rivals. In essence, they see operating at all in the relevant market as a harm.[103] Whatever the merits of this argument in the Qualcomm case, it should not be generalized to undermine the sensible limits that U.S. antitrust has imposed on the refusal-to-deal theory of harm.
Finally, the Expert Report would take a leaf out of the European book when it comes to vertical restraints, including rebates, exclusive dealing, “most favored nation” (MFN) clauses, and platform conduct. Here, again, the Expert Report singles these practices out for attention:
Loyalty Rebates, which penalize a customer that conducts more business with the defendant’s rivals, as opposed to volume discounts, which are generally procompetitive; Exclusive Dealing Provisions, which disrupt the ability of counterparties to deal with the defendant’s rivals, especially if such provisions are widely used by the defendant; Most-Favored Nation Clauses, which prohibit counterparties from dealing with the defendant’s rivals on more favorable terms and conditions than those on which they deal with the defendant, especially if such clauses are widely used by the defendant.[104]
Loyalty Rebates, which penalize a customer that conducts more business with the defendant’s rivals, as opposed to volume discounts, which are generally procompetitive;
Exclusive Dealing Provisions, which disrupt the ability of counterparties to deal with the defendant’s rivals, especially if such provisions are widely used by the defendant;
Most-Favored Nation Clauses, which prohibit counterparties from dealing with the defendant’s rivals on more favorable terms and conditions than those on which they deal with the defendant, especially if such clauses are widely used by the defendant.[104]
There are vast differences between U.S. and EU competition law with respect to vertical restraints. On the one hand, since the Supreme Court’s Leegin ruling, even price-related vertical restraints (such as resale price maintenance, or “RPM”) are assessed under the rule of reason in the United States.[105] Some commentators have gone so far as to say that, in practice, U.S. case law almost amounts to per se legality.[106] Conversely, EU competition law treats RPM as severely as it treats cartels. Both RPM and cartels are considered restrictions of competition “by object”—the EU’s equivalent of a per se prohibition.[107] This severe treatment also applies to nonprice vertical restraints that tend to partition the European internal market.[108] Furthermore, in the Consten and Grundig ruling, the ECJ rejected the consequentialist (and economically grounded) principle that inter-brand competition is the appropriate touchstone to assess vertical restraints:
Although competition between producers is generally more noticeable than that between distributors of products of the same make, it does not thereby follow that an agreement tending to restrict the latter kind of competition should escape the prohibition of Article 85(1) merely because it might increase the former.[109]
This especially stringent stance toward vertical restrictions flies in the face of the longstanding mainstream-economics literature addressing the subject. As Patrick Rey and Jean Tirole (hardly the most free-market of economists) saw it as long ago as 1986: “Another major contribution of the earlier literature on vertical restraints is to have shown that per se illegality of such restraints has no economic foundations.”[110]
While there is theoretical literature (rooted in so-called “possibility theorems”) that suggests firms can engage in anticompetitive vertical conduct, the empirical evidence strongly suggests that, even though firms do impose vertical restraints, it is exceedingly rare that they have net anticompetitive effects. Nor is the relative absence of such evidence for a lack of looking: countless empirical papers have investigated the competitive effects of vertical integration and vertical contractual arrangements and found predominantly procompetitive benefits or, at worst, neutral effects.[111]
Unlike in the EU, the U.S. Supreme Court in Leegin took account of the weight of the economic literature and changed its approach to RPM to ensure that the law no longer simply precluded its arguable consumer benefits: “Though each side of the debate can find sources to support its position, it suffices to say here that economics literature is replete with procompetitive justifications for a manufacturer’s use of resale price maintenance.”[112] Further, “[the prior approach to resale price maintenance restraints] hinders competition and consumer welfare because manufacturers are forced to engage in second-best alternatives and because consumers are required to shoulder the increased expense of the inferior practices.”[113]
By contrast, the EU’s continued per se treatment of RPM strongly reflects its precautionary-principle approach to antitrust, under which European regulators and courts readily condemn conduct that could conceivably injure consumers, even where such injury is, according to the best economic understanding, unlikely (at best).[114] The U.S. approach to such vertical restraints, which rests on likelihood rather than mere possibility,[115] is far less likely to erroneously condemn beneficial conduct.
There are also significant differences between the U.S. and EU stances on the issue of rebates. This reflects the EU’s relative willingness to disregard complex economics in favor of noneconomic, formalist presumptions (at least, prior to the ECJ’s Intel ruling). Whereas U.S. antitrust has predominantly moved to an effects-based assessment of rebates,[116] this is only starting to happen in the EU. Prior to the ECJ’s Intel ruling, the EU implemented an overly simplistic approach to assessing rebates by dominant firms, where so-called “fidelity” rebates were almost per se illegal.[117] Likely recognizing the problems inherent in this formalistic assessment of rebates, the ECJ’s Intel ruling moved the European case law on rebates to a more evidence-based approach, holding that:
[T]he Commission is not only required to analyse, first, the extent of the undertaking’s dominant position on the relevant market and, secondly, the share of the market covered by the challenged practice, as well as the conditions and arrangements for granting the rebates in question, their duration and their amount; it is also required to assess the possible existence of a strategy aiming to exclude competitors that are at least as efficient as the dominant undertaking from the market.[118]
As Advocate General Nils Wahl noted in his opinion in the case, only such an evidence-based approach could ensure that the challenged conduct was actually harmful:
In this section, I shall explain why an abuse of dominance is never established in the abstract: even in the case of presumptively unlawful practices, the Court has consistently examined the legal and economic context of the impugned conduct. In that sense, the assessment of the context of the conduct scrutinised constitutes a necessary corollary to determining whether an abuse of dominance has taken place. That is not surprising. The conduct scrutinised must, at the very least, be able to foreclose competitors from the market in order to fall under the prohibition laid down in Article 102 TFEU.”[119]
The Expert Report, however, contains a direct refutation of Intel, thus “out-Europing” even Europe itself in its treatment of vertical restraints:
7) Plaintiffs need not show that the rivals whose ability to compete has been reduced are as efficient, or nearly as efficient, as the defendant. Harm to competition can arise when the competitive constraints on the defendant are weakened even when those competitive constraints come from less efficient rivals. Indeed, harm to competition can be especially great when a firm that faces limited competition further weakens its rivals.[120]
If adopted, this language would significantly limit the need for California courts to show actual anticompetitive harm arising from challenged vertical conduct. Similarly, the Expert Report’s rejection of the “no-economic-sense” test—“liability…does not require finding… that the conduct of the defendant makes no economic sense apart from its tendency to harm competition”[121]—removes another mechanism to ensure that vertical restraints lead to actual consumer harm, rather than simply injury to a competitor.
As Thom Lambert persuasively demonstrates, there are imperfections with both the “as efficient competitor” test and the “no economic sense” test. But these commonly applied tools do at least help to ensure that courts undertake to find actual anticompetitive harm.[122] The rejection of both simultaneously is decidedly problematic, suggesting a preference for no serious economic constraints on courts’ discretion to condemn practices solely on the ground of structural harm—i.e., harm to certain competitors.
By contrast, the alternative definition that Lambert proposes “would deem conduct to be unreasonably exclusionary if it would exclude from the defendant’s market a ‘competitive rival,’ defined as a rival that is both as determined as the defendant and capable, at minimum efficient scale, of matching the defendant’s efficiency.”[123] While this test may appear to have some traits in common with the Expert Report’s “diminishing competitive constraints” approach, it incorporates a much more robust set of principles and limitations, designed to more clearly distinguish conduct that merely excludes from exclusions that actually cause anticompetitive harm, while minimizing administrative costs.[124] The Expert Report, by contrast, explicitly removes such limitations.
A related problem concerns the Expert Report’s proposal that “when a defendant operates a multi-sided platform business, [liability does not turn on whether] the conduct of the defendant presents harm to competition on more than one side of the multi-sided platform[.]”[125] This provision is meant to reverse the Supreme Court’s holding on platform vertical restraints in Ohio v. American Express that:
Due to indirect network effects, two-sided platforms cannot raise prices on one side without risking a feedback loop of declining demand. And the fact that two-sided platforms charge one side a price that is below or above cost reflects differences in the two sides’ demand elasticity, not market power or anticompetitive pricing. Price increases on one side of the platform likewise do not suggest anticompetitive effects without some evidence that they have increased the overall cost of the platform’s services. Thus, courts must include both sides of the platform—merchants and cardholders—when defining the credit-card market…. …For all these reasons, “[i]n two-sided transaction markets, only one market should be defined.” Any other analysis would lead to “mistaken inferences” of the kind that could “chill the very conduct the antitrust laws are designed to protect.”[126]
Due to indirect network effects, two-sided platforms cannot raise prices on one side without risking a feedback loop of declining demand. And the fact that two-sided platforms charge one side a price that is below or above cost reflects differences in the two sides’ demand elasticity, not market power or anticompetitive pricing. Price increases on one side of the platform likewise do not suggest anticompetitive effects without some evidence that they have increased the overall cost of the platform’s services. Thus, courts must include both sides of the platform—merchants and cardholders—when defining the credit-card market….
…For all these reasons, “[i]n two-sided transaction markets, only one market should be defined.” Any other analysis would lead to “mistaken inferences” of the kind that could “chill the very conduct the antitrust laws are designed to protect.”[126]
As Greg Werden notes, “[a]lleging the relevant market in an antitrust case does not merely identify the portion of the economy most directly affected by the challenged conduct; it identifies the competitive process alleged to be harmed.”[127] Particularly where novel conduct or novel markets are involved, and thus the relevant economic relationships are poorly understood, market definition is crucial to determine “what the nature of [the relevant] products is, how they are priced and on what terms they are sold, what levers [a firm] can use to increase its profits, and what competitive constraints affect its ability to do so.”[128] This is the approach the Supreme Court employed in Amex.
The Expert Report’s proposal to overrule Amex in California is deeply misguided. The economics of two-sided markets are such that “there is no meaningful economic relationship between benefits and costs on each side of the market considered alone…. [A]ny analysis of social welfare must account for the pricing level, the pricing structure, and the feasible alternatives for getting all sides on board.”[129] Assessing anticompetitive harm with respect to only one side of a two-sided market will arbitrarily include and exclude various sets of users and transactions, and incorrectly assess the extent and consequences of market power.[130]
Indeed, evidence of a price effect on only one side of a two-sided platform can be consistent with either neutral, anticompetitive, or procompetitive conduct.[131] Only when output is defined to incorporate the two-sidedness of the product, and where price and quality are assessed on both sides of a sufficiently interrelated two-sided platform, is it even possible to distinguish between procompetitive and anticompetitive effects. 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.”[132]
Notably, while some scholars have opposed the Amex holding that both sides of a two-sided market must be included in the relevant market in order to assess anticompetitive harm, some of these critics appear to note that the problem is not that both sides should not be taken into account at all, but only that they should not be included in the same relevant market (thus, permitting a plaintiff to make out a prima facie case by showing harm to just one side).[133] The language proposed in the Expert Report, however, would go even further, seemingly permitting a finding of liability based solely on harm to one side of a multi-sided market, regardless of countervailing effects on the other side. As in the Amex case itself, such an approach would confer benefits on certain platform business users (in Amex, retailers) at the direct expense of consumers (in Amex, literal consumers of retail goods purchased by credit card).
Adopting such an approach in California—whose economy is significantly dependent on multisided digital-platform firms, including both incumbents and startups[134]—would imperil the state’s economic prospects[135] and exacerbate the incentives for such firms to take jobs, investments, and tax dollars elsewhere.[136]
[1] Antitrust Law — Study B-750, California Law Revision Commission (last revised Apr. 26, 2024), available at http://www.clrc.ca.gov/B750.html.
[2] We welcome the opportunity to comment further or to respond to questions about our comments. Please contact us at [email protected].
[3] Regulation (EU) 2022/1925 of the European Parliament and of the Council of 14 September 2022 on Contestable and Fair Markets in the Digital Sector and amending Directives (EU) 2019/1937 and (EU) 2020/1828, 2022 O.J. (L 265) 1.
[4] See Aaron Edlin, Doug Melamed, Sam Miller, Fiona Scott Morton, & Carl Shapiro, Expert Report on Single Firm Conduct, 2024 Cal. L. Rev. Comm’n (hereinafter “Expert Report”), available at ExRpt-B750-Grp1.pdf.
[5] Id. at 14.
[6] Frank H. Easterbrook, The Limits of Antitrust, 63 Tex. L. Rev. 1, 15 (1984).
[7] See, especially, Pac. Bell Tel. Co. v. linkLine Commc’ns, Inc., 555 U.S. 438 (2009); Credit Suisse Sec. (U.S.A) LLC v. Billing, 551 U.S. 264, 265 (2007); Verizon Comm. v. Law Offices of Trinko, 540 U.S. 398 (2004).
[8] Trinko, 540 U.S. at 414 (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 594 (1986)).
[9] Easterbrook, supra note 6, at 7.
[10] See, e.g., Aurelien Portuese, The Rise of Precautionary Antitrust: An Illustration with the EU Google Android Decision, CPI EU News November 2019 (2019) at 4 (“The absence of demonstrated consumer harm in order to find antitrust injury is not fortuitous, but represents a fundamental alteration of antitrust enforcement, predominantly when it comes to big tech companies. Coupled with the lack of clear knowledge, a shift in the burden of proof, and the lack of a consumer harm requirement in order to find abuse of dominance all reveal the precautionary approach that the European Commission has now embraced.”).
[11] See Nassim Nicholas Taleb, Rupert Read, Raphael Douady, Joseph Norman, & Yaneer Bar-Yam, The Precautionary Principle (With Application to the Genetic Modification of Organisms), arXiv preprint arXiv:1410.5787, 2 (2014). (“The purpose of the PP is to avoid a certain class of what, in probability and insurance, is called “ruin” problems. A ruin problem is one where outcomes of risks have a non-zero probability of resulting in unrecoverable losses.”).
[12] The precautionary principles implies that policymakers should bar certain mutually advantageous transactions due to the social costs that they might impose further down the line. Moreover, the precautionary principle has historically been associated with anti-growth positions. See, e.g., Jaap C Hanekamp, Guillaume Vera?Navas, & SW Verstegen, The Historical Roots of Precautionary Thinking: The Cultural Ecological Critique and ‘The Limits to Growth’, 8 J. Risk Res. 295, 299 (2005) (“The first inklings of today’s precautionary thinking as a means of creating a sustainable society can be traced historically to ‘The Limits to Growth’…”).
[13] See, e.g., Greg Ip, Europe Regulates Its Way to Last Place, Wall St. J. (Jan. 31, 2024), https://www.wsj.com/economy/europe-regulates-its-way-to-last-place-2a03c21d. (“Of course, Europe’s economy underperforms for lots of reasons, from demographics to energy costs, not just regulation. And U.S. regulators aren’t exactly hands-off. Still, they tend to act on evidence of harm, whereas Europe’s will act on the mere possibility. This precautionary principle can throttle innovation in its cradle.”) (emphasis added).
[14] See, e.g., id.; Eric Albert, Europe Trails Behind the United States in Economic Growth, Le Monde (Nov. 1, 2023), https://www.lemonde.fr/en/economy/article/2023/11/01/europe-trails-behind-the-united-states-in-economic-growth_6218259_19.html (“For the past fifteen years, Europe has been falling further and further behind…. Since 2007, per capita growth on the other side of the Atlantic has been 19.2%, compared with 7.6% in the eurozone. A gap of almost twelve points.”).
[15] Fredrik Erixon, Oscar Guinea, & Oscar du Roy, If the EU Was a State in the United States: Comparing Economic Growth Between EU and US States, ECIPE Policy Brief No. 07/2023 (2023), available at https://ecipe.org/publications/comparing-economic-growth-between-eu-and-us-states.
[16] Among other things, the Expert Report argues that antitrust should be used to address alleged policy concerns broader than protecting competition, and should accept reductions in competition to do so. See Expert Report, supra note 1, at 2 (“Nonetheless, these important values [‘broader social and political goals’] can influence the evidentiary standards that the Legislature instructs the courts to apply when handling individual antitrust cases. For example, the California Legislature could instruct the courts to err on the side of enforcement when the effect of the conduct at issue on competition is uncertain.”). But as one of the authors of the Expert Report has himself noted elsewhere: “while antitrust enforcement has a vital role to play in keeping markets competitive, antitrust law and antitrust institutions are ill suited to directly address concerns associated with the political power of large corporations or other public policy goals such as income inequality or job creation.” Carl Shapiro, Antitrust in a Time of Populism, 61 Int’l J. Indus. Org. 714, 714 (2018) (emphasis added).
[17] See generally Easterbrook, supra note 6, at 14-15. See also Geoffrey A. Manne & Joshua D. Wright, Innovation and the Limits of Antitrust, 6 J. Comp. L. & Econ. 153 (2010).
[18] See Robert W. Crandall & Clifford Winston, Does Antitrust Policy Improve Consumer Welfare? Assessing the Evidence, 17 J. Econ. Persp. 3, 4 (2003) (“[T]he economics profession should conclude that until it can provide some hard evidence that identi?es where the antitrust authorities are signi?cantly improving consumer welfare and can explain why some enforcement actions and remedies are helpful and others are not, those authorities would be well advised to prosecute only the most egregious anticompetitive violations.”).
[19] David Autor, David Dorn, Lawrence F. Katz, Christina Patterson & John Van Reenen, The Fall of the Labor Share and the Rise of Superstar Firms, 135 Q.J. Econ. 645, 651 (2020) (citations omitted) (emphasis added).
[20] See, e.g., Thomas Philippon, The Great Reversal: How America Gave Up on Free Markets (2019); Jan De Loecker, Jan Eeckhout, & Gabriel Unger, The Rise of Market Power and the Macroeconomic Implications, 135 Q. J. Econ. 561 (2020); David Wessel, Is Lack of Competition Strangling the U.S. Economy?, Harv. Bus. Rev. (Apr. 2018), https://hbr.org/2018/03/is-lack-of-competition-strangling-the-u-s-economy; Adil Abdela & Marshall Steinbaum, The United States Has a Market Concentration Problem, Roosevelt Institute Issue Brief (2018), available at https://rooseveltinstitute.org/wp-content/uploads/2020/07/RI-US-market-concentration-problem-brief-201809.pdf.
[21] A number of papers simply do not find that the accepted story—built in significant part around the famous De Loecker, Eeckhout, & Unger study, id.—regarding the vast size of markups and market power is accurate. The claimed markups due to increased concentration are likely not nearly as substantial as commonly assumed. See, e.g., James Traina, Is Aggregate Market Power Increasing? Production Trends Using Financial Statements, Stigler Center Working Paper (Feb. 2018), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3120849; see also World Economic Outlook, April 2019 Growth Slowdown, Precarious Recovery, International Monetary Fund (Apr. 2019), available at https://www.imf.org/en/Publications/WEO/Issues/2019/03/28/world-economic-outlook-april-2019. Another study finds that profits have increased, but are still within their historical range. See Loukas Karabarbounis & Brent Neiman, Accounting for Factorless Income, 33 NBER Macro. Annual 167 (2019). And still another shows decreased wages in concentrated markets, but also that local concentration has been decreasing over the relevant time period, suggesting that lack of enforcement is not a problem. See Kevin Rinz, Labor Market Concentration, Earnings, and Inequality, 57 J. Hum. Resources S251 (2022).
[22] See Esteban Rossi-Hansberg, Pierre-Daniel Sarte, & Nicholas Trachter, Diverging Trends in National and Local Concentration, 35 NBER Macro. Annual 115, 116 (2020) (“[T]he observed positive trend in market concentration at the national level has been accompanied by a corresponding negative trend in average local market concentration…. The narrower the geographic definition, the faster is the decline in local concentration. This is meaningful because the relevant definition of concentration from which to infer changes in competition is, in most sectors, local and not national.”).
[23] Id. at 117 (emphasis added).
[24] Sharat Ganapati, Growing Oligopolies, Prices, Output, and Productivity, 13 Am. Econ. J. Micro. 309, 323-24 (2021) (emphasis added).
[25] Chang-Tai Hsieh & Esteban Rossi-Hansberg, The Industrial Revolution in Services, 1 J. Pol. Econ. Macro. 3, 3 (2023) (emphasis added). See also id. at 39 (“Over the past 4 decades, the US economy has experienced a new industrial revolution that has enabled ?rms to scale up production over a large number of establishments dispersed across space. The adoption of these technologies has particularly favored productive ?rms in nontraded-service industries. The industrial revolution in services has had its largest effect in smaller and mid-sized local markets…. The gain to local consumers from access to more, better, and novel varieties of local services from the entry of top ?rms into local markets is not captured by the BLS. We estimate that such ‘missing growth’ is as large as 1.6% in the smallest markets and averages 0.5% per year from 1977 to 2013 across all US cities.”) (emphasis added).
[26] David Berger, Kyle Herkenhoff & Simon Mongey, Labor Market Power, 112 Am. Econ. Rev. 1147, 1148-49 (2022).
[27] Shapiro, Antitrust in a Time of Populism, supra note 16, at 727-28.
[28] Expert Report, supra note 1, at 15 (emphasis added).
[29] Id. at 2.
[30] A. Douglas Melamed, Antitrust Law and Its Critics, 83 Antitrust L.J. 269, 285 (2020).
[31] Herbert J. Hovenkamp & Fiona Scott Morton, Framing the Chicago School of Antitrust Analysis, 168 U. Penn. L. Rev. 1843, 1870-71 (2020).
[32] Easterbrook, supra note 6, at 2-3.
[33] Hovenkamp & Scott Morton, supra note 31, at 1849.
[34] See generally Geoffrey A. Manne, Error Costs in Digital Markets, in Global Antitrust Institute Report on the Digital Economy (Joshua D. Wright & Douglas H. Ginsburg eds., 2020), available at https://gaidigitalreport.com/wp-content/uploads/2020/11/Manne-Error-Costs-in-Digital-Markets.pdf.
[35] Bruce H. Kobayashi & Timothy J. Muris, Chicago, Post-Chicago, and Beyond: Time to Let Go of the 20th Century, 78 Antitrust L.J. 147, 166 (2012).
[36] See id. at 166 (“[T]here is very little empirical evidence based on in-depth industry studies that RRC is a significant antitrust problem.”); id. at 148 (“Because of [the Post-Chicago School] literature’s focus on theoretical possibility theorems, little evidence exists regarding the empirical relevance of these theories.”).
[37] See Expert Report, supra note 1, at 7 (“The history of federal antitrust enforcement of single-firm conduct illustrates that when courts are uncertain about how to assess conduct, they often find in favor of defendants even if the conduct harms competition simply because the plaintiff bears the burden of proof.”).
[38] See supra notes 19-27, and accompanying text.
[39] See Case C-413/14 P Intel v Commission, ECLI:EU:C:2017:788.
[40] See Steven Berry, Martin Gaynor, & Fiona Scott Morton, Do Increasing Markups Matter? Lessons from Empirical Industrial Organization, 33 J. Econ. Persp. 48 (2019). See also Jonathan Baker & Timothy F. Bresnahan, Economic Evidence in Antitrust: Defining Markets and Measuring Market Power in Handbook of Antitrust Economics 1 (Paolo Buccirossi ed., 2008) (“The Chicago identification argument has carried the day, and structure-conduct-performance empirical methods have largely been discarded in economics.”).
[41] See, e.g., Gregory J. Werden & Luke Froeb, Don’t Panic: A Guide to Claims of Increasing Concentration 33 Antitrust 74 (2018), https://ssrn.com/abstract=3156912, and papers cited therein. As Werden & Froeb conclude: No evidence we have uncovered substantiates a broad upward trend in the market concentration in the United States, but market concentration undoubtedly has increased significantly in some sectors, such as wireless telephony. Such increases in concentration, however, do not warrant alarm or imply a failure of antitrust. Increases in market concentration are not a concern of competition policy when concentration remains low, yet low levels of concentration are being cited by those alarmed about increasing concentration…. Id. at 78. See also Joshua D. Wright, Elyse Dorsey, Jonathan Klick, & Jan M. Rybnicek, Requiem for a Paradox: The Dubious Rise and Inevitable Fall of Hipster Antitrust, 51 Ariz. St. L.J. 293 (2019).
[42] See, e.g., Expert Report, supra note 1, at 15.
[43] Francine Lafontaine & Margaret Slade, Exclusive Contracts and Vertical Restraints: Empirical Evidence and Public Policy, in Handbook of Antitrust Economics 391 (Paolo Buccirossi ed., 2008).
[44] See, e.g., Daniel P. O’Brien, The Antitrust Treatment of Vertical Restraints: Beyond the Possibility Theorems, in The Pros and Cons of Vertical Restraints 40, 72-76 (Swedish Competition Authority, 2008) (“[Vertical restraints] are unlikely to be anticompetitive in most cases.”); James C. Cooper, et al., Vertical Antitrust Policy as a Problem of Inference, 23 Int’l J. Indus. Org. 639 (2005) (surveying the empirical literature, concluding that although “some studies find evidence consistent with both pro- and anticompetitive effects… virtually no studies can claim to have identified instances where vertical practices were likely to have harmed competition”); Benjamin Klein, Competitive Resale Price Maintenance in the Absence of Free-Riding, 76 Antitrust L.J. 431 (2009); Bruce H. Kobayashi, Does Economics Provide a Reliable Guide to Regulating Commodity Bundling by Firms? A Survey of the Economic Literature, 1 J. Comp. L. & Econ. 707 (2005).
[45] James Cooper, Luke Froeb, Daniel O’Brien, & Michael Vita, Vertical Restrictions and Antitrust Policy: What About the Evidence?, Comp. Pol’y Int’l 45 (2005).
[46] Id.
[47] Expert Report, supra note 1, at 16: (b) Conduct, whether by one or multiple actors, is deemed to be anticompetitive exclusionary conduct, if the conduct tends to (1) diminish or create a meaningful risk of diminishing the competitive constraints imposed by the defendant’s rivals and thereby increase or create a meaningful risk of increasing the defendant’s market power, and (2) does not provide sufficient benefits to prevent the defendant’s trading partners from being harmed by that increased market power.
[48] Id.
[49] See TransUnion LLC v. Ramirez, 141 S. Ct. 2190, 2210-11 (2021) (“The plaintiffs rely on language from Spokeo where the Court said that ‘the risk of real harm’ (or as the Court otherwise stated, a ‘material risk of harm’) can sometimes ‘satisfy the requirement of concreteness…. [but] in a suit for damages, the mere risk of future harm, standing alone, cannot qualify as a concrete harm—at least unless the exposure to the risk of future harm itself causes a separate concrete harm.”) (citations omitted).
[50] In essence, for uncertain future effects, U.S. antitrust law applies something like a “reasonableness” standard. See U.S. v. Microsoft Corp., 253 F.3d 34, 79 (D.C. Cir. 2001) (enjoining “conduct that is reasonably capable of contributing significantly to a defendant’s continued monopoly power”) (emphasis added). Of course, “material risk” is undefined, so perhaps it is meant to accord with this standard. If so, it should use the same language.
[51] Herbert Hovenkamp, Antitrust Harm and Causation, 99 Wash. U. L. Rev. 787, 841 (2021). See also id. at 788 (“While a showing of actual harm can be important evidence, in most cases the public authorities need not show that harm has actually occurred, but only that the challenged conduct poses an unreasonable danger that it will occur.”) (emphasis added).
[52] Expert Report, supra note 1, at 16.
[53] See Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 487-88 (1977) (“If the acquisitions here were unlawful, it is because they brought a ‘deep pocket’ parent into a market of ‘pygmies.’ Yet respondents’ injury—the loss of income that would have accrued had the acquired centers gone bankrupt—bears no relationship to the size of either the acquiring company or its competitors. Respondents would have suffered the identical ‘loss’—but no compensable injury—had the acquired centers instead obtained refinancing or been purchased by ‘shallow pocket’ parents, as the Court of Appeals itself acknowledged. Thus, respondents’ injury was not of ‘the type that the statute was intended to forestall[.]’”) (citations omitted).
[54] Expert Report, supra note 1, at 17.
[55] Microsoft, 253 F.3d at 79.
[56] Treaty on European Union, Protocol (No27) on the internal market and competition, Official Journal 115.
[57] See especially Expert Report supra note 1, at 17, §§ (f)(8) & (g) through (i).
[58] See, e.g., Joaquín Almunia, Competition and Consumers: The Future of EU Competition Policy, Speech at European Competition Day, Madrid (May 12, 2010), available at http://europa.eu/rapid/press-release_SPEECH-10-233_en.pdf (“All of us here today know very well what our ultimate objective is: Competition policy is a tool at the service of consumers. Consumer welfare is at the heart of our policy and its achievement drives our priorities and guides our decisions.”). Even then, however, it must be noted that Almunia elaborated that “[o]ur objective is to ensure that consumers enjoy the benefits of competition, a wider choice of goods, of better quality and at lower prices.” Id. (emphasis added). In fact, expanded consumer choice is not necessarily the same thing as consumer welfare, and may at times be at odds with it. See Joshua D. Wright & Douglas H. Ginsburg, The Goals of Antitrust: Welfare Trumps Choice, 81 Fordham L. Rev. 2405 (2013).
[59] See Commission Guidance on the Commission’s Enforcement Priorities in Applying Article 82 of the EC Treaty to Abusive Exclusionary Conduct by Dominant Undertakings, 2009 O. J.(C 45)7 at n. 5, §6 (“[T]he Commission is mindful that what really matters is protecting an effective competitive process and not simply protecting competitors.”).
[60] See Case C-209/10, Post Danmark A/S v Konkurrencerådet, ECLI:EU:C:2012:172, §22 (“Competition on the merits may, by definition, lead to the departure from the market or the marginalisation of competitors that are less efficient and so less attractive to consumers….”).
[61] See Pablo Ibáñez Colomo, Exclusionary Discrimination Under Article 102 TFEU, 51 Common Market L. Rev. 153 (2014).
[62] Id.
[63] Expert Report, supra note 1, at 16.
[64] Id.
[65] See Brian Albrecht, Dirk Auer, & Geoffrey A. Manne, Labor Monopsony and Antitrust Enforcement: A Cautionary Tale, ICLE White Paper No. 2024-05-01 (2024) at 21, available at https://laweconcenter.org/wp-content/uploads/2024/05/Labor-Monopsony-Antitrust-final-.pdf (“[Conduct] that creates monopsony power will necessarily reduce the prices and quantity purchased of inputs like labor and materials. But this same effect (reduced prices and quantities for inputs) would also be observed if the [conduct] is efficiency enhancing. If there are efficiency gains, the [] entity may purchase fewer of one or more inputs than [it would otherwise]. For example, if the efficiency gain arises from the elimination of redundancies in a hospital…, the hospital will buy fewer inputs, hire fewer technicians, or purchase fewer medical supplies.”). See also Ivan Kirov & James Traina, Labor Market Power and Technological Change in US Manufacturing, conference paper for Institute for Labor Economics (Oct. 2022), at 42, available at https://conference.iza.org/conference_files/Macro_2022/traina_j33031.pdf (“The labor [markdown] therefore increases because ‘productivity’ rises, and not because pay falls. This suggests that technological change plays a large role in the rise of the labor [markdown].”).
[66] Expert Report, supra note 1, at 15 (emphasis added).
[67] Trinko, 540 U.S. at 407.
[68] See Expert Report, supra note 1, at 16 (“‘Trading partners’ are parties with which the defendant deals, either as a customer or as a supplier. In [assessing anticompetitive exclusionary conduct], a trading partner is deemed to be harmed or benefited even if that trading partner passes some or all of that harm or benefit on to other parties.”).
[69] Id. at 15 (emphasis added).
[70] Id. at 13.
[71] See supra Section II.
[72] Expert Report, supra note 1, at 17. As the Expert Report acknowledges elsewhere, recoupment is a “requirement for a predatory pricing claim under federal antitrust law.” Id. at 15.
[73] See Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 222-27 (1993).
[74] Id. at 224.
[75] On entry deterrence, see Steven C. Salop, Strategic Entry Deterrence, 69 Am. Econ. Rev. 335 (1979).
[76] See generally John S. McGee, Predatory Pricing Revisited, 23 J.L. Econ 289 (1980). Some economists have more recently posed a “strategic” theory of predatory pricing that purports to expand substantially (and redirect) the scope of circumstances in which predatory pricing could be rational. See, e.g., Patrick Bolton, Joseph F. Brodley, & Michael H. Riordan, Predatory Pricing: Strategic Theory and Legal Policy, 88 Geo. L. J. 2239 (2000). While this and related theories have, indeed, likely expanded the theoretical scope of circumstances conducive to predatory pricing, they have not established that these conditions are remotely likely to occur. See Bruce H. Kobayashi, The Law and Economics of Predatory Pricing, in 4 Encyclopedia of Law and Economics (De Geest, ed. 2017) (“The models showing rational predation can exist and the evidence consistent with episodes of predation do not demonstrate that predation is either ubiquitous or frequent. Moreover, many of these models do not consider the welfare effects of predation, and those that do generally find the welfare effects ambiguous.”). From a legal perspective, particularly given the risk of error in discerning the difference between predatory pricing and legitimate price cutting, it is far more important to limit cases to situations likely to cause consumer harm rather than those in which harm is a remote possibility. The cost of error, of course, is the legal imposition of artificially inflated prices for consumers.
[77] Case C-62/86, AKZO v Comm’n, EU:C:1991:286, ¶¶ 71-72.
[78] Id. at ¶ 72 (“[P]rices below average total costs, that is to say, fixed costs plus variable costs, but above average variable costs, must be regarded as abusive if they are determined as part of a plan for eliminating a competitor.”).
[79] Case C-333/94 P, Tetra Pak v Comm’n, EU:C:1996:436, ¶ 44. See also, Case C-202/07 P, France Télécom v Comm’n, EU:C:2009:214, ¶ 110.
[80] Id. at ¶ 107.
[81] See, e.g., Bolton, Brodley, & Riordan, supra note 76.
[82] See id. at 2267 (“[A]nticipated recoupment is intrinsic in [strategic] theories, because without such an expectation predatory pricing is not sensible economic behavior.”). See also Kenneth G. Elzinga & David E. Mills, Predatory Pricing and Strategic Theory, 89 Geo. L.J. 2475, 2483 (2001) (“Of course, no proposed scheme of predation is credible unless it embodies a plausible means of recoupment, but this does not justify taking shortcuts in analysis. In particular, it is unwise to presume that a plausible means of recoupment exists just because facts supporting other features of a strategic theory, such as asymmetric information, are evident. Facts conducive to probable recoupment ought to be established independently.”).
[83] Kobayashi & Muris, supra note 35, at 166.
[84] Tetra Pak, supra note 79, at ¶ 44.
[85] France Télécom, supra note 79, at ¶ 112.
[86] Expert Report, supra note 1, at 17.
[87] Expert Report, supra note 1, at 15.
[88] Trinko, 540 U.S. at 408.
[89] Trinko, 540 U.S. at 409.
[90] Trinko, 540 U.S. at 411. See also Phillip Areeda, Essential Facilities: An Epithet in Need of Limiting Principles, 58 Antitrust L.J. 841 (1989).
[91] Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585, 610-11 (1985).
[92] See Alan J. Meese, Property, Aspen, and Refusals to Deal, 73 Antitrust L. J. 81, 112-13 (2005).
[93] See Joined Cases 6/73 & 7/73, Instituto Chemioterapico Italiano S.p.A. and Commercial Solvents Corporation v. Comm’n, 1974 E.C.R. 223, [1974] 1 C.M.L.R. 309.
[94] See Case C-7/97, Oscar Bronner GmbH & Co. KG v Mediaprint Zeitungs, EU:C:1998:569, §41.
[95] See Case C-241/91 P, RTE and ITP v Comm’n, EU:C:1995:98, §54. See also, Case C-418/01, IMS Health, EU:C:2004:257, §37.
[96] John Vickers, Competition Policy and Property Rights, 120 Econ. J. 390 (2010).
[97] Expert Report, supra note 1, at 7.
[98] Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585, 605 (1985).
[99] Expert Report, supra note 1, at 17.
[100] Einer Elhauge, Defining Better Monopolization Standards, 56 Stan. L. Rev. 253, 343 (2003).
[101] See Fed. Trade Comm’n v. Qualcomm Inc., 969 F.3d 974, 995 (9th Cir. 2020) (“Finally, unlike in Aspen Skiing, the district court found no evidence that Qualcomm singles out any specific chip supplier for anticompetitive treatment in its SEP-licensing. In Aspen Skiing, the defendant refused to sell its lift tickets to a smaller, rival ski resort even as it sold the same lift tickets to any other willing buyer (including any other ski resort)…. Qualcomm applies its OEM-level licensing policy equally with respect to all competitors in the modem chip markets and declines to enforce its patents against these rivals…. Instead, Qualcomm provides these rivals indemnifications…—the Aspen Skiing equivalent of refusing to sell a skier a lift ticket but letting them ride the chairlift anyway. Thus, while Qualcomm’s policy toward OEMs is ‘no license, no chips,’ its policy toward rival chipmakers could be characterized as ‘no license, no problem.’ Because Qualcomm applies the latter policy neutrally with respect to all competing modem chip manufacturers, the third Aspen Skiing requirement does not apply.”)
[102] Carl Shapiro was an economic expert for the FTC in the case, and Fiona Scott Morton was an economic expert for Apple in related litigation against Qualcomm. Doug Melamed was co-author of an amicus brief supporting the FTC in the 9th U.S. Circuit Court of Appeals. (In the interests of full disclosure, we authored an amicus brief, joined by 12 scholars of law & economics, supporting Qualcomm in the 9th Circuit. See Brief of Amici Curiae International Center for Law & Economics and Scholars of Law and Economics in Support of Appellant and Reversal, FTC v. Qualcomm, No. 19-16122 (9th Cir., Aug. 30, 2019), available at https://laweconcenter.org/wp-content/uploads/2019/09/ICLE-Amicus-Brief-in-FTC-v-Qualcomm-FINAL-9th-Cir-2019.pdf).
[103] For a discussion of the frailties of these arguments, see Geoffrey A. Manne & Dirk Auer, Exclusionary Pricing Without the Exclusion: Unpacking Qualcomm’s No License, No Chips Policy, Truth on the Market (Jan. 17, 2020), https://truthonthemarket.com/2020/01/17/exclusionary-pricing-without-the-exclusion-unpacking-qualcomms-no-license-no-chips-policy (“The amici are thus left with the argument that Qualcomm could structure its prices differently, so as to maximize the profits of its rivals. Why it would choose to do so, or should indeed be forced to, is a whole other matter.”). For a response by one of the Expert Report authors, see Mark A. Lemley, A. Douglas Melamed, & Steve Salop, Manne and Auer’s Defense of Qualcomm’s Licensing Policy Is Deeply Flawed, Truth on the Market (Jan. 21, 2020), https://truthonthemarket.com/2020/01/21/manne-and-auers-defense-of-qualcomms-licensing-policy-is-deeply-flawed.
[104] Expert Report, supra note 1, at 15.
[105] See Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877 (2007).
[106] See, e.g., D. Daniel Sokol, The Transformation of Vertical Restraints: Per Se Illegality, The Rule of Reason, and Per Se Legality, 79 Antitrust L.J. 1003, 1004 (2014) (“[T]he shift in the antitrust rules applied to [vertical restraints] has not been from per se illegality to the rule of reason, but has been a more dramatic shift from per se illegality to presumptive legality under the rule of reason.”).
[107] See Commission Regulation (EU) No 330/2010 of 20 April 2010 on the Application of Article 101(3) of the Treaty on the Functioning of the European Union to Categories of Vertical Agreements and Concerted Practices, 2010 O.J. (L 102) art.4 (a).
[108] See, e.g., Case C-403/08, Football Association Premier League and Others, ECLI:EU:C:2011:631, §139. (“[A]greements which are aimed at partitioning national markets according to national borders or make the interpenetration of national markets more difficult must be regarded, in principle, as agreements whose object is to restrict competition within the meaning of Article 101(1) TFEU.”).
[109] Joined Cases-56/64 and 58/64, Consten SARL & Grundig-Verkaufs-GMBH v. Commission of the European Economic Community, ECLI:EU:C:1966:41, at 343.
[110] Patrick Rey & Jean Tirole, The Logic of Vertical Restraints, 76 Am. Econ. Rev. 921, 937 (1986) (emphasis added).
[111] These papers are collected and assessed in several literature reviews, including Lafontaine & Slade, supra note 43; O’Brien, supra note 44; Cooper et al., supra note 44; Global Antitrust Institute, Comment Letter on Federal Trade Commission’s Hearings on Competition and Consumer Protection in the 21st Century, Vertical Mergers (George Mason Law & Econ. Research Paper No. 18-27, Sep. 6, 2018). Even the reviews of such conduct that purport to be critical are only tepidly so. See, e.g., Marissa Beck & Fiona Scott Morton, Evaluating the Evidence on Vertical Mergers 59 Rev. Indus. Org. 273 (2021) (“[M]any vertical mergers are harmless or procompetitive, but that is a far weaker statement than presuming every or even most vertical mergers benefit competition regardless of market structure.”).
[112] Leegin, 551 U.S. at 889.
[113] Id. at 902.
[114] See, e.g., Lafontaine & Slade, supra note 43.
[115] See Leegin, 551 U.S. at 886-87 (holding that the per se rule should be applied “only after courts have had considerable experience with the type of restraint at issue” and “only if courts can predict with confidence that [the restraint] would be invalidated in all or almost all instances under the rule of reason” because it “‘lack[s]… any redeeming virtue’”) (citations omitted).
[116] See Bruce Kobayashi, The Economics of Loyalty Rebates and Antitrust Law in the United States, 1 Comp. Pol’y Int’l 115, 147 (2005).
[117] See, e.g., Case C-85/76, Hoffmann-La Roche & Co. AG v Commission of the European Communities, EU:C:1979:36, at 7.
[118] See Intel, supra note 39, at ¶ 139 (emphasis added).
[119] Opinion of AG Wahl in Case C-413/14 P Intel v Commission, ECLI:EU:C:2016:788, para 73.
[120] Expert Report, supra note 1, at 17.
[121] Id.
[122] See, e.g., Thomas A. Lambert, Defining Unreasonably Exclusionary Conduct: The Exclusion of a Competitive Rival Approach, 92 N.C. L. Rev. 1175, 1175 (2014) (“This Article examines the proposed definitions or tests for identifying unreasonably exclusionary conduct (including the non-universalist approach) and, finding each lacking, suggests an alternative definition.”).
[123] Id.
[124] Id. at 1244 (“Drawing lessons from past, unsuccessful attempts to define unreasonably exclusionary conduct, this Article has set forth a definition that identifies a common thread tying together all instances of unreasonable exclusion, comports with widely accepted intuitions about what constitutes improper competitive conduct, and generates specific safe harbors and liability rules that would collectively minimize the sum of antitrust’s decision and error costs.”).
[125] Expert Report, supra note 1, at 17.
[126] Ohio v. Am. Express Co., 138 S. Ct. 2274, 2286-87 (2018).
[127] Gregory J. Werden, Why (Ever) Define Markets? An Answer to Professor Kaplow, 78 Antitrust L.J. 729, 741 (2013).
[128] Geoffrey A. Manne, In Defence of the Supreme Court’s ‘Single Market’ Definition in Ohio v. American Express, 7 J. Antitrust Enforcement 104, 106 (2019).
[129] David S. Evans, The Antitrust Economics of Multi-Sided Platform Markets, 20 Yale J. Reg. 325, 355-56 (2003). See also Jean-Charles Rochet & Jean Tirole, Platform Competition in Two-Sided Markets, 1 J. Eur. Econ. Ass’n 990, 1018 (2003).
[130] See, e.g., Michal S. Gal & Daniel L. Rubinfeld, The Hidden Cost of Free Goods, 80 Antitrust L.J. 521, 557 (2016) (discussing the problematic French Competition Tribunal decision in Bottin Cartographes v. Google Inc., where “[d]isregarding the product’s two-sided market, and its cross-network effects, the court possibly prevented a welfare-increasing business strategy”).
[131] See, e.g., Brief of Amici Curiae Prof. David S Evans and Prof. Richard Schmalensee in Support of Respondents in Ohio, et al. v. American Express Co., No. 16-1454 (Sup. Ct. Jan. 23, 2018) at 21, available at https://www.supremecourt.gov/DocketPDF/16/16-1454/28957/20180123154205947_16-1454%20State%20of%20Ohio%20v%20American%20Express%20Brief%20for%20Amici%20Curiae%20Professors%20in%20Support%20of%20Respondents.pdf (“The first stage of the rule of reason analysis involves determining whether the conduct is anticompetitive. The economic literature on two-sided platforms shows that there is no basis for presuming one could, as a general matter, know the answer to that question without considering both sides of the platform.”).
[132] United States, et al. v. Am. Express Co., et al., 838 F.3d 179, 198 (2nd Cir. 2016).
[133] See, e.g., Michael Katz & Jonathan Sallet, Multisided Platforms and Antitrust Enforcement, 127 Yale L.J. 2142, 2161 (2018) (“[I]t is essential to account for any significant feedback effects and possible changes in prices on both sides of a platform when assessing whether a particular firm has substantial market power.”).
[134] California earned 10% of its statewide GDP from the tech industry in 2021, and just over 9% in 2022. See SAGDP2N Gross Domestic Product (GDP) by State, Bureau of Economic Analysis (last visited May 1, 2024), https://tinyurl.com/ysaf6rfc.
[135] See Joseph Politano, California Is Losing Tech Jobs, Apricitas Economics (Apr. 14, 2024), https://www.apricitas.io/p/california-is-losing-tech-jobs (“[California’s] GDP fell 2.1% through 2022, the second-biggest drop of any state over that period, driven by a massive deceleration across the information sector. That allowed states like Texas to overtake California in the post-pandemic GDP recovery, creating a gap that California still hasn’t been able to close despite its economic rebound in 2023.”).
[136] See id. (“[T]he Golden State has been bleeding tech jobs over the last year and a half—since August 2022, California has lost 21k jobs in computer systems design & related, 15k in streaming & social networks, 11k in software publishing, and 7k in web search & related—while gaining less than 1k in computing infrastructure & data processing. Since the beginning of COVID, California has added a sum total of only 6k jobs in the tech industry—compared to roughly 570k across the rest of the United States.”).
Presentations & Interviews ICLE Senior Scholar Lazar Radic was a guest on the Mobile Dev Memo podcast to discuss the EU’s Digital Markets Act and the broader competition-regulation . . .
ICLE Senior Scholar Lazar Radic was a guest on the Mobile Dev Memo podcast to discuss the EU’s Digital Markets Act and the broader competition-regulation landscape. Audio of the full episode is embedded below.
Regulatory Comments Executive Summary We are thankful for the opportunity to submit comments to the secretariat of economic reforms of the Ministry of Finance’s Public Consultation regarding . . .
We are thankful for the opportunity to submit comments to the secretariat of economic reforms of the Ministry of Finance’s Public Consultation regarding competition in digital markets. The International Center for Law & Economics (“ICLE”) is a nonprofit, nonpartisan global research and policy center founded with the goal of building the intellectual foundations for sensible, economically grounded policy. ICLE promotes the use of law & economics methodologies to inform public-policy debates and has longstanding expertise in the evaluation of competition law and policy. ICLE’s interest is to ensure that competition law remains grounded in clear rules, established precedent, a record of evidence, and sound economic analysis.
Our comments respectfully suggest careful consideration before approving any sectoral regulation of digital markets in Brazil.
Digital markets are generally dynamic, competitive, and beneficial to consumers. Those benefits derive from increased productivity and relatively cheap access to information. Whereas there are always possible competition issues and anticompetitive behavior, these are neither pervasive nor sufficiently unique to justify strict, sui generis preemptive rules. Instead, existing antitrust laws (Act No. 12,529/2011) are sufficient to address potential anticompetitive practices in digital markets. Furthermore, and as demonstrated by recent case law, the Conselho Administrativo de Defesa Econômica (CADE)—the Brazilian competition authority—has the necessary expertise to handle these cases.
There are, of course, challenges in applying antitrust laws to digital markets. For example, defining relevant markets and dominant positions in multisided platform cases, and in the fast-changing digital landscape, can be difficult. The contours of the relevant market are not always clear, and the boundaries between the digital and nondigital world are sometimes overstated. Those challenges can, however, be properly addressed through the existing legal framework and with some institutional measures, such as equipping CADE with more resources to incorporate advanced, state-of-the-art technical expertise.
Finally, ex-ante regulations like the European Union’s Digital Markets Act (DMA) can have unintended consequences, such as stifling innovation, reducing consumer welfare, and increasing compliance costs. They can also lead to increased risks of regulatory capture and rent seeking, as the verdict on whether a gatekeeper has complied with the law often comes down to the degree to which rivals are satisfied. Of course, rivals have a clear personal stake in never being satisfied. By tethering intervention to a comparatively clear public-benefit standard—consumer welfare—competition laws minimize the potential for error costs and decrease the chances that the law will be coopted for private gain.
In general terms, we believe Brazil does not need sectoral regulations for digital platforms, given that the markets for such services are reasonably competitive. According to economic theory and long-tested economic principles, ex-ante regulation[1] is justified only in the presence of market failures[2]. Digital markets, however, do not present the kind of market failures that warrant ex-ante regulation. For example, digital markets do not present natural monopolies, significant externalities, public goods, or informational asymmetries.
To be sure, one can find some levels of informational asymmetries or externalities, but not to such a magnitude that they could not be addressed through market competition (actual or potential) or through general rules, such as data-protection or consumer-protection laws. A more plausible argument can be made regarding the presence of “network effects” in online platforms. If a firm moves fast and is the first to attract customers, that customer base will, in turn, attract more customers and sellers. This network growth could, so the story goes, result in a single firm monopolizing the market. However, as Evans and Schmalensee, have pointed out, that result is far from inevitable:
Systematic research on online platforms by several authors, including one of us, shows considerable churn in leadership for online platforms over periods shorter than a decade. Then there is the collection of dead or withered platforms that dot this sector, including Blackberry and Windows in smartphone operating systems, AOL in messaging, Orkut in social networking, and Yahoo in mass online media.[3]
Some regulations and proposals—namely, the European Union’s Digital Markets Act (DMA) or the proposed American Innovation and Choice Online Act (AICOA) in the United States—mention the alleged failures of antitrust law (i.e., “too slow” and “too hard for plaintiffs”) as the primary rationale to regulate digital markets. As Giuseppe Colangelo has explained:
Against this background, the regulatory approaches recently advanced do not seem to reflect the distinctive features of digital markets, but rather the need to design enforcement short-cuts to cope with growing concerns that antitrust law is unable to address potential anticompetitive practices by large online platforms. Hence, in most of the mentioned reports, the revival of regulation seems supported more by an alleged antitrust enforcement failure rather than true a market failure. The goal is indeed to fill alleged enforcement gaps in the current antitrust rules by introducing tools aimed at lowering legal standards and evidentiary burdens in order to address anti-competitive practices that standard antitrust analysis would struggle to tackle.[4]
This could be a plausible justification for regulation. Antitrust cases could be more expedited. Competition agencies and courts should generally have more resources and faster procedures to adjudicate cases before market structures or markets in general change, rendering any potential intervention useless.
The fact that cases are “hard to win”, however, is not a valid justification. This might actually be an advantage, not a shortcoming, of antitrust law—especially in the context of “abuse of dominance” or monopolization cases[5]. Regulations like the DMA replace the concepts of “relevant markets” and “market power” or “dominant position” with others like “core platforms services” or “gatekeeper”, with the express intent of providing shortcuts to condemn business models and practices. But these “shortcuts” have a cost: they can easily lead to condemnation of business models and practices that provide benefits for consumers, such as lower prices and a safer user experience, among others.
Even those open to considering digital-markets regulation acknowledge that there are considerable challenges, especially if the intent is to regulate digital platforms like “essential facilities”:
In the tech industry, the first challenge is to identify a stable essential facility. It must be stable because divestitures take a while to perform, and the cost of implementing them would not be worth its while if the location of the essential facility kept migrating. This condition may not be met, though. While the technology and market segments of electricity, railroads and (up to the 1980s) telecoms had not changed much since the early 20th century, digital markets are fast? moving. This makes it difficult for regulators to identify, collect data on, and regulate essential facilities, if the corresponding technologies and demands keep morphing.[6]
Moreover, even if warranted, regulations create barriers to entry and regulatory risks, and they restrict the monetization of business assets. They also tend to make markets less attractive and could deter potential competitors from entering them. It is possible that the DMA is already producing such consequences. As Alba Ribera has explained:
One of the greatest examples of the dichotomy that arises between the different types of consequences that can be generated by the regulatory capture of digital ecosystems can be found in Meta’s recent decision not to launch its new service Threads in the European Economic Space. To the extent that its service could be interpreted as falling within the definition of a “core platform service” belonging to the category of “online social networks” (listed by the DMA), Meta decided to refrain from entering the European market, due to the disproportionate burden that the demanding obligations imposed by the DMA would entail. It should be noted that Threads is still an entrant service in the online social networking market, in contrast to the predominant position occupied by X (previously known as Twitter). In this way, we observe that the categorization as a core platform service unifies and eliminates all the nuances that free competition entails with respect to incoming services in the markets.[7]
In addition, DMA-like regulation could have additional costs for a developing economy like Brazil, where digital markets are not yet as mature as in the EU. As we have explained, while ex-ante regulation of digital markets is not warranted even when a market is mature, bigger and more developed economies may at least be able to afford the costs generated by such regulation.[8]
Some of these unintended consequences were already observable in the EU even before the DMA fully entered into force. From the perspective of users, regulation can serve to make services and products more expensive. Facebook is already trying a new business model in the EU where the consumer would see no ads (thus, there would be no data collection, or less collection of data for marketing purposes, at any rate), but would have to pay for subscriptions. Some American and European privacy-minded users may prefer this model, and would probably be able to afford it. But that is hardly the case for Latin American consumers, who on average have less than a third of the income of their European counterparts. In fact, it is arguably consumers in developing countries who have benefitted the most from digital platforms with zero-price or otherwise affordable products, such as Whatsapp and Facebook.
From the perspective of the companies that own and operate digital platforms and services, if regulations like the DMA make their platforms less profitable, some could choose not to enter or, indeed, to leave such markets. As Geoffrey Manne and Dirk Auer have explained, “to regulate competition, you first need to attract competition”:
Perhaps the biggest factor cautioning emerging markets against adoption of DMA-inspired regulations is that such rules would impose heavy compliance costs to doing business in markets that are often anything but mature. It is probably fair to say that, in many (maybe most) emerging markets, the most pressing challenge is to attract investment from international tech firms in the first place, not how to regulate their conduct. The most salient example comes from South Africa, which has sketched out plans to regulate digital markets. The Competition Commission has announced that Amazon, which is not yet available in the country, would fall under these new rules should it decide to enter—essentially on the presumption that Amazon would overthrow South Africa’s incumbent firms. It goes without saying that, at the margin, such plans reduce either the likelihood that Amazon will enter the South African market at all, or the extent of its entry should it choose to do so. South African consumers thus risk losing the vast benefits such entry would bring—benefits that dwarf those from whatever marginal increase in competition might be gained from subjecting Amazon to onerous digital-market regulations.[9]
Perhaps the biggest factor cautioning emerging markets against adoption of DMA-inspired regulations is that such rules would impose heavy compliance costs to doing business in markets that are often anything but mature. It is probably fair to say that, in many (maybe most) emerging markets, the most pressing challenge is to attract investment from international tech firms in the first place, not how to regulate their conduct.
The most salient example comes from South Africa, which has sketched out plans to regulate digital markets. The Competition Commission has announced that Amazon, which is not yet available in the country, would fall under these new rules should it decide to enter—essentially on the presumption that Amazon would overthrow South Africa’s incumbent firms.
It goes without saying that, at the margin, such plans reduce either the likelihood that Amazon will enter the South African market at all, or the extent of its entry should it choose to do so. South African consumers thus risk losing the vast benefits such entry would bring—benefits that dwarf those from whatever marginal increase in competition might be gained from subjecting Amazon to onerous digital-market regulations.[9]
SOURCE: Chamber of Progress[10]
The DMA entered into effect in full force in March 2024, and while it may be too early to reach definitive conclusions about its impact, consumers are already experiencing a degraded user experience. For example, the French newspaper Liberation has detailed how Google Maps’ map results are not showing directly in search-results pages in the same ways they once did (See Figures 1 and 2).
Presumably, this is happening because a direct link to Google Maps would constitute “self-preferencing” (See our answer to question 4, below) wherein Google, the search engine, would be “unfairly” directing traffic to its own digital-navigation service. Such conduct is prohibited by Art.6(5) of the DMA. But this kind of integration is very convenient for consumers, who can search for a restaurant and then quickly find the directions to walk or commute to it (and sometimes even book a table).
SOURCE: Chamber of Progress[11]
While removing some features, Google is also adding more results to its results pages, because it assumes that it is required under the DMA to provide “fair” links to competing sites like Yelp and TripAdvisor.[12] In theory, the consequence of such requirements is “more options” for consumers. In practice, what consumers have is a more cluttered results page.
Apple highlights another quality-degrading consequence of the DMA: the obligation it imposes that platforms like iOS allow competing app stores and to allow apps to be downloaded directly from their websites (“sideloading”).[13] This “openness”, however, would allow that third-party applications to bypass controls and protections implemented to safeguard users’ security and privacy.[14]
Finally, it is worth mentioning that the DMA’s unintended consequences affect not only consumers, but also business users. Since Google began to implement the DMA on 19 January, 2024, early estimates suggest that clicks from Google ads to hotel websites decreased by 17.6%.[15] Presumably, this is a failure even by the DMA’s own (uncertain) standards.
This is a truly relevant question. As we have explained in our previous answer, we do not believe that digital markets generally need to be regulated. But there is an important preceding question: are these markets sufficiently similar to one another to be covered by a single body of regulation?
The terms “digital platforms” and “digital markets” are extremely broad. As was explained at a recent OECD Competition Committee meeting:
The digital economy spans from online retail to real estate listings to concert tickets to travel booking to social media. Consequently, there is not a universally defined digital market. While digital markets are dynamic and evolving, as many markets are, digital market innovations in some segments are not as groundbreaking as they once were. In a similar manner, prominent digital market characteristics are not unique to digital markets. Print newspapers are multi-sided markets. Broadcast radio is zero-price[16]” (emphasis added).
In that same vein, Herbert Hovenkamp concludes that:
… broad regulation is ill-suited for digital platforms because they are so disparate. By contrast, regulation in industries such as air travel, electric power, and telecommunications targets firms with common technologies and similar market relationships. This is not the case, however, with the four major digital platforms that have drawn so much media and political attention—namely, Amazon, Apple, Facebook, and Google. These platforms have different inputs. They sell different products, albeit with some overlap, and only some of these products are digital. They deal with customers and diverse sets of third parties in different ways. What they have in common is that they are very large and that a sizeable portion of their operating technology is digital.[17]
When dealing with platforms so different from one another—such as, e.g., Google and Nubank, or Spotify and Ebanx—it is highly unlikely that a single body of strict ex-ante rules would appropriate for them all. In some of these markets, there are clear market leaders with significant market share and few competitors. Others are more fragmented, with more evenly distributed market shares. Some markets present strong “network effects” (e.g., payment systems); while, in others, any “network effects” are much milder (e.g., streaming audio and video). Some products and platforms rely on extremely specific user data, while others work with more general data, etc.
Thus, some rules will be useless in certain markets. To the extent that they must be enforced across the board, however, they will nevertheless generate compliance costs that could be passed on to consumers, despite generating little or no benefits. For example, a data-sharing mandate like the one contained in Art.6 DMA could force gatekeepers to share data that is of little use to other platforms or “business users”. Even when the rules achieve their intended goal of helping business users, they could still negatively impact consumers. The DMA, however, does not allow for any consumer welfare or efficiency exemptions from the conduct it mandates.
The Brazilian context presents several differences from that of other jurisdictions that have adopted or are considering digital-platform regulations. These differences stem from the overall economic context, digital-market characteristics, institutional context, and previous enforcement of antitrust law in each of these divergent marketplaces.
Brazil is, of course, an important economy with tremendous potential, but it remains a developing one. Its GDP growth is projected to slow in 2024. According to the OECD, “(r)ecent reforms have reduced unnecessary bureaucracy and regulations, but further efforts are needed to reduce administrative burdens on markets for goods and services that hamper competition and productivity growth”[18]. In that vein, Brazil should be wary of rushing to pass new regulations that could discourage both local and foreign investment.
Regarding the Brazilian legal and regulatory framework, we should bear in mind that jurisdictions like the EU experimented with the use of antitrust law in digital markets for years before passing the DMA. In fact, most—if not all—of the DMA’s prohibitions and obligations stem from prior competition-law cases[19]. The EU eventually decided that it preferred to pass blanket ex-ante rules against certain practices, rather than having to litigate each through competition law. Whether or not this was the right decision is up for debate (our position is that it was not), but one thing is certain: The EU deployed its competition toolkit against digital platforms extensively before learning from those outcomes and deciding that it needed to be complemented with a new and broader set of enforcer-friendly bright-line rules.
By contrast, Brazil has initiated only a handful of antitrust cases against digital platforms. According to numbers published by CADE[20], it has reviewed 233 merger cases related to digital-platform markets between 1995 and 2023. Regarding unilateral conduct (monopolization cases)—those most relevant for the discussion of digital-market regulation, like Bill 2768/2020 already being discussed in the Brazilian Congress (hereinafter, Bill 2768)[21]—CADE opened 23 conduct cases. Of those 23 cases, nine are still under investigation, 11 were dismissed, and only three were settled via a cease-and-desist agreement. In this sense, only three cases (CDAs) out of 23 were “condemned”. It is highly questionable whether these cases provide sufficient evidence of intrinsic competition problems in digital markets.
In fact, the recent entry of companies into many of those markets suggests that the opposite is closer to the truth. There are numerous examples of entry in a variety of digital services, including the likes of TikTok, Shein, Shopee, and Daki, to name just a few.
Yes. To be sure, as in any market, competition problems can emerge in digital markets (e.g., there may be incentives to behave anticompetitively, and some conduct could have an anticompetitive impact), but any possible anticompetitive conduct can and should be addressed by applying antitrust law (Law No. 12,529/2011).
As Colangelo and Borgogno have argued:
… recent and ongoing antitrust investigations demonstrate that standard competition law still provides a flexible framework to scrutinize several practices sometimes described as new and peculiar to app stores. This is particularly true in Europe, where the antitrust framework grants significant leeway to antitrust enforcers relative to the U.S. scenario, as illustrated by the recent Google Shopping decision.[22]
… recent and ongoing antitrust investigations demonstrate that standard competition law still provides a flexible framework to scrutinize several practices sometimes described as new and peculiar to app stores.
This is particularly true in Europe, where the antitrust framework grants significant leeway to antitrust enforcers relative to the U.S. scenario, as illustrated by the recent Google Shopping decision.[22]
Indeed, the European Commission has initiated procedures and even imposed fines against Google,[23] while the UK Competition and Markets Authority has settled cases with negotiated remedies against Amazon.[24] In the United States, both the Federal Trade Commission and the U.S. Justice Department (and several states) have initiated cases against Google,[25] Facebook,[26] and Amazon.[27]
In the same way, we think that CADE should be able to address any potential competition issues. CADE has already initiated investigations and cases related to alleged refusals to deal, self-preferencing, and discrimination against companies like Google, Apple, Meta, Uber, Booking.com, Decolar.com, and Expedia—i.e., precisely the firms that would presumably be covered by a new digital-markets regulation.
A review conducted by the OECD in 2019 concluded that “(w)hile competition law regimes in many emerging economies may still struggle to achieve enforcement goals, the Brazilian regime has largely been considered a success”[28] and that:
CADE is well-regarded within the competition practitioner community both nationally and internationally, the business community, and within the Government administration due to its technical capabilities. It is considered one of the most efficient public agencies in Brazil and its international standing as a leading competition authority both regionally and globally reinforces this domestic view that it is a model public agency.[29]
There should therefore be no doubt in that regard that CADE has the institutional tools and the technical expertise to properly deal with cases in digital markets.
Moreover, based on the EU experience, there is a risk of double jeopardy at the intersection of traditional competition law and ex-ante digital regulation. As Giuseppe Colangelo has written, the DMA is grounded explicitly on the notion that competition law alone is insufficient to effectively address the challenges and systemic problems posed by the digital-platform economy[30]. Indeed, the scope of antitrust is limited to certain instances of market power (e.g., dominance on specific markets) and of anticompetitive behavior. Further, its enforcement occurs ex post and requires extensive investigation on a case-by-case basis of what are often extraordinarily complex sets of facts. Proponents of ex-ante digital-markets regulation argue that competition law therefore may not effectively address the challenges to well-functioning markets posed by the conduct of gatekeepers, who are not necessarily dominant in competition-law terms. As a result, regimes like the DMA invoke regulatory intervention to complement traditional antitrust rules by introducing a set of ex-ante obligations for online platforms designated as gatekeepers. This also allows enforcers to dispense with the laborious process of defining relevant markets, proving dominance, and measuring market effects.
But despite claims that the DMA is not an instrument of competition law, and thus would not affect how antitrust rules apply in digital markets, the regime does appear to blur the line between regulation and antitrust by mixing their respective features and goals. Indeed, the DMA shares the same aims and protects the same legal interests as competition law.
Further, its list of prohibitions is effectively a synopsis of past and ongoing antitrust cases, such as Google Shopping (Case T-612/17), Apple (AT.40437) and Amazon (Cases AT.40462 and AT.40703). Acknowledging the continuum between competition law and the DMA, the European Competition Network (ECN) and some EU member states (self-anointed “friends of an effective DMA”) initially proposed empowering national competition authorities (NCAs) to enforce DMA obligations[31].
Similarly, the prohibitions and obligations often contemplated in proposed digital-markets regulations could, in theory, all be imposed by CADE. In fact, CADE has investigated, and is still investigating, several large companies that would likely fall within the purview of a digital-markets regulation, including Google, Apple, Meta, (still under investigation) Uber, Booking.com, Decolar.com, Expedia and iFood (settled through case-and-desist agreements). CADE’s past and current investigations against these companies already covered conduct targeted by the DMA—such as, e.g., refusal to deal, self-preferencing, and discrimination[32].[16] Existing competition law under Act 12.529/11, the Brazilian competition law, thus clearly already captures these forms of conduct.
The difference between the two regimes is that, while general antitrust law requires a showing of harm and exempts conduct that benefits consumers, sector-specific regulation would, in principle, not.
There is one additional complication. Specific regulation of digital markets (such as Bill 2768) pursues many (though not all) of the same objectives as Act 12.529/11. Insofar as these objectives are shared, it could lead to double jeopardy—i.e., the same conduct being punished twice under slightly different regimes. It could also produce contradictory results because, as pointed out above, the objectives pursued by the two bills are not identical. Act 12.529/11 is guided by the goals of “free competition, freedom of initiative, social role of property, consumer protection and prevention of the abuse of economic power” (Art. 1). To these objectives, Bill 2768 adds “reduction of regional and social inequalities” and “increase of social participation in matters of public interest”. While it is true that these principles derive from Art. 170 of the Brazilian Constitution (“economic order”), the mismatch between the goals of Act 12.529/11 and Bill 2768 may be sufficient to lead to situations in which conduct that is allowed or even encouraged under Act 12.529/11 is prohibited under Bill 2768.
For instance, procompetitive conduct by a covered platform could nevertheless exacerbate “regional or social inequalities”, because it invests heavily in one region but not others. In a similar vein, safety, privacy, and security measures implemented by, e.g., an app-store operator that typically would be considered beneficial for consumers under antitrust law[33] could feasibly lead to less participation in discussions of public interest (assuming one could easily define the meaning of such a term).
Accordingly, sector-specific regulation for digital markets could fragment Brazil’s legal framework due to overlaps with competition law, stifle procompetitive conduct, and lead to contradictory results. This, in turn, is likely to impact legal certainty and the rule of law in Brazil, which could adversely influence foreign direct investment[34].
The existence of a rule like the one contained in paragraph 2 of article 36 of Law No. 12,259/2011 is yet another reason to question any proposal to enact sector-specific regulation of digital markets. The article’s legal presumption is one of the “shortcuts” that regulations like the DMA equip competition agencies or regulators with, allegedly to avoid the administrative costs involved in defining relevant markets. This is one of the purported “benefits” of ex-ante regulation of digital markets.
But a presumption of dominance where market shares exceed 20% is not sufficient to identify digital platforms’ market power, as it would lead to too many “false positives”. It is important to note that market share alone is a misleading indicator of market power. A firm with a large market share could have little market power if it faces market substitution, potential competition, or competitors with able to increase production capacity[35].
To be sure, some competition laws around the world include dominance presumptions based on market share, but in those cases, the thresholds tend to be higher (40% or more).[36]
As we have explained in our answer to Question 2, any possible anticompetitive conduct in digital platforms can and should be addressed with the application of antitrust law.
There are certain types of behavior in digital markets that have been targeted by ex-ante regulations that are nevertheless capable of—or even central to—delivering significant procompetitive benefits. It would be unjustified and harmful to subject such conduct to per se prohibitions, or to reverse the burden of proof. Instead, this type of conduct should be approached neutrally, and examined on a case-by-case basis[37].
Self-preferencing refers to when a company gives preferential treatment to one of its own products (presumably, this type of behavior could already be caught by Art. 10, paragraph II of Bill 2768). An example would be Google displaying its shopping service at the top of search results, ahead of alternative shopping services. Critics of this practice argue that it puts dominant firms in competition with other firms that depend on their services, and that this allows companies to leverage their power in one market to gain a foothold in an adjacent market, thus expanding and consolidating their dominance. But this behavior can also be procompetitive and beneficial to users.
Over the past several years, a growing number of critics have argued that big-tech platforms harm competition by favoring their own content over that of their complementors. Over time, this argument against self-preferencing has become one of the most prominent among those seeking to impose novel regulatory restrictions on these platforms.
According to this line of argument, complementors are “at the mercy” of tech platforms. By discriminating in favor of their own content and against independent “edge providers,” tech platforms cause “the rewards for edge innovation [to be] dampened by runaway appropriation,” leading to “dismal” prospects “for independents in the internet economy—and edge innovation generally.”[38]
The problem, however, is that the claims of presumptive consumer harm from self-preferencing (also known as “vertical discrimination”) are based neither on sound economics nor evidence.
The notion that a platform’s entry into competition with edge providers is harmful to innovation is entirely speculative. Moreover, it is flatly contradicted by a range of studies that show the opposite is likely to be true. In reality, platform competition is more complicated than simple theories of vertical discrimination would have it,[39] and the literature establishes that there is certainly no basis for a presumption of harm.[40]
The notion that platforms should be forced to allow complementors to compete on their own terms—free of constraints or competition from platforms—is a flavor of the idea that platforms are most socially valuable when they are most “open.” But mandating openness is not without costs, most importantly in terms of the platform’s effective operation and its incentives for innovation.
“Open” and “closed” platforms are simply different ways to supply similar services, and there is scope for competition among these divergent approaches. By prohibiting self-preferencing, a regulator might therefore foreclose competition to consumers’ detriment. As we have noted elsewhere:
For Apple (and its users), the touchstone of a good platform is not ‘openness’, but carefully curated selection and security, understood broadly as encompassing the removal of objectionable content, protection of privacy, and protection from ‘social engineering’ and the like. By contrast, Android’s bet is on the open platform model, which sacrifices some degree of security for the greater variety and customization associated with more open distribution. These are legitimate differences in product design and business philosophy.[41]
Moreover, it is important to note that the appropriation of edge innovation and its incorporation into a platform (a commonly decried form of platform self-preferencing) greatly enhances the innovation’s value by sharing it more broadly, ensuring its coherence with the platform, providing incentivizes for optimal marketing and promotion, and the like. In other words, even if there is a cost in terms of reduced edge innovation, the immediate consumer-welfare gains from platform appropriation may well outweigh those (speculative) losses.
Crucially, platforms have an incentive to optimize openness, and to assure complementors of sufficient returns on their platform-specific investments. This does not, however, mean that maximum openness is always optimal. In fact, a well-managed platform typically will exert top-down control where doing so is most important, and openness where control is least meaningful.[42] But this means that it is impossible to know whether any particular platform constraint (including self-prioritization) on edge-provider conduct is deleterious, and similarly whether any move from more to less openness (or the reverse) is harmful.
This state of affairs contributes to the indeterminate and complex structure of platform enterprises. Consider, for example, the large online platforms like Google and Facebook. These entities elicit participation from users and complementors by making access freely available for a wide range of uses, exerting control over that access only in such limited ways as to ensure high quality and performance. At the same time, however, these platform operators also offer proprietary services in competition with complementors, or offer portions of the platform for sale or use only under more restrictive terms that facilitate a financial return to the platform. Thus, for example, Google makes Android freely available, but imposes contractual terms that require installation of certain Google services in order to ensure sufficient return.
The key is understanding that, while constraints on complementors’ access and use may look restrictive relative to an imaginary world without any restrictions, the platform would not be built in such a world the first place. Moreover, compared to the other extreme of full appropriation, such constraints are relatively minor and represent far less than full appropriation of value or restriction on access. As Jonathan Barnett aptly sums it up:
The [platform] therefore faces a basic trade-off. On the one hand, it must forfeit control over a portion of the platform in order to elicit user adoption. On the other hand, it must exert control over some other portion of the platform, or some set of complementary goods or services, in order to accrue revenues to cover development and maintenance costs (and, in the case of a for-profit entity, in order to capture any remaining profits).[43]
For instance, companies may choose to favor their own products or services because they are better able to guarantee their quality or quick delivery.[44][ Amazon, for instance, may be better placed to ensure that products provided by the Fulfilled by Amazon (FBA) logistics service are delivered in a timely manner, relative to other services. Consumers also may benefit from self-preferencing in other ways. If, for instance, Google were prevented from prioritizing Google Maps or YouTube videos in its search queries, it could be harder for users to find optimal and relevant results. If Amazon is prohibited from preferencing its own line of products on Amazon Marketplace, it might instead opt not to sell competitors’ products at all.
The power to prohibit platforms from requiring or encouraging customers of one product to also use another would limit or prevent self-preferencing and other similar behavior. Granted, traditional competition law has sought to restrict the “bundling” of products by requiring they be purchased together, but to prohibit incentivizes, as well, goes much further.
Another mot du jour is interoperability, which might fall under Art. 10, paragraph IV of Bill 2768. In the context of digital ex-ante regulation, “interoperability” means that covered companies could be forced to ensure that their products integrate with those of other firms—e.g., requiring a social network be open to integration with other services and apps, a mobile-operating system be open to third-party app stores, or a messaging service be compatible with other messaging services.
Without regulation, firms may or may not choose to make their software interoperable. But both the DMA and the UK’s proposed Digital Markets, Competition and Consumer Bill (“DMCC”)[45] would empower authorities to require it. Another example is data “portability”, under which customers are permitted to move their data from one supplier to another, in much the same way that a telephone number can be retained when one changes networks.
The usual argument is that the power to require interoperability might be necessary to overcome network effects and barriers to entry/expansion. Clearly, portability similarly makes it easier for users to switch from one provider to another and, to that extent, intensifies competition or makes entry easier. The Brazilian government should not, however, overlook that both come with costs to consumer choice—in particular, by raising security and privacy concerns, while generating uncertain benefits for competition. It is not as though competition disappears when customers cannot switch services as easily as they can turn on a light. Companies compete upfront to attract such consumers through tactics like penetration pricing, introductory offers, and price wars.[46]
A closed system—that is, one with relatively limited interoperability—may help to limit security and privacy risks. This could encourage platform usage and enhance the user experience. For example, by remaining relatively closed and curated, Apple’s App Store grants users assurances that apps meet certain standards of security and trustworthiness. “Open” and “closed” ecosystems are not synonymous with “good” and “bad”, but instead represent differing product-design philosophies, either of which might be preferred by consumers. By forcing companies to operate “open” platforms, interoperability obligations could undermine this kind of inter-brand competition and override consumer choices.
Apart from potentially damaging the user experience, it is also doubtful whether some interoperability mandates—such as those between social-media or messaging services—can achieve their stated objective of lowering barriers to entry and promoting greater competition. Consumers are not necessarily more likely to switch platforms simply because they are interoperable. An argument can even be made that making messaging apps interoperable, in fact, reduces the incentive to download competing apps, as users can already interact from the incumbent messaging app with competitors.
Some ex-ante rules seek to address firms’ ability to influence user choice of apps through pre-installation, defaults and the design of app stores. This has sometimes resulted in “choice screen” mandates—e.g., requiring users to choose which search engine or mapping service is installed on their phone. But it is important to understand the tradeoffs at play here: choice screens may facilitate competition, but they do so at the expense of the user experience, in terms of the time taken to make such choices. There is a risk, without evidence of consumer demand for “choice screens”, that such rules merely impose legislators’ preference for greater optionality over what users find most convenient. Unless there is explicit public demand in Brazil for such measures, it would be ill-advised to implement a choice-screen obligation.
Many of the prohibitions and obligations contemplated in ex-ante digital-regulation regimes target incumbents’ size, scalability, and “strategic significance”. It is widely claimed that, because of network effects, digital markets are prone to “tipping”, wherein once a producer gains sufficient market share, it quickly becomes a complete or near-complete monopolist. Although they may begin as very competitive, these markets therefore exhibit a marked “winner-takes-all” characteristic. Ex-ante rules often try to avert or revert this outcome by targeting a company’s size, or by targeting companies with market power.
But many investments and innovations that would benefit consumers—either immediately or over the long term—may also serve to enhance a company’s market power, size, or strategic significance. Indeed, improving a firm’s products and thereby increasing its sales will often lead to increased market power.
Accordingly, targeting size or conduct that bolsters market power, without any accompanying evidence of harm, creates a serious danger of broad inhibition of research, innovation, and investment—all to the detriment of consumers. Insofar as such rules prevent the growth and development of incumbent firms, they may also harm competition, since it may well be these firms that are most likely to challenge the market power of firms in adjacent markets. The case of Meta’s introduction of Threads as a challenge to Twitter (or X) appears to be just such an example. Here, per-se rules adopted to prohibit bolstering a firm’s size or market power in one market may, in fact, prevent that firm’s entry into a market dominated by another. In that case, policymaker action protects monopoly power. Therefore, a much subtler approach to regulation is required.
We do not think it appropriate to reverse the burden of proof in the context of alleged competition harms in digital platforms. Without substantive evidence that such conduct causes widespread harm to a well-defined public interest (e.g., similar to cartels in the context of antitrust law), there is no justification for reversing the burden of proof, and any such reversals risk undermining consumer benefits and innovation, and discouraging investment in the Brazilian economy, out of a justified fear that procompetitive conduct will result in fines and remedies. By the same token, where the appointed enforcer makes a prima facie case of harm—whether in the context of antitrust law or ex-ante digital regulation—it should also be prepared to address arguments related to efficiencies.
No, no change is needed regarding notification thresholds or analysis criteria for merger operations in digital markets. In line with our answer to Question 4 above (see 4.4, on “size and market power”), we do not think it is appropriate to reverse the burden of proof in the context of digital platforms.
As Bowman and Dumitriu show in a paper[47] analyzing a United Kingdom proposal to create special (more stringent) rules for mergers in the digital sector, mergers and acquisitions can actually enhance competition in digital markets, because:
Therefore, Bowman and Dumitriu recommend that “the government should consider a more moderate approach thar retains the balance of probabilities approach” and that, rather than reform competition laws, it should work to increase the availability of growth capital to small firms (tax breaks, financial support, etc.)[48].
There may, of course, be some challenges in applying antitrust laws to digital markets. It is often mentioned that defining relevant markets is harder in the digital context, due to their complexity and multi-sidedness, and the fact that competition is often not price-based. The rapid evolution of digital markets and the presence of network effects are also mentioned as reasons to create new rules.
Methodological difficulties do not, however, justify a major revamp of antitrust rules. Antitrust law and economics are sufficiently flexible and versatile to adapt to new markets. Modernization of the analysis and methodologies, of course, is always welcome, but that can be done within the current set of rules. Rather, it would be valuable to encourage the use of the same general analyses and tools in a wide scope of markets, so that the authority has a common benchmark and more general lessons to extract from specific cases.
No, there should not be absolute prohibitions on these sorts of conduct, especially without substantive experience to suggest that such conduct is always or almost always harmful and largely irredeemable (NB: Here, we answer the question in general terms; please see our answer to Question 4 for a discussion of why particular conduct (e.g., self-preferencing) should not be per-se prohibited).
Regardless of the harm to the targeted companies, overly broad prohibitions (or mandates) can harm consumers by chilling procompetitive conduct and discouraging innovation and investment. This is particularly true when no showing of harm is required and the law is not amenable to efficiencies arguments, as in the case of the DMA. The fact that such prohibitions apply to vastly different markets (for example, cloud services have little to do with search engines) regardless of context is also a sure sign that they are overly broad and poorly designed.
In fact, there are indications that, where DMA-style regulations have been introduced, it has delayed the advance of technology. For example, Google’s Bard artificial intelligence (AI) was rolled out later in Europe due to the EU’s uncertain and strict AI and privacy regulations.[49] Similarly, Meta’s Threads was not initially available in the EU, because of the constraints imposed by both the DMA and the EU’s data-privacy regulation (GDPR).[50] Twitter/X CEO Elon Musk has indicated that the cost of complying with EU digital regulations, such as the Digital Services Act, could prompt the company to exit the European market.[51]
Apart from foreclosing procompetitive conduct that benefits consumers and freezing technology in time (which would ultimately exacerbate the technological chasm between more and less advanced countries), rigid per-se rules could also apply to many budding companies that cannot be considered “gatekeepers” by any stretch of the imagination. This risk is particularly notable in the context of Brazil, given the extremely low threshold for what constitutes a “gatekeeper” enshrined in Article 9 (R$70 million, or approximately USD$14 million). Thus, many Brazilian “unicorns” could—either immediately or in the near future—be captured by these new, restrictive rules, which could in turn stunt their growth and chill innovative products. Ultimately, this would imperil Brazil’s emerging status as “[Latin America’s] most established startup hub,” and cast a shadow on what The Economist has referred to as the bright future of Latin American startups.[52][33]
The list of harmed companies could include some of Brazil’s most promising startups, such as:
As mentioned in our answers to questions 1, 4, and 6, we don’t think there is a valid justification to regulate digital markets at the sectoral level. Therefore, there is not an “ideal” combination of ex ante and ex post intervention in such markets. Digital competition and the “rule of reason” used to analyze unilateral conduct already provide the flexibility needed to adequately identify the economic agents that should be the focus of intervention (after the fact, with actual information about the impact of specific conducts in the market) and the corresponding obligations (remedies).
Regulations like the DMA or Brazil’s proposed Bill 2768 contemplate thresholds (usually based on sales or the number of users) that trigger application of its prohibitions and mandates. In theory, these thresholds make said regulations more “reasonable”, in the sense they would be enforced only against digital platform that are “too big” or “too powerful”. Sales and quantity of users, however, are not reliable proxies for market power. In that sense, as we have explained in our previous answers, ex-ante regulation of digital markets would enforce “blind” rules that will ban conduct or business models that are beneficial for consumers.
Moreover, asymmetric regulation (especially absent evidence of market power by any specific economic agent) could “distort market signals and create opportunities for strategic and inefficient uses of regulatory authority by competitors”[54].
As mentioned in our answers to questions 1, 4, and 6, we do not think there is a valid justification to regulate digital markets, much less in an asymmetric way. If, however, a regulation were to be adopted and designed to apply to only some specific market actors, it should be applied only after a finding of a large degree of market power (that is, “monopoly power” or a “dominant position”).
Every approach entails risks. The question is whether adopting ex-ante rules is riskier than not adopting them, an assessment that ultimately comes down to an evaluation of error costs. In our view, there are not any significant risks (if any) of not adopting a specific regulation for digital markets and, in any case, those risks that do exist are far outweighed by the benefits. Countries that take their time to study markets, perform proper regulatory-impact analysis, and enact a serious notice-and comment-process, will be most able to learn from the experience of other regulators and markets[55]. The recent deployment of the DMA in Europe will be useful case study. South Korea, for instance, recently hit the “pause button” on its proposal to regulate digital markets—citing, among other reasons “exploring methods to regulate platforms efficiently while reducing the industry’s load”.[56]
The other side of the coin is that promptly approving regulation has costs: inefficiency, regulatory burden, and unintended consequences like less competition and inferior products delivered to consumers, as explained above. Furthermore, once ex-ante rules are passed, any ensuing costs and unintended consequences will be exceedingly difficult to reverse.
Brazil, its policymakers, regulators, and competition agencies can perfectly integrate into a global context of digitalization of markets without adopting ex-ante regulation of digital markets. Brazil can collaborate and exchange information with other policymakers and enforcement agencies under existing competition laws and forums like the OECD and the International Competition Network. With these interactions, Brazil can assure that its legal and institutional framework is up to date and that its regulations are based on evidence and solid economic theory.
Finally, only a handful of countries have adopted comprehensive ex-ante digital competition rules; namely, the EU and Germany. Others are considering their adoption, but have not done so yet (e.g., Turkey, South Africa, Australia, and South Korea). The extent to which the global context is currently defined by these new, experimental rules is thus often overstated. As argued above, Brazil should wait and see. If the new rules prove not to be what their proponents claim—as we have argued here—Brazil would derive a competitive advantage from not following suit.
In line with our previous answers, we do not think it is necessary to set up a new regulator or assign regulatory functions to existing agencies. Bill 2768, for instance, proposes to give ANATEL the function to oversee digital markets, building on its expertise in telecommunications regulation. Most of the proposals to regulate digital markets, however, appear to be competition-based, or at least declare the pursuit of goals similar to competition law. Therefore, the agency best-positioned to enforce such a regulation would, in principle, be CADE. Conversely, there is a palpable risk that, in discharging its duties under Bill 2768, ANATEL would transpose the logic and principles of telecommunications regulation to “digital” markets. That would be misguided, as these are two very different markets.
Not only are “digital” markets substantively different from telecommunications markets, but there is really no such thing as a clearly demarcated concept of a “digital market”. For example, the digital platforms described in Art. 6, paragraph II of Bill 2768 are not homogenous, and cover a range of different business models. In addition, virtually every market today incorporates “digital” elements, such as data. Indeed, companies operating in sectors as divergent as retail, insurance, health care, pharmaceuticals, production, and distribution have all been “digitalized.” What appears to be needed is an enforcer with a nuanced understanding of the dynamics of digitalization and, especially, the idiosyncrasies of digital platforms as two-sided markets. While CADE arguably lacks substantive experience with digital platforms, it is better-placed to enforce Bill 2768 than ANATEL because of its deep experience with the enforcement of competition policy.
Moreover, having the regulation applied by CADE would reduce the risk or “regulatory capture”. As Jean Tirole has explained:
… regulatory capture, which is one of the reasons why multi?industry regulators and competition authorities were created in the past. This raises the issue of where the new agency should be located. It could be part of the Competition authority, part of another agency (…), or a stand?alone entity. Making it part of the Competition Authority would reduce a bit the risk of capture and would also avoid the lengthy debates about which companies are really digital, which might arise if the unit is located within a sectoral regulator[57].
[1] By ex-ante regulation, we mean specific rules and duties that are sector specific (“digital markets”), whose application would not be based on the effects of the conduct regulated and where fines would apply in case of noncompliance. See Bruce H. Kobayashi & Joshua D. Wright, Antitrust and Ex-Ante Sector Regulation, The Glob. Antitrust Inst. Report on the Dig. Econ 25. (2020); See Table 1, at 869.
[2] See Robert Cooter & Tomas Ulen, Law and Economics (2000), at 40-43; W. Kip Viscusi, Joseph E. Harrington, Jr. and John M. Vernon, Economics of Regulation and Antitrust (2005), at 376-379.
[3] David S. Evans & Richard Schmalensee. Debunking The “Network Effects” Bogeyman, Regulation 39 (Winter 2017-2018) available at https://www.cato.org/sites/cato.org/files/serials/files/regulation/2017/12/regulation-v40n4-1.pdf.
[4] Giuseppe Colangelo, Evaluating the Case for Regulation of Digital Platforms, The Glob. Antitrust Inst. Report on the Dig. Econ 26, 930 (2020) https://gaidigitalreport.com/2020/10/04/evaluating-the-case-for-ex-ante-regulation-of-digital-platforms.
[5] We often run the risk of condemning business practices and models we don’t fully understand. Sometimes, even the businesses that implement them don’t fully know or understand the impact of such practices. See Frank H. Easterbrook, Limits of Antitrust, 63 Tex. L. Rev. 1 (1984).
[6] Jean Tirole, Competition and the Industrial Challenge for the Digital Age, 6 (2020), available at https://www.tse-fr.eu/sites/default/files/TSE/documents/doc/by/tirole/competition_and_the_industrial_challenge_april_3_2020.pdf.
[7] Alba Ribera, La Regulación de los Ecosistemas Digitales Frente a las Relaciones Complejas se los Operadores Económicos, Centro Competencia (18 Oct. 2023), https://centrocompetencia.com/regulacion-ecosistemas-digitales-relaciones-complejas-operadores-economicos. Free translation of the following text in Spanish: “Uno de los mayores ejemplos de la dicotomía que se erige entre los distintos tipos de consecuencias que se pueden generar por la captura regulatoria de los ecosistemas digitales lo podemos encontrar en la reciente decisión de Meta, de no lanzar su nuevo servicio Threads en el Espacio Económico Europeo. En la medida en que su servicio podría interpretarse de forma que cayera dentro de la definición de un “servicio básico de plataforma” perteneciente a la categoría de redes sociales en línea” (listada por la LMD), Meta decidió abstenerse de entrar en el mercado europeo, por la carga desproporcionada que le supondría las exigentes obligaciones impuestas por la LMD. Cabe notar que Threads es aún un servicio entrante en el mercado de redes sociales en línea, en contraste con la posición predominante ocupada por la actual X (anteriormente conocida como Twitter). De esta forma, observamos que la categorización como servicio básico de plataforma unifica y elimina todos los matices que el propio juego de la libre competencia opera respecto de servicios entrantes en los mercados”.
[8] Lazar Radic, Digital-Market Regulation: One Size Does Not Fit All, Truth on the Market (17 Apr. 2023), https://truthonthemarket.com/2023/04/17/digital-market-regulation-one-size-does-not-fit-all. “While perhaps the EU—the world’s third largest economy—can afford to impose costly and burdensome regulation on digital companies because it has considerable leverage to ensure (with some, though as we have seen, by no means absolute, certainty) that they will not desert the European market, smaller economies that are unlikely to be seen by GAMA as essential markets are playing a different game”.
[9] The argument presented in the article is about South Africa, but it is relevant to Brazil. See Geoffrey Manne & Dirk Auer, Brussels Effect or Brussels Defect: Digital Regulation in Emerging Markets, Truth on the Market (20 Dec. 2022), https://truthonthemarket.com/2022/12/20/brussels-effect-or-brussels-defect-digital-regulation-in-emerging-markets.
[10] Adam Kovacevich, Europe’s Digital Market Act Fails Consumers, Chamber of Progress (4 Mar. 2024), https://medium.com/chamber-of-progress/europes-digital-market-act-fails-consumers-dcaf70cc548c.
[11] Id.
[12] Id.
[13] Jon Porter & David Pierce, Apple Is Bringing Sideloading and Alternate App Stores to the iPhone, The Verge (25 Jan. 2024), https://www.theverge.com/2024/1/25/24050200/apple-third-party-app-stores-allowed-iphone-ios-europe-digital-markets-act.
[14] See Apple, Complying with the Digital Markets Act (2024), available at https://developer.apple.com/security/complying-with-the-dma.pdf.
[15] Mirai, LinkedIn (Feb. 2024), https://www.linkedin.com/feed/update/urn:li:activity:7161330551709138945.
[16] See, The Evolving Concept of Market Power in the Digital Economy – Summaries of Contributions 6, OECD, (22 June 2022), available at https://one.oecd.org/document/DAF/COMP/WD(2022)63/en/pdf.
[17] Herbert Hovenkamp, Antitrust and Platform Monopoly. 130 Yale L. J. 1952, 1956 (2021).
[18] Brazil Should Boost Productivity And Infrastructure Investment To Drive Growth, OECD (18 Dec. 2023), https://www.oecd.org/newsroom/brazil-should-boost-productivity-and-infrastructure-investment-to-drive-growth.htm.
[19] See Giuseppe Colangelo, The Digital Markets Act and EU Antitrust Enforcement: Double & Triple Jeopardy, Int’l Ctr. For L. and Econ. (23 Mar. 2022), https://laweconcenter.org/resources/the-digital-markets-act-and-eu-antitrust-enforcement-double-triple-jeopardy.
[20] CADE, Mercados de Plataformas Digitais, SEPN 515 Conjunto D, Lote 4, Ed. Carlos Taurisano CEP: 70.770-504 – Brasília/DF, available at https://cdn.cade.gov.br/Portal/centrais-de-conteudo/publicacoes/estudos-economicos/cadernos-do-cade/Caderno_Plataformas-Digitais_Atualizado_29.08.pdf.
[21] See https://www.camara.leg.br/proposicoesWeb/fichadetramitacao?idProposicao=2337417.
[22] Giuseppe Colangelo & Oscar Borgogno, App Stores as Public Utilities?, Truth on the Market (19 Jan. 2022), https://truthonthemarket.com/2022/01/19/app-stores-as-public-utilities.
[23] See a list here https://en.wikipedia.org/wiki/Antitrust_cases_against_Google_by_the_European_Union.
[24] See https://www.gov.uk/cma-cases/amazon-online-retailer-investigation-into-anti-competitive-practices.
[25] See https://www.justice.gov/opa/pr/justice-department-sues-google-monopolizing-digital-advertising-technologies.
[26] See https://www.ftc.gov/legal-library/browse/cases-proceedings/191-0134-facebook-inc-ftc-v.
[27] See https://www.ftc.gov/news-events/news/press-releases/2023/09/ftc-sues-amazon-illegally-maintaining-monopoly-power.
[28] OECD, OECD Peer Reviews of Competition Law and Policy: Brazil 18 (2019), www.oecd.org/daf/competition/oecd-peer-reviews-of-competition-law-and-policy-brazil-2019.htm.
[29] Id. at 24.
[30] Colangelo, supra note 20.
[31] How National Competition Agencies Can Strengthen the DMA, European Competition Network (22 Jun. 2021), available at https://ec.europa.eu/competition/ecn/DMA_joint_EU_NCAs_paper_21.06.2021.pdf.
[32] For a detailed overview of CADE’s decisions in digital platforms and payments services, see CADE, Mercados de Plataformas Digitais, Cadernos de Cade (Aug. 2023), available at https://cdn.cade.gov.br/Portal/centrais-de-conteudo/publicacoes/estudos-economicos/cadernos-do-cade/Caderno_Plataformas-Digitais_Atualizado_29.08.pdf.
[33] See, e.g., Epic Games, Inc. v. Apple Inc. 20-cv-05640-YGR.
[34] Joseph Staats & Glen Biglaiser, Foreign Direct Investment in Latin America: The Importance of Judicial Strength and Rule of Law, Int’l Studies Quarterly, 56(1), 193–202 (2012).
[35] Richard A. Posner & William M. Landes, Market Power in Antitrust Cases, 94 Harv. L. Rev. 937 (1980), 947-950.
[36] See, e.g., Roundtable of Safe Harbours and Legal Presumptions in Competition Law – Note by Germany 5, OECD (Dec. 2017), available at https://one.oecd.org/document/DAF/COMP/WD(2017)88/en/pdf.
[37] The following is adapted from Geoffrey Manne, Against the Vertical Discrimination Presumption, Concurrences N° 2-2020, Art. N° 94267 (May 2020), https://www.concurrences.com/en/review/numeros/no-2-2020/editorial/foreword and our comments on the UK’s proposed Digital Markets, Competition and Consumers (“DMCC”) Bill: Dirk Auer, Matthew Lesh, & Lazar Radic, Digital Overload: How the Digital Markets, Competition and Consumers Bill’s sweeping new powers threaten Britain’s economy, 4 IEA Perspectives 16-21 (2023), available at https://iea.org.uk/wp-content/uploads/2023/09/Perspectives_4_Digital-overload_web.pdf.
[38] Hal Singer, How Big Tech Threatens Economic Liberty, The Am. Conserv. (7 May 2019), https://www.theamericanconservative.com/articles/how-big-tech-threatens-economic-liberty.
[39] Most of these theories, it must be noted, ignore the relevant and copious strategy literature on the complexity of platform dynamics. See, e.g., Jonathan M. Barnett, The Host’s Dilemma: Strategic Forfeiture in Platform Markets for Informational Goods, 124 Harv. L. Rev. 1861 (2011); David J. Teece, Profiting from Technological Innovation: Implications for Integration, Collaboration, Licensing and Public Policy, 15 Res. Pol’y 285 (1986); Andrei Hagiu & Kevin Boudreau, Platform Rules: Multi-Sided Platforms as Regulators, in Platforms, Markets and Innovation, (Andrei Gawer ed., 2009); Kevin Boudreau, Open Platform Strategies and Innovation: Granting Access vs. Devolving Control, 56 Mgmt. Sci. 1849 (2010).
[40] For examples of this literature and a brief discussion of its findings, see Manne, supra note 37.
[41] Brief for the International Center for law and Economics as Amicus Curiae, Epic Games v. Apple, No. 21-16506, 21-16695 (2022).
[42] See generally, Hagiu & Boudreau, supra note 30; Barnett, supra note 30.
[43] Barnett, id.
[44] See Lazar Radic & Geoffrey Manne, Amazon Italy’s Efficiency Offense. Truth on the Market (11 Jan. 2022), https://truthonthemarket.com/2022/01/11/amazon-italys-efficiency-offense.
[45] Introduced as Bill 294 (2022-23), currently HL Bill 12 (2023-24), Digital Markets, Competition and Consumers Bill, https://bills.parliament.uk/bills/3453.
[46] Joseph Farrell & Paul Klemperer, Coordination and Lock-In: Competition with Switching Costs and Network Effects, 3 Handbook of Indus. Org. 3, 1967-2072 (2007).
[47] Sam Bowman & Sam Dimitriu, Better Together: The Procompetitive Effects of Mergers In Tech 9-15 (2021) The Entrepreneurs Net. & The Int’l Ctr. for L. & Econ. (2021), available at https://laweconcenter.org/wp-content/uploads/2021/10/BetterTogether.pdf.
[48] Id. at 23.
[49] Clothilde Goujard, Google Forced to Postpone Bard Chatbot’s EU Launch over Privacy Concerns, Politico (13 Jun. 2023), https://www.politico.eu/article/google-postpone-bard-chatbot-eu-launch-privacy-concern.
[50] Makena Kelly, Here’s Why Threads Is Delayed in Europe, The Verge (10 Jul. 2023), https://www.theverge.com/23789754/threads-meta-twitter-eu-dma-digital-markets.
[51] Musk Considers Removing X Platform from Europe over EU Law, EurActiv (19 Oct. 2023), https://www.euractiv.com/section/platforms/news/musk-considers-removing-x-platform-from-europe-over-eu-law.
[52] The Future Is Bright for Latin American Startups, The Economist (13 Nov. 2023), https://www.economist.com/the-world-ahead/2023/11/13/the-future-is-bright-for-latin-american-startups.
[53] See Distrito, Panorama Tech América Latina (2023), available at https://static.poder360.com.br/2023/09/latam-report-1.pdf.
[54] David L. Kaserman & John W. Mayo, Competition and Asymmetric Regulation in Long-Distance Telecommunications: An Assessment of the Evidence, 4 CommLaw Conspectus 1, 4 (1996).
[55] See Mario Zúñiga, From Europe, with Love: Lessons in Regulatory Humility Following the DMA Implementation, Truth on the Market (22 Feb. 2024), https://truthonthemarket.com/2024/02/22/from-europe-with-love-lessons-in-regulatory-humility-following-the-dma-implementation.
[56] Kwon Soon-Wan & Yeom Hyun-a, South Korea Hits Pause on Anti-Monopoly Platform Act Targeting Google, Apple, The Chosun Daily (8 Feb. 2024), https://www.chosun.com/english/national-en/2024/02/08/A4U4X6TWEFFOXF7ITCS5K6SZN4.
[57] Jean Tirole, Competition and the Industrial Challenge for the Digital Age, Inst. Fiscal. Studies (2022), at 7, available at https://ifs.org.uk/inequality/wp-content/uploads/2022/03/Competition-and-the-industrial-challenge-IFS-Deaton-Review.pdf.
ICLE White Paper Abstract Sherlocking refers to an online platform’s use of nonpublic third-party business data to improve its own business decisions—for instance, by mimicking the successful products . . .
Sherlocking refers to an online platform’s use of nonpublic third-party business data to improve its own business decisions—for instance, by mimicking the successful products and services of edge providers. Such a strategy emerges as a form of self-preferencing and, as with other theories about preferential access to data, it has been targeted by some policymakers and competition authorities due to the perceived competitive risks originating from the dual role played by hybrid platforms (acting as both referees governing their platforms, and players competing with the business they host). This paper investigates the competitive implications of sherlocking, maintaining that an outright ban is unjustified. First, the paper shows that, by aiming to ensure platform neutrality, such a prohibition would cover scenarios (i.e., the use of nonpublic third-party business data to calibrate business decisions in general, rather than to adopt a pure copycat strategy) that should be analyzed separately. Indeed, in these scenarios, sherlocking may affect different forms of competition (inter-platform v. intra-platform competition). Second, the paper argues that, in either case, the practice’s anticompetitive effects are questionable and that the ban is fundamentally driven by a bias against hybrid and vertically integrated players.
The dual role some large digital platforms play (as both intermediary and trader) has gained prominence among the economic arguments used to justify the recent wave of regulation hitting digital markets around the world. Many policymakers have expressed concern about potential conflicts of interest among companies that have adopted this hybrid model and that also control important gateways for business users. In other words, the argument goes, some online firms act not only as regulators who set their platforms’ rules and as referees who enforce those rules, but also as market players who compete with their business users. This raises the fear that large platforms could reserve preferential treatment for their own services and products, to the detriment of downstream rivals and consumers. That, in turn, has led to calls for platform-neutrality rules.
Toward this aim, essentially all of the legislative initiatives undertaken around the world in recent years to enhance competition in digital markets have included anti-discrimination provisions that target various forms of self-preferencing. Self-preferencing, it has been said, serves as the symbol of the current competition-policy zeitgeist in digital markets.[1] Indeed, this conduct is considered functional to leveraging strategies that would grant gatekeepers the chance to entrench their power in core markets and extend it into associated markets.[2]
Against this background, so-called “sherlocking” has emerged as one form of self-preferencing. The term was coined roughly 20 years ago, after Apple updated its own app Sherlock (a search tool on its desktop-operating system) to mimic a third-party application called Watson, which was created by Karelia Software to complement the Apple tool’s earlier version.[3] According to critics of self-preferencing generally and sherlocking in particular, biased intermediation and related conflicts of interest allow gatekeepers to exploit their preferential access to business users’ data to compete against them by replicating successful products and services. The implied assumption is that this strategy is relevant to competition policy, even where no potential intellectual-property rights (IPRs) are infringed and no slavish imitation sanctionable under unfair-competition laws is detected. Indeed, under such theories, sherlocking would already be prevented by the enforcement of these rules.
To tackle perceived misuse of gatekeepers’ market position, the European Union’s Digital Markets Act (DMA) introduced a ban on sherlocking.[4] Similar concerns have also motivated requests for intervention in the United States,[5] Australia,[6] and Japan.[7] In seeking to address at least two different theories of gatekeepers’ alleged conflicts of interest, these proposed bans on exploiting access to business users’ data are not necessarily limited to the risk of product imitation, but may include any business decision whatsoever that a platform may make while relying on that data.
In parallel with the regulatory initiatives, the conduct at-issue has also been investigated in some antitrust proceedings, which appear to seek the very same twofold goal. In particular, in November 2020, the European Commission sent a statement of objections to Amazon that argued the company had infringed antitrust rules through the systematic use of nonpublic business data from independent retailers who sell on the Amazon online marketplace in order to benefit Amazon’s own retail business, which directly competes with those retailers.[8] A similar investigation was opened by the UK Competition and Markets Authority (CMA) in July 2022.[9]
Further, as part of the investigation opened into Apple’s App Store rule requiring developers to use Apple’s in-app purchase mechanism to distribute paid apps and/or paid digital content, the European Commission also showed interest in evaluating whether Apple’s conduct might disintermediate competing developers from relevant customer data, while Apple obtained valuable data about those activities and its competitors’ offers.[10] The European Commission and UK CMA likewise launched an investigation into Facebook Marketplace, with accusations that Meta used data gathered from advertisers in order to compete with them in markets where the company is active, such as classified ads.[11]
There are two primary reasons these antitrust proceedings are relevant. First, many of the prohibitions envisaged in regulatory interventions (e.g., DMA) clearly took inspiration from the antitrust investigations, thus making it important to explore the insights that competition authorities may provide to support an outright ban. Second, given that regulatory intervention will be implemented alongside competition rules (especially in Europe) rather than displace them,[12] sherlocking can be assessed at both the EU and national level against dominant players that are not eligible for “gatekeeper” designation under the DMA. For those non-gatekeeper firms, the practice may still be investigated by antitrust authorities and assessed before courts, aside from the DMA’s per se prohibition. And, of course, investigations and assessments of sherlocking could also be made even in those jurisdictions where there isn’t an outright ban.
The former sis well-illustrated by the German legislature’s decision to empower its national competition authority with a new tool to tackle abusive practices that are similar and functionally equivalent to the DMA.[13] Indeed, as of January 2021, the Bundeskartellamt may identify positions of particular market relevance (undertakings of “paramount significance for competition across markets”) and assess their possible anticompetitive effects on competition in those areas of digital ecosystems in which individual companies may have a gatekeeper function. Both the initiative’s aims and its list of practices are similar to the DMA. They are distinguished primarily by the fact that the German list is exhaustive, and the practices at-issue are not prohibited per se, but are subject to a reversal of the burden of proof, allowing firms to provide objective justifications. For the sake of this analysis, within the German list, one provision prohibits designated undertakings from “demanding terms and conditions that permit … processing data relevant for competition received from other undertakings for purposes other than those necessary for the provision of its own services to these undertakings without giving these undertakings sufficient choice as to whether, how and for what purpose such data are processed.”[14]
Unfortunately, none of the above-mentioned EU antitrust proceedings have concluded with a final decision that addresses the merits of sherlocking. This precludes evaluating whether the practice would have survived before the courts. Regarding the Apple investigation, the European Commission dropped the case over App Store rules and issued a new statement of objections that no longer mentions sherlocking.[15] Further, the European Commission and the UK CMA accepted the commitments offered by Amazon to close those investigations.[16] The CMA likewise accepted the commitments offered by Meta.[17]
Those outcomes can be explained by the DMA’s recent entry into force. Indeed, because of the need to comply with the new regulation, players designated as gatekeepers likely have lost interest in challenging antitrust investigations that target the very same conduct prohibited by the DMA.[18] After all, given that the DMA does not allow any efficiency defense against the listed prohibitions, even a successful appeal against an antitrust decision would be a pyrrhic victory. From the opposite perspective, the same applies to the European Commission, which may decide to save time, costs, and risks by dropping an ongoing case against a company designated as a gatekeeper under the DMA, knowing that the conduct under investigation will be prohibited in any case.
Nonetheless, despite the lack of any final decision on sherlocking, these antitrust assessments remain relevant. As already mentioned, the DMA does not displace competition law and, in any case, dominant platforms not designated as gatekeepers under the DMA still may face antitrust investigations over sherlocking. This applies even more for jurisdictions, such as the United States, that are evaluating DMA-like legislative initiatives (e.g., the American Innovation and Choice Online Act, or “AICOA”).
Against this background, drawing on recent EU cases, this paper questions the alleged anticompetitive implications of sherlocking, as well as claims that the practice fails to comply with existing antitrust rules.
First, the paper illustrates that prohibitions on the use of nonpublic third-party business data would cover two different theories that should be analyzed separately. Whereas a broader case involves all the business decisions adopted by a dominant platform because of such preferential access (e.g., the launch of new products or services, the development or cessation of existing products or services, the calibration of pricing and management systems), a more specific case deals solely with the adoption of a copycat strategy. By conflating these theories in support of a blanket ban that condemns any use of nonpublic third-party business data, EU antitrust authorities are fundamentally motivated by the same policy goal pursued by the DMA—i.e., to impose a neutrality regime on large online platforms. The competitive implications differ significantly, however, as adopting copycat strategies may only affect intra-brand competition, while using said data to improve other business decisions could also affect inter-platform competition.
Second, the paper shows that, in both of these scenarios, the welfare effects of sherlocking are unclear. Notably, exploiting certain data to better understand the market could help a platform to develop new products and services, to improve existing products and services, or more generally to be more competitive with respect to both business users and other platforms. As such outcomes would benefit consumers in terms of price and quality, any competitive advantage achieved by the hybrid platform could be considered unlawful only if it is not achieved on the merits. In a similar vein, if sherlocking is used by a hybrid platform to deliver replicas of its business users’ products and services, that would likely provide short-term procompetitive effects benefitting consumers with more choice and lower prices. In this case, the only competitive harm that would justify an antitrust intervention resides in (uncertain) negative long-term effects on innovation.
As a result, in any case, an outright ban of sherlocking, such as is enshrined in the DMA, is economically unsound since it would clearly harm consumers.
The paper is structured as follows. Section II describes the recent antitrust investigations of sherlocking, illustrating the various scenarios that might include the use of third-party business data. Section III investigates whether sherlocking may be considered outside the scope of competition on the merits for bringing competitive advantages to platforms solely because of their hybrid business model. Section IV analyzes sherlocking as a copycat strategy by investigating the ambiguous welfare effects of copying in digital markets and providing an antitrust assessment of the practice at issue. Section V concludes.
Policymakers’ interest in sherlocking is part of a larger debate over potentially unfair strategies that large online platforms may deploy because of their dual role as an unavoidable trading partner for business users and a rival in complementary markets.
In this scenario, as summarized in Table 1, the DMA outlaws sherlocking, establishing that to “prevent gatekeepers from unfairly benefitting from their dual role,”[19] they are restrained from using, in competition with business users, “any data that is not publicly available that is generated or provided by those business users in the context of their use of the relevant core platform services or of the services provided together with, or in support of, the relevant core platform services, including data generated or provided by the customers of those business users.”[20] Recital 46 further clarifies that the “obligation should apply to the gatekeeper as a whole, including but not limited to its business unit that competes with the business users of a core platform service.”
A similar provision was included in the American Innovation and Choice Online Act (AICOA), which was considered, but not ultimately adopted, in the 117th U.S. Congress. AICOA, however, would limit the scope of the ban to the offer of products or services that would compete with those offered by business users.[21] Concerns about copycat strategies were also reported in the U.S. House of Representatives’ investigation of the state of competition in digital markets as supporting the request for structural-separation remedies and line-of-business restrictions to eliminate conflicts of interest where a dominant intermediary enters markets that place it in competition with dependent businesses.[22] Interestingly, however, in the recent complaint filed by the U.S. Federal Trade Commission (FTC) and 17 state attorneys general against Amazon that accuses the company of having deployed an interconnected strategy to block off every major avenue of competition (including price, product selection, quality, and innovation), there is no mention of sherlocking among the numerous unfair practices under investigation.[23]
Evaluating regulatory-reform proposals for digital markets, the Australian Competition and Consumer Commission (ACCC) also highlighted the risk of sherlocking, arguing that it could have an adverse effect on competition, notably on rivals’ ability to compete, when digital platforms exercise their strong market position to utilize nonpublic data to free ride on the innovation efforts of their rivals.[24] Therefore, the ACCC suggested adopting service-specific codes to address self-preferencing by, for instance, imposing data-separation requirements to restrain dominant app-store providers from using commercially sensitive data collected from the app-review process to develop their own apps.[25]
Finally, on a comparative note, it is also useful to mention the proposals advanced by the Japanese Fair Trade Commission (JFTC) in its recent market-study report on mobile ecosystems.[26] In order to ensure equal footing among competitors, the JFTC specified that its suggestion to prevent Google and Apple from using nonpublic data generated by other developers’ apps aims at pursuing two purposes. Such a ban would, indeed, concern not only use of the data for the purpose of developing competing apps, products, and services, but also its use for developing their own apps, products, and services.
As previously anticipated, sherlocking recently emerged as an antitrust offense in three investigations launched by the European Commission and the UK CMA.
In the first case, Amazon’s alleged reliance on marketplace sellers’ nonpublic business data has been claimed to distort fair competition on its platform and prevent effective competition. In its preliminary findings, the Commission argued that Amazon takes advantage of its hybrid business model, leveraging its access to nonpublic third-party sellers’ data (e.g., the number of ordered and shipped units of products; sellers’ revenues on the marketplace; the number of visits to sellers’ offers; data relating to shipping, to sellers’ past performance, and to other consumer claims on products, including the activated guarantees) to adjust its retail offers and strategic business decisions to the detriment of third-party sellers, which are direct competitors on the marketplace.[27] In particular, the Commission was concerned that Amazon uses such data for its decision to start and end sales of a product, for its pricing system, for its inventory-planning and management system, and to identify third-party sellers that Amazon’s vendor-recruitment teams should approach to invite them to become direct suppliers to Amazon Retail. To address the data-use concern, Amazon committed not to use nonpublic data relating to, or derived from, independent sellers’ activities on its marketplace for its retail business and not to use such data for the purposes of selling branded goods, as well as its private-label products.[28]
A parallel investigation ended with similar commitments in the UK.[29] According to the UK CMA, Amazon’s access to and use of nonpublic seller data could result in a competitive advantage for Amazon Retail arising from its operation of the marketplace, rather than from competition on the merits, and may lead to relevant adverse effects on competition. Notably, it was alleged this could result in a reduction in the scale and competitiveness of third-party sellers on the Amazon Marketplace; a reduction in the number and range of product offers from third-party sellers on the Amazon Marketplace; and/or less choice for consumers, due to them being offered lower quality goods and/or paying higher prices than would otherwise be the case.
It is also worth mentioning that, by determining that Amazon is an undertaking of paramount significance for competition across markets, the Bundeskartellamt emphasized the competitive advantage deriving from Amazon’s access to nonpublic data, such as Glance Views, sales figures, sale quantities, cost components of products, and reorder status.[30] Among other things, with particular regard to Amazon’s hybrid role, the Bundeskartellamt noted that the preferential access to competitively sensitive data “opens up the possibility for Amazon to optimize its own-brand assortment.”[31]
A second investigation involved Apple and its App Store rule.[32] According to the European Commission, the mandatory use of Apple’s own proprietary in-app purchase system (IAP) would, among other things, grant Apple full control over the relationship its competitors have with customers, thus disintermediating those competitors from customer data and allowing Apple to obtain valuable data about the activities and offers of its competitors.
Finally, Meta faced antitrust proceedings in both the EU and the UK.[33] The focus was on Facebook Marketplace—i.e., an online classified-ads service that allows users to advertise goods for sale. According to the European Commission and the CMA, Meta unilaterally imposes unfair trading conditions on competing online-classified ads services that advertise on Facebook or Instagram. These terms and conditions, which authorize Meta to use ads-related data derived from competitors for the benefit of Facebook Marketplace, are considered unjustified, as they impose an unnecessary burden on competitors and only benefit Facebook Marketplace. The suspicion is that Meta has used advertising data from Facebook Marketplace competitors for the strategic planning, product development, and launch of Facebook Marketplace, as well as for Marketplace’s operation and improvement.
Overall, these investigations share many features. The concerns about third-party business-data use, as well as about other forms of self-preferencing, revolve around the competitive advantages that accrue to a dominant platform because of its dual role. Such advantages are considered unfair, as they are not the result of the merits of a player, but derived purely and simply from its role as an important gateway to reach end users. Moreover, this access to valuable business data is not reciprocal. The feared risk is the marginalization of business users competing with gatekeepers on the gatekeepers’ platforms and, hence, the alleged harm to competition is the foreclosure of rivals in complementary markets (horizontal foreclosure).
The focus of these investigations was well-illustrated by the European Commission’s decision on Amazon’s practice.[34] The Commission’s concern was about the “data delta” that Amazon may exploit, namely the additional data related to third-party sellers’ listings and transactions that are not available to, and cannot be replicated by, the third-party sellers themselves, but are available to and used by Amazon Retail for its own retail operations.[35] Contrary to Amazon Retail—which, according to Commission’s allegations, would have full access to and would use such individual, real-time data of all its third-party sellers to calibrate its own retail decisions—sellers would have access only to their own individual listings and sales data. As a result, the Commission came to the (preliminary) conclusion that real-time access to and use of such volume, variety, and granularity of non-publicly available data from its retail competitors generates a significant competitive advantage for Amazon Retail in each of the different decisional processes that drive its retail operations.[36]
On a closer look, however, while antitrust authorities seem to target the use of nonpublic third-party business data as a single theory of harm, their allegations cover two different scenarios along the lines of what has already been examined with reference to the international legislative initiatives and proposals. Indeed, the Facebook Marketplace case does not involve an allegation of copying, as Meta is accused of gathering data from its business users to launch and improve its ads service, instead of reselling goods and services.
As illustrated above in Figure 1, while the claim in the latter scenario is that the preferential data use would help dominant players calibrate business decisions in general, the former scenario instead involves the use of such data for a pure copycat strategy of an entire product or service, or some of its specific features.
In both scenarios the aim of the investigations is to ensure platform neutrality. Accordingly, as shown by the accepted commitments, the envisaged solution for antitrust authorities is to impose data-separation requirements to restrain dominant platforms from using third-party commercially sensitive data. Putting aside that these investigations concluded with commitments from the firms, however, their chances of success before a court differ significantly depending on whether they challenge a product-imitation strategy, or any business decision adopted because of the “data delta.”
Before analyzing how existing competition-law rules could be applied to the various scenarios involving the use of third-party business data, it is worth providing a brief overview of the framework in which the assessment of sherlocking is conducted. As competition in the digital economy is increasingly a competition among ecosystems,[37] a lively debate has emerged on the capacity of traditional antitrust analysis to adequately capture the peculiar features of digital markets. Indeed, the combination of strong economies of scale and scope; indirect network effects; data advantages and synergies across markets; and portfolio effects all facilitate ecosystem development all contribute to making digital markets highly concentrated, prone to tipping, and not easily contestable.[38] As a consequence, it’s been suggested that addressing these distinctive features of digital markets requires an overhaul of the antitrust regime.
Such discussions require the antitrust toolkit and theories of harm to illustrate whether and how a particular practice, agreement, or merger is anticompetitive. Notably, at issue is whether traditional antitrust theories of harm are fit for purpose or whether novel theories of harm should be developed in response to the emerging digital ecosystems. The latter requires looking at the competitive impact of expanding, protecting, or strengthening an ecosystem’s position, and particularly whether such expansion serves to exploit a network of capabilities and to control access to key inputs and components.[39]
A significant portion of recent discussions around developing novel theories of harm to better address the characteristics of digital-business models and markets has been devoted to the topic of merger control—in part a result of the impressive number of acquisitions observed in recent years.[40] In particular, the focus has been on analyzing conglomerate mergers that involve acquiring a complementary or unrelated asset, which have traditionally been assumed to raise less-significant competition concerns.
In this regard, an ecosystem-based theory seems to have guided the Bundeskartellamt in its assessment of Meta’s acquisition of Kustomer[41] and by the CMA in Microsoft/Activision.[42] A more recent example is the European Commission’s decision to prohibit the proposed Booking/eTraveli merger, where the Commission explicitly noted that the transaction would have allowed Booking to expand its travel-services ecosystem.[43] The Commission’s concerns were related primarily to the so-called “envelopment” strategy, in which a prominent platform within a specific market broadens its range of services into other markets where there is a significant overlap of customer groups already served by the platform.[44]
Against this background, putative self-preferencing harms represent one of the European Commission’s primary (albeit contentious)[45] attempts to develop new theories of harm built on conglomerate platforms’ ability to bundle services or use data from one market segment to inform product development in another.[46] Originally formulated in the Google Shopping decision,[47] the theory of harm of (leveraging through) self-preferencing has subsequently inspired the DMA, which targets different forms of preferential treatment, including sherlocking.
In particular, it is asserting that platform may use self-preferencing to adopt a leveraging strategy with a twofold anticompetitive effect—that is, excluding or impeding rivals from competing with the platform (defensive leveraging) and extending the platform’s market power into associated markets (offensive leveraging). These goals can be pursued because of the unique role that some large digital platforms play. That is, they not only enjoy strategic market status by controlling ecosystems of integrated complementary products and services, which are crucial gateways for business users to reach end users, but they also perform a dual role as both a critical intermediary and a player active in complementors’ markets. Therefore, conflicts of interests may provide incentives for large vertically integrated platforms to favor their own products and services over those of their competitors.[48]
The Google Shopping theory of harm, while not yet validated by the Court of Justice of the European Union (CJEU),[49] has also found its way into merger analysis, as demonstrated by the European Commission’s recent assessment of iRobot/Amazon.[50] In its statement of objections, the Commission argued that the proposed acquisition of iRobot may give Amazon the ability and incentive to foreclose iRobot’s rivals by engaging in several foreclosing strategies to prevent them from selling robot vacuum cleaners (RVCs) on Amazon’s online marketplace and/or at degrading such rivals’ access to that marketplace. In particular, the Commission found that Amazon could deploy such self-preferencing strategies as delisting rival RVCs; reducing rival RVCs’ visibility in both organic and paid results displayed in Amazon’s marketplace; limiting access to certain widgets or commercially attractive labels; and/or raising the costs of iRobot’s rivals to advertise and sell their RVCs on Amazon’s marketplace.[51]
Sherlocking belongs to this framework of analysis and can be considered a form of self-preferencing, specifically because of the lack of reciprocity in accessing sensitive data.[52] Indeed, while gatekeeper platforms have access to relevant nonpublic third-party business data as a result of their role as unavoidable trading partners, they leverage this information exclusively, without sharing it with third-party sellers, thus further exacerbating an already uneven playing field.[53]
Insofar as prohibitions of sherlocking center on the competitive advantages that platforms enjoy because of their dual role—thereby allowing some players to better calibrate their business decisions due to their preferential access to business users’ data—it should be noted that competition law does not impose a general duty to ensure a level playing field.[54] Further, a competitive advantage does not, in itself, amount to anticompetitive foreclosure under antitrust rules. Rather, foreclosure must not only be proved (in terms of actual or potential effects) but also assessed against potential benefits for consumers in terms of price, quality, and choice of new goods and services.[55]
Indeed, not every exclusionary effect is necessarily detrimental to competition.[56] Competition on the merits may, by definition, lead to the departure from the market or the marginalization of competitors that are less efficient and therefore less attractive to consumers from the point of view of, among other things, price, choice, quality or innovation.[57] Automatically classifying any conduct with exclusionary effects were as anticompetitive could well become a means to protect less-capable, less-efficient undertakings and would in no way protect more meritorious undertakings—thereby potentially hindering a market’s competitiveness.[58]
As recently clarified by the CJEU regarding the meaning of “competition on the merits,” any practice that, in its implementation, holds no economic interest for a dominant undertaking except that of eliminating competitors must be regarded as outside the scope of competition on the merits.[59] Referring to the cases of margin squeezes and essential facilities, the CJEU added that the same applies to practices that a hypothetical equally efficient competitor is unable to adopt because that practice relies on using resources or means inherent to the holding of such a dominant position.[60]
Therefore, while antitrust cases on sherlocking set out to ensure a level playing field and platform neutrality, and therefore center on the competitive advantages that a platform enjoys because of its dual role, mere implementing a hybrid business model does not automatically put such practices outside the scope of competition on the merits. The only exception, according to the interpretation provided in Bronner, is the presence of an essential facility—i.e., an input whose access should be considered indispensable, as there are no technical, legal, or economic obstacles capable of making it impossible, or even unreasonably difficult, to duplicate it.[61]
As a result, unless it is proved that the hybrid platform is an essential facility, sherlocking and other forms of self-preferencing cannot be considered prima facie outside the scope of competition on the merits, or otherwise unlawful. Rather, any assessment of sherlocking demands the demonstration of anticompetitive effects, which in turn requires finding an impact on efficient firms’ ability and incentive to compete. In the scenario at-issue, for instance, the access to certain data may allow a platform to deliver new products or services; to improve existing products or services; or more generally to compete more efficiently not only with respect to the platform’s business users, but also against other platforms. Such an increase in both intra-platform and inter-platform competition would benefit consumers in terms of lower prices, better quality, and a wider choice of new or improved goods and services—i.e., competition on the merits.[62]
In Facebook Marketplace, the European Commission and UK CMA challenged the terms and conditions governing the provision of display-advertising and business-tool services to which Meta required its business customers to sign up.[63] In their view, Meta abused its dominant position by imposing unfair trading conditions on its advertising customers, which authorized Meta to use ads-related data derived from the latter in a way that could afford Meta a competitive advantage on Facebook Marketplace that would not have arisen from competition on the merits. Notably, antitrust authorities argued that Meta’s terms and conditions were unjustified, disproportionate, and unnecessary to provide online display-advertising services on Meta’s platforms.
Therefore, rather than directly questioning the platform’s dual role or hybrid business model, the European Commission and UK CMA decided to rely on traditional case law which considers unfair those clauses that are unjustifiably unrelated to the purpose of the contract, unnecessarily limit the parties’ freedom, are disproportionate, or are unilaterally imposed or seriously opaque.[64] This demonstrates that, outside the harm theory of the unfairness of terms and conditions, a hybrid platform’s use of nonpublic third-party business data to improve its own business decisions is generally consistent with antitrust provisions. Hence, an outright ban would be unjustified.
The second, and more intriguing, sherlocking scenario is illustrated by the Amazon Marketplace investigations and regards the original meaning of sherlocking—i.e., where a data advantage is used by a hybrid platform to mimic its business users’ products or services.
Where sherlocking charges assert that the practice allows some platforms to use business users’ data to compete against them by replicating their products or services, it should not be overlooked that the welfare effects of such a copying strategy are ambiguous. While the practice could benefit consumers in the short term by lowering prices and increasing choice, it may discourage innovation over the longer term if third parties anticipate being copied whenever they deliver successful products or services. Therefore, the success of an antitrust investigation essentially relies on demonstrating a harm to innovation that would induce business users to leave the market or stop developing their products and services. In other words, antitrust authorities should be able to demonstrate that, by allowing dominant platforms to free ride on their business guests’ innovation efforts, sherlocking would negatively affect rivals’ ability to compete.
The tradeoff between the short- and long-term welfare effects of copying has traditionally been analyzed in the context of the benefits and costs generated by intellectual-property protection.[65] In particular, the economic literature investigating the optimal life of patents[66] and copyrights[67] focuses on the efficient balance between dynamic benefits associated with innovation and the static costs of monopoly power granted by IPRs.
More recently, product imitation has instead been investigated in the different scenario of digital markets, where dominant platforms adopting a hybrid business model may use third-party sellers’ market data to design and promote their own products over their rivals’ offerings. Indeed, some studies report that large online platforms may attempt to protect their market position by creating “kill zones” around themselves—i.e., by acquiring, copying, or eliminating their rivals.[68] In such a novel setting, the welfare effects of copying are assessed regardless of the presence and the potential enforcement of IPRs, but within a strategy aimed at excluding rivals by exploiting the dual role of both umpire and player to get preferential access to sensitive data and free ride on their innovative efforts.[69]
Even in this context, however, a challenging tradeoff should be considered. Indeed, while in the short term, consumers may benefit from the platform’s imitation strategy in terms of lower prices and higher quality, they may be harmed in the longer term if third parties are discouraged from delivering new products and services. As a result, while there is empirical evidence on hybrid platforms successfully entering into third parties’ adjacent market segments, [70] the extant academic literature finds the welfare implications of such moves to be ambiguous.
A first strand of literature attempts to estimate the welfare impact of the hybrid business model. Notably, Andre Hagiu, Tat-How Teh, and Julian Wright elaborated a model to address the potential implications of an outright ban on platforms’ dual mode, finding that such a structural remedy may harm consumer surplus and welfare even where the platform would otherwise engage in product imitation and self-preferencing.[71] According to the authors, banning the dual mode does not restore the third-party seller’s innovation incentives or the effective price competition between products, which are the putative harms caused by imitation and self-preferencing. Therefore, the authors’ evaluation was that interventions specifically targeting product imitation and self-preferencing were preferable.
Germa?n Gutie?rrez suggested that banning the dual model would generate hardly any benefits for consumers, showing that, in the Amazon case, interventions that eliminate either the Prime program or product variety are likely to decrease welfare.[72]
Further, analyzing Amazon’s business model, Federico Etro found that the platform and consumers’ incentives are correctly aligned, and that Amazon’s business model of hosting sellers and charging commissions prevents the company from gaining through systematic self?preferencing for its private-label and first-party products.[73] In the same vein, on looking at its business model and monetization strategy, Patrick Andreoli-Versbach and Joshua Gans argued that Amazon does not have an obvious incentive to self-preference.[74] Indeed, Amazon’s profitability data show that, on average, the company’s operating margin is higher on third-party sales than on first-party retail sales.
Looking at how modeling details may yield different results with regard to the benefits and harms of the hybrid business model, Simon Anderson and O?zlem Bedre-Defoile maintain that the platform’s choice to sell its own products benefits consumers by lowering prices when a monopoly platform hosts competitive fringe sellers, regardless of the platform’s position as a gatekeeper, whether sellers have an alternate channel to reach consumers, or whether alternate channels are perfect or imperfect substitutes for the platform channel.[75] On the other hand, the authors argued that platform product entry might harm consumers when a big seller with market power sells on its own channel and also on the platform. Indeed, in that case, the platform setting a seller fee before the big seller prices its differentiated products introduces double markups on the big seller’s platform-channel price and leaves some revenue to the big seller.
Studying whether Amazon engages in self-preferencing on its marketplace by favoring its own brands in search results, Chiara Farronato, Andrey Fradkin, and Alexander MacKay demonstrate empirically that Amazon brands remain about 30% cheaper and have 68% more reviews than other similar products.[76] The authors acknowledge, however, that their findings do not imply that consumers are hurt by Amazon brands’ position in search results.
Another strand of literature specifically tackles the welfare effects of sherlocking. In particular, Erik Madsen and Nikhil Vellodi developed a theoretical framework to demonstrate that a ban on insider imitation can either stifle or stimulate innovation, depending on the nature of innovation.[77] Specifically, the ban could stimulate innovation for experimental product categories, while reducing innovation in incremental product markets, since the former feature products with a large chance of superstar demand and the latter generate mostly products with middling demand.
Federico Etro maintains that the tradeoffs at-issue are too complex to be solved with simple interventions, such as bans on dual mode, self-preferencing, or copycatting.[78] Indeed, it is difficult to conclude that Amazon entry is biased to expropriate third-party sellers or that bans on dual mode, self-preferencing, or copycatting would benefit consumers, because they either degrade services and product variety or induce higher prices or commissions.
Similar results are provided by Jay Pil Choi, Kyungmin Kim, and Arijit Mukherjee, who developed a tractable model of a platform-run marketplace where the platform charges a referral fee to the sellers for access to the marketplace, and may also subsequently launch its own private-label product by copying a seller.[79] The authors found that a policy to either ban hybrid mode or only prohibit information use for the launch of private-label products may produce negative welfare implications.
Further, Radostina Shopova argues that, when introducing a private label, the marketplace operator does not have incentive to distort competition and foreclose the outside seller, but does have an incentive to lower fees charged to the outside seller and to vertically differentiate its own product in order to protect the seller’s channel.[80] Even when the intermediary is able to perfectly mimic the quality of the outside seller and monopolize its product space, the intermediary prefers to differentiate its offer and chooses a lower quality for the private-label product. Accordingly, as the purpose of private labels is to offer a lower-quality version of products aimed at consumers with a lower willingness to pay, a marketplace operator does not have an incentive to distort competition in favor of its own product and foreclose the seller of the original higher-quality product.
In addition, according to Jean-Pierre Dubé, curbing development of private-label programs would harm consumers and Amazon’s practices amount to textbook retailing, as they follow an off-the-shelf approach to managing private-label products that is standard for many retail chains in the West.[81] As a result, singling out Amazon’s practices would set a double standard.
Interestingly, such findings about predictors and effects of Amazon’s entry in competition with third-party merchants on its own marketplace are confirmed by the only empirical study developed so far. In particular, analyzing the Home & Kitchen department of Germany’s version of Amazon Marketplace between 2016 and 2021, Gregory S. Crawford, Matteo Courthoud, Regina Seibel, and Simon Zuzek’s results suggest that Amazon’s entry strategy was more consistent with making Marketplace more attractive to consumers than expropriating third-party merchants.[82] Notably, the study showed that, comparing Amazon’s entry decisions with those of the largest third-party merchants, Amazon tends to enter low-growth and low-quality products, which is consistent with a strategy that seeks to make Marketplace more attractive by expanding variety, lessening third-party market power, and/or enhancing product availability. The authors therefore found that Amazon’s entry on Amazon Marketplace demonstrated no systematic adverse effects and caused a mild market expansion.
Massimo Motta and Sandro Shelegia explored interactions between copying and acquisitions, finding that the former (or the threat of copying) can modify the outcome of an acquisition negotiation.[83] According to their model, there could be both static and dynamic incentives for an incumbent to introduce a copycat version of a complementary product. The static rationale consists of lowering the price of the complementary product in order to capture more rents from it, while the dynamic incentive consists of harming a potential rival’s prospects of developing a substitute. The latter may, in turn, affect the direction the entrant takes toward innovation. Anticipating the incumbent’s copying strategy, the entrant may shift resources from improvements to compete with the incumbent’s primary product to developing complementary products.
Jingcun Cao, Avery Haviv, and Nan Li analyzed the opposite scenario—i.e., copycats that seek to mimic the design and user experience of incumbents’ successful products.[84] The authors find empirically that, on average, copycat apps do not have a significant effect on the demand for incumbent apps and that, as with traditional counterfeit products, they may generate a positive demand spillover toward authentic apps.
Massimo Motta also investigated the potential foreclosure effects of platforms adopting a copycat strategy committed to non-discriminatory terms of access for third parties (e.g., Apple App Store, Google Play, and Amazon Marketplace).[85] Notably, according to Motta, when a third-party seller is particularly successful and the platform is unable to raise fees and commissions paid by that seller, the platform may prefer to copy its product or service to extract more profits from users, rather than rely solely on third-party sales. The author acknowledged, however, that even though this practice may create an incentive for self-preferencing, it does not necessarily have anticompetitive effects. Indeed, the welfare effects of the copying strategy are a priori ambiguous.[86] While, on the one hand, the platform’s copying of a third-party product benefits consumers by increasing variety and competition among products, on the other hand, copying might be wasteful for society, in that it entails a fixed cost and may discourage innovation if rivals anticipate that they will be systematically copied whenever they have a successful product.[87] Therefore, introducing a copycat version of a product offered by a firm in an adjacent market might be procompetitive.
The economic literature has demonstrated that the rationale and welfare effects of sherlocking by hybrid platforms are definitively ambiguous. Against concerns about rivals’ foreclosure, some studies provide a different narrative, illustrating that such a strategy is more consistent with making the platform more attractive to consumers (by differentiating the quality and pricing of the offer) than expropriating business users.[88] Furthermore, copies, imitations, and replicas undoubtedly benefit consumers with more choice and lower prices.
Therefore, the only way to consider sherlocking anticompetitive is by demonstrating long-term deterrent effects on innovation (i.e., reducing rivals’ incentives to invest in new products and services) outweigh consumers’ short-term advantages.[89] Moreover, deterrent effects must not be merely hypothetical, as a finding of abuse cannot be based on a mere possibility of harm.[90] In any case, such complex tradeoffs are at odds with a blanket ban.[91]
Moreover, assessments of the potential impact of sherlocking on innovation cannot disregard the role of IPRs—which are, by definition, the main primary to promote innovation. From this perspective, intellectual-property protection is best characterized as another form of tradeoff. Indeed, the economic rationale of IPRs (in particular, of patents and copyrights) involves, among other things, a tradeoff between access and incentives—i.e., between short-term competitive restrictions and long-term innovative benefits.[92]
According to the traditional incentive-based theory of intellectual property, free riding would represent a dangerous threat that justifies the exclusive rights granted by intellectual-property protection. As a consequence, so long as copycat expropriation does not infringe IPRs, it should be presumed legitimate and procompetitive. Indeed, such free riding is more of an intellectual-property issue than a competitive concern.
In addition, to strike a fair balance between restricting competition and providing incentives to innovation, the exclusive rights granted by IPRs are not unlimited in terms of duration, nor in terms of lawful (although not authorized) uses of the protected subject matter. Under the doctrine of fair use, for instance, reverse engineering represents a legitimate way to obtain information about a firm’s product, even if the intended result is to produce a directly competing product that may steer customers away from the initial product and the patented invention.
Outside of reverse engineering, copying is legitimately exercised once IPRs expire, when copycat competitors can reproduce previously protected elements. As a result of the competitive pressure exerted by new rivals, holders of expired IPRs may react by seeking solutions designed to block or at least limit the circulation of rival products. They could, for example, request other IPRs to cover aspects or functionalities different from those previously protected. They could also bring (sometimes specious) legal action for infringement of the new IPR or for unfair competition by slavish imitation. For these reasons, there have been occasions where copycat competitors have received protection from antitrust authorities against sham litigation brought by IPR holders concerned about losing margins due to pricing pressure from copycats.[93]
Finally, within the longstanding debate on the intersection of intellectual-property protection and competition, EU antitrust authorities have traditionally been unsympathetic toward restrictions imposed by IPRs. The success of the essential-facility doctrine (EFD) is the most telling example of this attitude, as its application in the EU has been extended to IPRs. As a matter of fact, the EFD represents the main antitrust tool for overseeing intellectual property in the EU.[94]
After Microsoft, EU courts have substantially dismantled one of the “exceptional circumstances” previously elaborated in Magill and specifically introduced for cases involving IPRs, with the aim of safeguarding a balance between restrictions to access and incentives to innovate. Whereas the CJEU established in Magill that refusal to grant an IP license should be considered anticompetitive if it prevents the emergence of a new product for which there is potential consumer demand, in Microsoft, the General Court considered such a requirement met even when access to an IPR is necessary for rivals to merely develop improved products with added value.
Given this background, recent competition-policy concerns about sherlocking are surprising. To briefly recap, the practice at-issue increases competition in the short term, but may affect incentives to innovate in the long-term. With regard to the latter, however, the practice neither involves products protected by IPRs nor constitutes a slavish imitation that may be caught under unfair-competition laws.
The case of Amazon, which has received considerable media coverage, is illustrative of the relevance of IP protection. Amazon has been accused of cloning batteries, power strips, wool runner shoes, everyday sling bags, camera tripods, and furniture.[95] One may wonder what kind of innovation should be safeguarded in these cases against potential copies. Admittedly, such examples appear consistent with the findings of the already-illustrated empirical study conducted by Crawford et al. indicating that Amazon tends to enter low-quality products in order to expand variety on the Marketplace and to make it more attractive to consumers.
Nonetheless, if an IPR is involved, right holders are provided with proper means to protect their products against infringement. Indeed, one of the alleged targeted companies (Williams-Sonoma) did file a complaint for design and trademark infringement, claiming that Amazon had copied a chair (Orb Dining Chair) sold by its West Elm brand. According to Williams-Sonoma, the Upholstered Orb Office Chair—which Amazon began selling under its Rivet brand in 2018—was so similar that the ordinary observer would be confused by the imitation.[96] If, instead, the copycat strategy does not infringe any IPR, the potential impact on innovation might not be considered particularly worrisome—at least at first glance.
Further, neither the degree to which third-party business data is unavailable nor the degree to which they are relevant in facilitating copying are clear cut. For instance, in the case of Amazon, public product reviews supply a great deal of information[97] and, regardless of the fact that a third party is selling a product on the Marketplace, anyone can obtain an item for the purposes of reverse engineering.[98]
In addition, antitrust authorities are used to intervening against opportunistic behavior by IPR holders. European competition authorities, in particular, have never before seemed particularly responsive to the motives of inventors and creators versus the need to encourage maximum market openness.
It should also be noted that cloning is a common strategy in traditional markets (e.g., food products)[99] and has been the subject of longstanding controversies between high-end fashion brands and fast-fashion brands (e.g., Zara, H&M).[100] Furthermore, brick-and-mortar retailers also introduce private labels and use other brands’ sales records in deciding what to produce.[101]
So, what makes sherlocking so different and dangerous when deployed in digital markets as to push competition authorities to contradict themselves?[102]
The double standard against sherlocking reflects the same concern and pursues the same goal of the various other attempts to forbid any form of self-preferencing in digital markets. Namely, antitrust investigations of sherlocking are fundamentally driven by the bias against hybrid and vertically integrated players. The investigations rely on the assumption that conflicts of interest have anticompetitive implications and that, therefore, platform neutrality should be promoted to ensure the neutrality of the competitive process.[103] Accordingly, hostility toward sherlocking may involve both of the illustrated scenarios—i.e., the use of nonpublic third-party business data either in adopting any business decision, or just copycat strategies, in particular.
As a result, however, competition authorities end up challenging a specific business model, rather than the specific practice at-issue, which brings undisputed competitive benefits in terms of lower prices and wider consumer choice, and which should therefore be balanced against potential exclusionary risks. As the CJEU has pointed out, the concept of competition on the merits:
…covers, in principle, a competitive situation in which consumers benefit from lower prices, better quality and a wider choice of new or improved goods and services. Thus, … conduct which has the effect of broadening consumer choice by putting new goods on the market or by increasing the quantity or quality of the goods already on offer must, inter alia, be considered to come within the scope of competition on the merits.[104]
Further, in light of the “as-efficient competitor” principle, competition on the merits may lead to “the departure from the market, or the marginalization of, competitors that are less efficient and so less attractive to consumers from the point of view of, among other things, price, choice, quality or innovation.”[105]
It has been correctly noted that the “as-efficient competitor” principle is a reminder of what competition law is about and how it differs from regulation.[106] Competition law aims to protect a process, rather than engineering market structures to fulfill a particular vision of how an industry is to operate.[107] In other words, competition law does not target firms on the basis of size or status and does not infer harm from (market or bargaining) power or business model. Therefore, neither the dual role played by some large online platforms nor their preferential access to sensitive business data or their vertical integration, by themselves, create a competition problem. Competitive advantages deriving from size, status, power, or business model cannot be considered per se outside the scope of competition on the merits.
Some policymakers have sought to resolve these tensions in how competition law regards sherlocking by introducing or envisaging an outright ban. These initiatives and proposals have clearly been inspired by antitrust investigations, but they did so for the wrong reasons. Instead of taking stock of the challenging tradeoffs between short-term benefits and long-term risks that an antitrust assessment of sherlocking requires, they blamed competition law for not providing effective tools to achieve the policy goal of platform neutrality.[108] Therefore, the regulatory solution is merely functional to bypass the traditional burden of proof of antitrust analysis and achieve what competition-law enforcement cannot provide.
The bias against self-preferencing strikes again. Concerns about hybrid platforms’ potential conflicts of interest have led policymakers to seek prohibitions to curb different forms of self-preferencing, making the latter the symbol of the competition-policy zeitgeist in digital markets. Sherlocking shares this fate. Indeed, the DMA outlaws any use of business users’ nonpublic data and similar proposals have been advanced in the United States, Australia, and Japan. Further, like other forms of self-preferencing, such regulatory initiatives against sherlocking have been inspired by previous antitrust proceedings.
Drawing on these antitrust investigations, the present research shows the extent to which an outright ban on sherlocking is unjustified. Notably, the practice at-issue includes two different scenarios: the broad case in which a gatekeeper exploits its preferential access to business users’ data to better calibrate all of its business decisions and the narrow case in which such data is used to adopt a copycat strategy. In either scenario, the welfare effects and competitive implications of sherlocking are unclear.
Indeed, the use of certain data by a hybrid platform to improve business decisions generally should be classified as competition on the merits, and may yield an increase in both intra-platform (with respect to business users) and inter-platform (with respect to other platforms) competition. This would benefit consumers in terms of lower prices, better quality, and a wider choice of new or improved goods and services. In a similar vein, if sherlocking is used to deliver replicas of business users’ products or services, the anti-competitiveness of such a strategy may only result from a cumbersome tradeoff between short-term benefits (i.e., lower prices and wider choice) and negative long-term effects on innovation.
An implicit confirmation of the difficulties encountered in demonstrating the anti-competitiveness of sherlocking comes from the recent complaint issued by the FTC against Amazon.[109] Current FTC Chairwoman Lina Khan devoted a significant portion of her previous academic career to questioning Amazon’s practices (including the decision to introduce its own private labels inspired by third-party products)[110] and to supporting the adoption of structural-separation remedies to tackle platforms’ conflicts of interest that induce them to exploit their “systemic informational advantage (gleaned from competitors)” to thwart rivals and strengthen their own position by introducing replica products.[111] Despite these premises and although the FTC’s complaint targets numerous practices belonging to what has been described as an interconnected strategy to block off every major avenue of competition, however, sherlocking is surprisingly off the radar.
Regulatory initiatives to ban sherlocking in order to ensure platform neutrality with respect to business users and a level playing field among rivals would sacrifice undisputed procompetitive benefits on the altar of policy goals that competition rules are not meant to pursue. Sherlocking therefore appears to be a perfect case study of the side effects of unwarranted interventions in digital markets.
[1] Giuseppe Colangelo, Antitrust Unchained: The EU’s Case Against Self-Preferencing, 72 GRUR International 538 (2023).
[2] Jacques Cre?mer, Yves-Alexandre de Montjoye, & Heike Schweitzer, Competition Policy for the Digital Era (2019), 7, https://op.europa.eu/en/publication-detail/-/publication/21dc175c-7b76-11e9-9f05-01aa75ed71a1/language-en (all links last accessed 3 Jan. 2024); UK Digital Competition Expert Panel, Unlocking Digital Competition, (2019) 58, available at https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/785547/unlocking_digital_competition_furman_review_web.pdf.
[3] You’ve Been Sherlocked, The Economist (2012), https://www.economist.com/babbage/2012/07/13/youve-been-sherlocked.
[4] Regulation (EU) 2022/1925 on contestable and fair markets in the digital sector and amending Directives (EU) 2019/1937 and (EU) 2020/1828 (Digital Markets Act) (2022), OJ L 265/1, Article 6(2).
[5] U.S. S. 2992, American Innovation and Choice Online Act (AICOA) (2022), Section 3(a)(6), available at https://www.klobuchar.senate.gov/public/_cache/files/b/9/b90b9806-cecf-4796-89fb-561e5322531c/B1F51354E81BEFF3EB96956A7A5E1D6A.sil22713.pdf. See also U.S. House of Representatives, Subcommittee on Antitrust, Commercial, and Administrative Law, Investigation of Competition in Digital Markets, Majority Staff Reports and Recommendations (2020), 164, 362-364, 378, available at https://democrats-judiciary.house.gov/uploadedfiles/competition_in_digital_markets.pdf.
[6] Australian Competition and Consumer Commission, Digital Platform Services Inquiry Report on Regulatory Reform (2022), 125, https://www.accc.gov.au/about-us/publications/serial-publications/digital-platform-services-inquiry-2020-2025/digital-platform-services-inquiry-september-2022-interim-report-regulatory-reform.
[7] Japan Fair Trade Commission, Market Study Report on Mobile OS and Mobile App Distribution (2023), https://www.jftc.go.jp/en/pressreleases/yearly-2023/February/230209.html.
[8] European Commission, 10 Nov. 2020, Case AT.40462, Amazon Marketplace; see Press Release, Commission Sends Statement of Objections to Amazon for the Use of Non-Public Independent Seller Data and Opens Second Investigation into Its E-Commerce Business Practices, European Commission (2020), https://ec.europa.eu/commission/presscorner/detail/en/ip_20_2077.
[9] Press Release, CMA Investigates Amazon Over Suspected Anti-Competitive Practices, UK Competition and Markets Authority (2022), https://www.gov.uk/government/news/cma-investigates-amazon-over-suspected-anti-competitive-practices.
[10] European Commission, 16 Jun. 2020, Case AT.40716, Apple – App Store Practices.
[11] Press Release, Commission Sends Statement of Objections to Meta over Abusive Practices Benefiting Facebook Marketplace, European Commission (2022), https://ec.europa.eu/commission/presscorner/detail/en/ip_22_7728; Press Release, CMA Investigates Facebook’s Use of Ad Data, UK Competition and Markets Authority (2021), https://www.gov.uk/government/news/cma-investigates-facebook-s-use-of-ad-data.
[12] DMA, supra note 4, Recital 10 and Article 1(6).
[13] GWB Digitalization Act, 18 Jan. 2021, Section 19a. On risks of overlaps between the DMA and the competition law enforcement, see Giuseppe Colangelo, The European Digital Markets Act and Antitrust Enforcement: A Liaison Dangereuse, 47 European Law Review 597.
[14] GWB, supra note 13, Section 19a (2)(4)(b).
[15] Press Release, Commission Sends Statement of Objections to Apple Clarifying Concerns over App Store Rules for Music Streaming Providers, European Commission (2023), https://ec.europa.eu/commission/presscorner/detail/en/ip_23_1217.
[16] European Commission, 20 Dec. 2022, Case AT.40462; Press Release, Commission Accepts Commitments by Amazon Barring It from Using Marketplace Seller Data, and Ensuring Equal Access to Buy Box and Prime, European Commission (2022), https://ec.europa.eu/commission/presscorner/detail/en/ip_22_7777; UK Competition and Markets Authority, 3 Nov. 2023, Case No. 51184, https://www.gov.uk/cma-cases/investigation-into-amazons-marketplace.
[17] UK Competition and Markets Authority, 3 Nov. 2023, Case AT.51013, https://www.gov.uk/cma-cases/investigation-into-facebooks-use-of-data.
[18] See, e.g., Gil Tono & Lewis Crofts (2022), Amazon Data Commitments Match DMA Obligations, EU’s Vestager Say, mLex (2022), https://mlexmarketinsight.com/news/insight/amazon-data-commitments-match-dma-obligation-eu-s-vestager-says (reporting that Commissioner Vestager stated that Amazon’s data commitments definitively appear to match what would be asked within the DMA).
[19] DMA, supra note 4, Recital 46.
[20] Id., Article 6(2) (also stating that, for the purposes of the prohibition, non-publicly available data shall include any aggregated and non-aggregated data generated by business users that can be inferred from, or collected through, the commercial activities of business users or their customers, including click, search, view, and voice data, on the relevant core platform services or on services provided together with, or in support of, the relevant core platform services of the gatekeeper).
[21] AICOA, supra note 5.
[22] U.S. House of Representatives, supra note 5; see also Lina M. Khan, The Separation of Platforms and Commerce, 119 Columbia Law Review 973 (2019).
[23] U.S. Federal Trade Commission, et al. v. Amazon.com, Inc., Case No. 2:23-cv-01495 (W.D. Wash., 2023).
[24] Australian Competition and Consumer Commission, supra note 6, 125.
[25] Id., 124.
[26] Japan Fair Trade Commission, supra note 7, 144.
[27] European Commission, supra note 8. But see also Amazon, Supporting Sellers with Tools, Insights, and Data (2021), https://www.aboutamazon.eu/news/policy/supporting-sellers-with-tools-insights-and-data (claiming that the company is just using aggregate (rather than individual) data: “Just like our third-party sellers and other retailers across the world, Amazon also uses data to run our business. We use aggregated data about customers’ experience across the store to continuously improve it for everyone, such as by ensuring that the store has popular items in stock, customers are finding the products they want to purchase, or connecting customers to great new products through automated merchandising.”)
[28] European Commission, supra note 16.
[29] UK Competition and Markets Authority, supra notes 9 and 16.
[30] Bundeskartellamt, 5 Jul. 2022, Case B2-55/21, paras. 493, 504, and 518.
[31] Id., para. 536.
[32] European Commission, supra note 10.
[33] European Commission, supra note 11; UK Competition and Markets Authority, supra note 11.
[34] European Commission, supra note 16. In a similar vein, see also UK Competition and Markets Authority, supra note 16, paras. 4.2-4.7.
[35] European Commission, supra note 16, para. 111.
[36] Id., para. 123.
[37] Cre?mer, de Montjoye, & Schweitzer, supra note 2, 33-34.
[38] See, e.g., Marc Bourreau, Some Economics of Digital Ecosystems, OECD Hearing on Competition Economics of Digital Ecosystems (2020), https://www.oecd.org/daf/competition/competition-economics-of-digital-ecosystems.htm; Amelia Fletcher, Digital Competition Policy: Are Ecosystems Different?, OECD Hearing on Competition Economics of Digital Ecosystems (2020).
[39] See, e.g., Cristina Caffarra, Matthew Elliott, & Andrea Galeotti, ‘Ecosystem’ Theories of Harm in Digital Mergers: New Insights from Network Economics, VoxEU (2023), https://cepr.org/voxeu/columns/ecosystem-theories-harm-digital-mergers-new-insights-network-economics-part-1 (arguing that, in merger control, the implementation of an ecosystem theory of harm would require assessing how a conglomerate acquisition can change the network of capabilities (e.g., proprietary software, brand, customer-base, data) in order to evaluate how easily competitors can obtain alternative assets to those being acquired); for a different view, see Geoffrey A. Manne & Dirk Auer, Antitrust Dystopia and Antitrust Nostalgia: Alarmist Theories of Harm in Digital Markets and Their Origins, 28 George Mason Law Review 1281(2021).
[40] See, e.g., Viktoria H.S.E. Robertson, Digital merger control: adapting theories of harm, (forthcoming) European Competition Journal; Caffarra, Elliott, & Galeotti, supra note 39; OECD, Theories of Harm for Digital Mergers (2023), available at www.oecd.org/daf/competition/theories-of-harm-for-digital-mergers-2023.pdf; Bundeskartellamt, Merger Control in the Digital Age – Challenges and Development Perspectives (2022), available at https://www.bundeskartellamt.de/SharedDocs/Publikation/EN/Diskussions_Hintergrundpapiere/2022/Working_Group_on_Competition_Law_2022.pdf?__blob=publicationFile&v=2; Elena Argentesi, Paolo Buccirossi, Emilio Calvano, Tomaso Duso, Alessia Marrazzo, & Salvatore Nava, Merger Policy in Digital Markets: An Ex Post Assessment, 17 Journal of Competition Law & Economics 95 (2021); Marc Bourreau & Alexandre de Streel, Digital Conglomerates and EU Competition Policy (2019), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3350512.
[41] Bundeskartellamt, 11 Feb. 2022, Case B6-21/22, https://www.bundeskartellamt.de/SharedDocs/Entscheidung/EN/Fallberichte/Fusionskontrolle/2022/B6-21-22.html;jsessionid=C0837BD430A8C9C8E04D133B0441EB95.1_cid362?nn=4136442.
[42] UK Competition and Markets Authority, Microsoft / Activision Blizzard Merger Inquiry (2023), https://www.gov.uk/cma-cases/microsoft-slash-activision-blizzard-merger-inquiry.
[43] See European Commission, Commission Prohibits Proposed Acquisition of eTraveli by Booking (2023), https://ec.europa.eu/commission/presscorner/detail/en/ip_23_4573 (finding that a flight product is a crucial growth avenue in Booking’s ecosystem, which revolves around its hotel online-travel-agency (OTA) business, as it would generate significant additional traffic to the platform, thus allowing Booking to benefit from existing customer inertia and making it more difficult for competitors to contest Booking’s position in the hotel OTA market).
[44] Thomas Eisenmann, Geoffrey Parker, & Marshall Van Alstyne, Platform Envelopment, 32 Strategic Management Journal 1270 (2011).
[45] See, e.g., Colangelo, supra note 1, and Pablo Iba?n?ez Colomo, Self-Preferencing: Yet Another Epithet in Need of Limiting Principles, 43 World Competition 417 (2020) (investigating whether and to what extent self-preferencing could be considered a new standalone offense in EU competition law); see also European Commission, Digital Markets Act – Impact Assessment Support Study (2020), 294, https://op.europa.eu/en/publication-detail/-/publication/0a9a636a-3e83-11eb-b27b-01aa75ed71a1/language-en (raising doubts about the novelty of this new theory of harm, which seems similar to the well-established leveraging theories of harm of tying and bundling, and margin squeeze).
[46] European Commission, supra note 45, 16.
[47] European Commission, 27 Jun. 2017, Case AT.39740, Google Search (Shopping).
[48] See General Court, 10 Nov. 2021, Case T-612/17, Google LLC and Alphabet Inc. v. European Commission, ECLI:EU:T:2021:763, para. 155 (stating that the general principle of equal treatment obligates vertically integrated platforms to refrain from favoring their own services as opposed to rival ones; nonetheless, the ruling framed self-preferencing as discriminatory abuse).
[49] In the meantime, however, see Opinion of the Advocate General Kokott, 11 Jan. 2024, Case C-48/22 P, Google v. European Commission, ECLI:EU:C:2024:14, paras. 90 and 95 (arguing that the self-preferencing of which Google is accused constitutes an independent form of abuse, albeit one that exhibits some proximity to cases involving margin squeezing).
[50] European Commission, Commission Sends Amazon Statement of Objections over Proposed Acquisition of iRobot (2023), https://ec.europa.eu/commission/presscorner/detail/en/IP_23_5990.
[51] The same concerns and approach have been shared by the CMA, although it reached a different conclusion, finding that the new merged entity would not have incentive to self-preference its own branded RVCs: see UK Competition and Markets Authority, Amazon / iRobot Merger Inquiry – Clearance Decision (2023), paras. 160, 188, and 231, https://www.gov.uk/cma-cases/amazon-slash-irobot-merger-inquiry.
[52] See European Commission, supra note 45, 304.
[53] Id., 313-314 (envisaging, among potential remedies, the imposition of a duty to make all data used by the platform for strategic decisions available to third parties); see also Désirée Klinger, Jonathan Bokemeyer, Benjamin Della Rocca, & Rafael Bezerra Nunes, Amazon’s Theory of Harm, Yale University Thurman Arnold Project (2020), 19, available at https://som.yale.edu/sites/default/files/2022-01/DTH-Amazon.pdf.
[54] Colangelo, supra note 1; see also Oscar Borgogno & Giuseppe Colangelo, Platform and Device Neutrality Regime: The New Competition Rulebook for App Stores?, 67 Antitrust Bulletin 451 (2022).
[55] See Court of Justice of the European Union (CJEU), 12 May 2022, Case C-377/20, Servizio Elettrico Nazionale SpA v. Autorità Garante della Concorrenza e del Mercato, ECLI:EU:C:2022:379; 19 Apr. 2018, Case C-525/16, MEO v. Autoridade da Concorrência, ECLI:EU:C:2018:270; 6 Sep. 2017, Case C-413/14 P, Intel v. Commission, ECLI:EU:C:2017:632; 6 Oct. 2015, Case C-23/14, Post Danmark A/S v. Konkurrencerådet (Post Danmark II), ECLI:EU:C:2015:651; 27 Mar. 2012, Case C-209/10, Post Danmark A/S v Konkurrencera?det (Post Danmark I), ECLI: EU:C:2012:172; for a recent overview of the EU case law, see also Pablo Iba?n?ez Colomo, The (Second) Modernisation of Article 102 TFEU: Reconciling Effective Enforcement, Legal Certainty and Meaningful Judicial Review, SSRN (2023), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4598161.
[56] CJEU, Intel, supra note 55, paras. 133-134.
[57] CJEU, Servizio Elettrico Nazionale, supra note 55, para. 73.
[58] Opinion of Advocate General Rantos, 9 Dec. 2021, Case C?377/20, Servizio Elettrico Nazionale SpA v. Autorità Garante della Concorrenza e del Mercato, ECLI:EU:C:2021:998, para. 45.
[59] CJEU, Servizio Elettrico Nazionale, supra note 55, para. 77.
[60] Id., paras. 77, 80, and 83.
[61] CJEU, 26 Nov.1998, Case C-7/97, Oscar Bronner GmbH & Co. KG v. Mediaprint Zeitungs- und Zeitschriftenverlag GmbH & Co. KG, Mediaprint Zeitungsvertriebsgesellschaft mbH & Co. KG and Mediaprint Anzeigengesellschaft mbH & Co. KG, ECLI:EU:C:1998:569.
[62] CJEU, Servizio Elettrico Nazionale, supra note 55, para. 85.
[63] European Commission, supra note 11; UK Competition and Markets Authority, supra note 17, paras. 2.6, 4.3, and 4.7.
[64] See, e.g., European Commission, Case COMP D3/34493, DSD, para. 112 (2001) OJ L166/1; affirmed in GC, 24 May 2007, Case T-151/01, DerGru?nePunkt – Duales System DeutschlandGmbH v. European Commission, ECLI:EU:T:2007:154 and CJEU, 16 Jul. 2009, Case C-385/07 P, ECLI:EU:C:2009:456; European Commission, Case IV/31.043, Tetra Pak II, paras. 105–08, (1992) OJ L72/1; European Commission, Case IV/29.971, GEMA III, (1982) OJ L94/12; CJUE, 27 Mar. 1974, Case 127/73, Belgische Radio en Televisie e socie?te? belge des auteurs, compositeurs et e?diteurs v. SV SABAM and NV Fonior, ECLI:EU:C:1974:25, para. 15; European Commission, Case IV/26.760, GEMA II, (1972) OJ L166/22; European Commission, Case IV/26.760, GEMA I, (1971) OJ L134/15.
[65] See, e.g., Richard A. Posner, Intellectual Property: The Law and Economics Approach, 19 The Journal of Economic Perspectives 57 (2005).
[66] See, e.g., Richard Gilbert & Carl Shapiro, Optimal Patent Length and Breadth, 21 The RAND Journal of Economics 106 (1990); Pankaj Tandon, Optimal Patents with Compulsory Licensing, 90 Journal of Political Economy 470 (1982); Frederic M. Scherer, Nordhaus’ Theory of Optimal Patent Life: A Geometric Reinterpretation, 62 American Economic Review 422 (1972); William D. Nordhaus, Invention, Growth, and Welfare: A Theoretical Treatment of Technological Change, Cambridge, MIT Press (1969).
[67] See, e.g., Hal R. Varian, Copying and Copyright, 19 The Journal of Economic Perspectives 121 (2005); William R. Johnson, The Economics of Copying, 93 Journal of Political Economy 158 (1985); Stephen Breyer, The Uneasy Case for Copyright: A Study of Copyright in Books, Photocopies, and Computer Programs, 84 Harvard Law Review 281 (1970).
[68] Sai Krishna Kamepalli, Raghuram Rajan, & Luigi Zingales, Kill Zone, NBER Working Paper No. 27146 (2022), http://www.nber.org/papers/w27146; Massimo Motta & Sandro Shelegia, The “Kill Zone”: Copying, Acquisition and Start-Ups’ Direction of Innovation, Barcelona GSE Working Paper Series Working Paper No. 1253 (2021), https://bse.eu/research/working-papers/kill-zone-copying-acquisition-and-start-ups-direction-innovation; U.S. House of Representatives, Subcommittee on Antitrust, Commercial, and Administrative Law, supra note 8, 164; Stigler Committee for the Study of Digital Platforms, Market Structure and Antitrust Subcommittee (2019) 54, https://research.chicagobooth.edu/stigler/events/single-events/antitrust-competition-conference/digital-platforms-committee; contra, see Geoffrey A. Manne, Samuel Bowman, & Dirk Auer, Technology Mergers and the Market for Corporate Control, 86 Missouri Law Review 1047 (2022).
[69] See also Howard A. Shelanski, Information, Innovation, and Competition Policy for the Internet, 161 University of Pennsylvania Law Review 1663 (2013), 1999 (describing as “forced free riding” the situation occurring when a platform appropriates innovation by other firms that depend on the platform for access to consumers).
[70] See Feng Zhu & Qihong Liu, Competing with Complementors: An Empirical Look at Amazon.com, 39 Strategic Management Journal 2618 (2018).
[71] Andrei Hagiu, Tat-How Teh, and Julian Wright, Should Platforms Be Allowed to Sell on Their Own Marketplaces?, 53 RAND Journal of Economics 297 (2022), (the model assumes that there is a platform that can function as a seller and/or a marketplace, a fringe of small third-party sellers that all sell an identical product, and an innovative seller that has a better product in the same category as the fringe sellers and can invest more in making its product even better; further, the model allows the different channels (on-platform or direct) and the different sellers to offer different values to consumers; therefore, third-party sellers (including the innovative seller) can choose whether to participate on the platform’s marketplace, and whenever they do, can price discriminate between consumers that come to it through the marketplace and consumers that come to it through the direct channel).
[72] See Germa?n Gutie?rrez, The Welfare Consequences of Regulating Amazon (2022), available at http://germangutierrezg.com/Gutierrez2021_AMZ_welfare.pdf (building an equilibrium model where consumers choose products on the Amazon platform, while third-party sellers and Amazon endogenously set prices of products and platform fees).
[73] See Federico Etro, Product Selection in Online Marketplaces, 30 Journal of Economics & Management Strategy 614 (2021), (relying on a model where a marketplace such as Amazon provides a variety of products and can decide, for each product, whether to monetize sales by third-party sellers through a commission or become a seller on its platform, either by commercializing a private label version or by purchasing from a vendor and resell as a first party retailer; as acknowledged by the author, a limitation of the model is that it assumes that the marketplace can set the profit?maximizing commission on each product; if this is not the case, third-party sales would be imperfectly monetized, which would increase the relative profitability of entry).
[74] Patrick Andreoli-Versbach & Joshua Gans, Interplay Between Amazon Store and Logistics, SSRN (2023) https://ssrn.com/abstract=4568024.
[75] Simon Anderson & O?zlem Bedre-Defolie, Online Trade Platforms: Hosting, Selling, or Both?, 84 International Journal of Industrial Organization 102861 (2022).
[76] Chiara Farronato, Andrey Fradkin, & Alexander MacKay, Self-Preferencing at Amazon: Evidence From Search Rankings, NBER Working Paper No. 30894 (2023), http://www.nber.org/papers/w30894.
[77] See Erik Madsen & Nikhil Vellodi, Insider Imitation, SSRN (2023) https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3832712 (introducing a two-stage model where the platform publicly commits to an imitation policy and the entrepreneur observes this policy and chooses whether to innovate: if she chooses not to, the game ends and both players earn profits normalized to zero; otherwise, the entrepreneur pays a fixed innovation cost to develop the product, which she then sells on a marketplace owned by the platform).
[78] Federico Etro, The Economics of Amazon, SSRN (2022), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4307213.
[79] Jay Pil Choi, Kyungmin Kim, & Arijit Mukherjee, “Sherlocking” and Information Design by Hybrid Platforms, SSRN (2023), https://ssrn.com/abstract=4332558 (the model assumes that the platform chooses its referral fee at the beginning of the game and that the cost of entry is the same for both the seller and the platform).
[80] Radostina Shopova, Private Labels in Marketplaces, 89 International Journal of Industrial Organization 102949 (2023), (the model assumes that the market structure is given exogenously and that the quality of the seller’s product is also exogenous; therefore, the paper does not investigate how entry by a platform affects the innovation incentives of third-party sellers).
[81] Jean-Pierre Dube?, Amazon Private Brands: Self-Preferencing vs Traditional Retailing, SSRN (2022) https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4205988.
[82] Gregory S. Crawford, Matteo Courthoud, Regina Seibel, & Simon Zuzek, Amazon Entry on Amazon Marketplace, CEPR Discussion Paper No. 17531 (2022), https://cepr.org/publications/dp17531.
[83] Motta & Shelegia, supra note 68.
[84] Jingcun Cao, Avery Haviv, & Nan Li, The Spillover Effects of Copycat Apps and App Platform Governance, SSRN (2023), https://ssrn.com/abstract=4250292.
[85] Massimo Motta, Self-Preferencing and Foreclosure in Digital Markets: Theories of Harm for Abuse Cases, 90 International Journal of Industrial Organization 102974 (2023).
[86] Id.
[87] Id.
[88] See, e.g., Crawford, Courthoud, Seibel, & Zuzek, supra note 82; Etro, supra note 78; Shopova, supra note 80.
[89] Motta, supra note 85.
[90] Servizio Elettrico Nazionale, supra note 55, paras. 53-54; Post Danmark II, supra note 55, para. 65.
[91] Etro, supra note 78; see also Herbert Hovenkamp, The Looming Crisis in Antitrust Economics, 101 Boston University Law Review 489 (2021), 543, (arguing that: “Amazon’s practice of selling both its own products and those of rivals in close juxtaposition almost certainly benefits consumers by permitting close price comparisons. When Amazon introduces a product such as AmazonBasics AAA batteries in competition with Duracell, prices will go down. There is no evidence to suggest that the practice is so prone to abuse or so likely to harm consumers in other ways that it should be categorically condemned. Rather, it is an act of partial vertical integration similar to other practices that the antitrust laws have confronted and allowed in the past.”)
[92] On the more complex economic rationale of intellectual property, see, e.g., William M. Landes & Richard A. Posner, The Economic Structure of Intellectual Property Law, Cambridge, Harvard University Press (2003).
[93] See, e.g., Italian Competition Authority, 18 Jul. 2023 No. 30737, Case A538 – Sistemi di sigillatura multidiametro per cavi e tubi, (2023) Bulletin No. 31.
[94] See CJEU, 6 Apr. 1995, Joined Cases C-241/91 P and 242/91 P, RTE and ITP v. Commission, ECLI:EU:C:1995:98; 29 Apr. 2004, Case C-418/01, IMS Health GmbH & Co. OHG v. NDC Health GmbH & Co. GH, ECLI:EU:C:2004:257; General Court, 17 Sep. 2007, Case T-201/04, Microsoft v. Commission, ECLI:EU:T:2007:289; CJEU, 16 Jul. 2015, Case C-170/13, Huawei Technologies Co. Ltd v. ZTE Corp., ECLI:EU:C:2015:477.
[95] See, e.g., Dana Mattioli, How Amazon Wins: By Steamrolling Rivals and Partners, Wall Street Journal (2022), https://www.wsj.com/articles/amazon-competition-shopify-wayfair-allbirds-antitrust-11608235127; Aditya Kalra & Steve Stecklow, Amazon Copied Products and Rigged Search Results to Promote Its Own Brands, Documents Show, Reuters (2021), https://www.reuters.com/investigates/special-report/amazon-india-rigging.
[96] Williams-Sonoma, Inc. v. Amazon.Com, Inc., Case No. 18-cv-07548 (N.D. Cal., 2018). The suit was eventually dismissed, as the parties entered into a settlement agreement: Williams-Sonoma, Inc. v. Amazon.Com, Inc., Case No. 18-cv-07548-AGT (N.D. Cal., 2020).
[97] Amazon Best Sellers, https://www.amazon.com/Best-Sellers/zgbs.
[98] Hovenkamp, supra note 91, 2015-2016.
[99] Nicolas Petit, Big Tech and the Digital Economy, Oxford, Oxford University Press (2020), 224-225.
[100] For a recent analysis, see Zijun (June) Shi, Xiao Liu, Dokyun Lee, & Kannan Srinivasan, How Do Fast-Fashion Copycats Affect the Popularity of Premium Brands? Evidence from Social Media, 60 Journal of Marketing Research 1027 (2023).
[101] Lina M. Khan, Amazon’s Antitrust Paradox, 126 Yale Law Journal 710 (2017), 782.
[102] See Massimo Motta &Martin Peitz, Intervention Triggers and Underlying Theories of Harm, in Market Investigations. A New Competition Tool for Europe? (M. Motta, M. Peitz, & H. Schweitzer, eds.), Cambridge, Cambridge University Press (2022), 16, 59 (arguing that, while it is unclear to what extent products or ideas are worth protecting and/or can be protected from sherlocking and whether such cloning is really harmful to consumers, this is clearly an area where an antitrust investigation for abuse of dominant position would not help).
[103] Khan, supra note 101, 780 and 783 (arguing that Amazon’s conflicts of interest tarnish the neutrality of the competitive process and that the competitive implications are clear, as Amazon is exploiting the fact that some of its customers are also its rivals).
[104] Servizio Elettrico Nazionale, supra note 55, para. 85.
[105] Post Danmark I, supra note 55, para. 22.
[106] Iba?n?ez Colomo, supra note 55, 21-22.
[107] Id.
[108] See, e.g., DMA, supra note 4, Recital 5 (complaining that the scope of antitrust provisions is “limited to certain instances of market power, for example dominance on specific markets and of anti-competitive behaviour, and enforcement occurs ex post and requires an extensive investigation of often very complex facts on a case by case basis.”).
[109] U.S. Federal Trade Commission, et al. v. Amazon.com, Inc., supra note 23.
[110] Khan, supra note 101.
[111] Khan, supra note 22, 1003, referring to Amazon, Google, and Meta.
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