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The 9th U.S. Circuit Court of Appeals ruled late last month on Epic Games’ appeal of the decision rendered in 2021 by the U.S. District Court for the Northern District of California in Epic Games v Apple, affirming in part and reversing in part the district court’s judgment.

Read the full piece here.

Background: The Advertising Middlemen Endangering Rigorous Internet Competition Accountability (AMERICA) Act, recently introduced by Sen. Mike Lee (R-Utah), would bar companies that own a digital-advertising exchange with more than $20 billion in annual ad revenue from also providing services to buyers and sellers of ads, or from selling advertising space themselves. The bill also would impose fiduciary-like duties on those who buy and sell online ads for others

However… While advocates of the legislation claim the changes they seek are based on analogous rules used in the regulation of securities markets, such analogies are based on fundamental misunderstandings of how securities regulation works and why it exists. The requirement for “physical separation,” which could force the breakup of vertically integrated digital-advertising platforms like Google, does not exist in securities law; many stockbrokers also own exchanges where stocks are traded. Moreover, rules that stock trades be executed at the best-available price are imposed precisely because vertical integration is common. Ultimately, stocks are regulated in the way that they are because of the central role they play in the savings and investments of everyday Americans. Advertising, while important, does not serve that role.

No ‘Physical Separation’ Rule in Stocks

In a press release announcing the introduction of the AMERICA Act, Matt Stoller of the American Economic Liberties Project expressed a sentiment common among proponents of the legislation, that just as “no one would accept Goldman Sachs running the New York Stock Exchange,” Congress should not “let corporations run all sides of a transaction in online ad markets.”

Sen. Lee likewise has said of his bill that its “restrictions and requirements mirror those imposed on electronic trading in the financial sector.”

The problem with these analogies is that there actually is no requirement in securities law that prohibits brokers from owning exchanges on which stocks are traded. Goldman Sachs does not own the NYSE, but it does own a different stock exchange (called SigmaX2) where the same stocks are bought and sold. In fact, about half of all stock trades are made on trading venues (i.e., exchanges by a different name) owned by brokers.

Thus, while the AMERICA Act would ban Google from acting as a broker on its own ad exchange, securities law—on which the law is purportedly founded—permits exactly this same conduct.

The Best-Interests Standard May Be Impossible to Enforce in Ad Tech

The AMERICA Act would also create a legal duty to act in a client’s best interest when helping them buy or sell ads. This is similar to rules in securities law, but one of the reasons such duties exist in stock markets is precisely because brokers may own exchanges and otherwise act on behalf of clients when there are real or potential conflicts of interest. 

While stockbrokers do have a duty to execute trades at the best price, there is some discretion baked into the system, especially since price is not the only factor customers care about. A recent empirical study found that only about 43% of trades were made at the “best” price, because of the impact of various discounts and other factors paid by exchanges.

As difficult as it is to enforce a best-interests rule in stock markets, establishing something akin to it in online display advertising would be a monumental task. While a stock has one price for every potential investor at any time, and it has some intrinsic value, online advertisements have many more degrees of interest. In online display-ad auctions, the price is set for a particular viewer at a particular location at a particular time. These multiple factors, and the lack of any objective valuation, makes determining the “best” price, or even a reasonable price, far more complex.

The AMERICA ACT proposes that the best-interests rule would be enforced by the U.S. Justice Department and state attorneys general, but this is a massive underestimate of the bureaucracy needed to establish and enforce such rules.

Ads Aren’t Stocks

Plenty of markets involve vertical integration with conflicts of interest, but do not require physical separation or impose fiduciary duties. For instance, auction houses provide a venue where buyers and sellers come together to bid on art and antiquities, while also providing services and advice to buyers and sellers, as well as sometimes bidding on items themselves.

The AMERICA Act takes a belt-and-suspenders approach that offers more supposed protection for advertisers and ad buyers than stock traders, even though the potential mischief and consequences are greater in the securities world. Ordinary Americans have their savings and their futures bet in the stock markets, not in ad markets, which are merely places where business-to-business services are bought and sold. There is no investment or speculation in ad markets.

Ultimately, the stock market is regulated as it is because of the profound social importance of accurate stock prices, not because of overriding concerns about conflicts of interests in general. Stocks are regulated as they are because they are stocks. Ads are not stocks, and thus, regulating them like stocks makes no sense.

For a more extensive treatment of this issue, see the ICLE white paper “Ads Aren’t Stocks, or How Bad Analogies Make Bad Law,” as well as other ICLE research on the law & economics of digital advertising here and here.

The European Commission on March 27 showered the public with a series of documents heralding a new, more interventionist approach to enforce Article 102 of the Treaty on the Functioning of the European Union (TFEU), which prohibits “abuses of dominance.” This new approach threatens more aggressive, less economically sound enforcement of single-firm conduct in Europe.

Read the full piece here.

Executive Summary

In what the Discussion Paper refers to as a “moment of reckoning” for competition law, it is crucial that the Government not overreact with experimental legislative reform that will later be exceedingly difficult to unwind. Five main conclusions can be drawn from this submission, and they warrant a much more restrained approach.

First, the Government should follow several important guiding principles when it decides what competition policy is appropriate for Canada. Any potential reform should be based on careful examination of the facts and evidence, as well as the specifics of Canada’s economy, and it should be scrupulous in applying the error-costs framework. In addition, despite frequent rhetoric to the contrary, it is entirely unclear that “digital” markets present the sort of unique challenges that would necessitate an overhaul of the Competition Act. Accordingly, evidence does not recommend that Canada follow the sort of competition regulation or reform contemplated elsewhere, nor should Canada be compelled to act just because other countries are “doing something.”

Second, there is no rhyme or reason to presumptions against self-preferencing behavior. Self-preferencing is normal business conduct that can, and often does, yield procompetitive benefits, including efficiencies, enhanced economies of scope, and an improved products for consumers. In addition, a ban on self-preferencing would cause harms for the startup ecosystem by discouraging acquisitions by large firms, which would ultimately diminish the incentives for startups. This is presumably not what the Government wants to achieve.

Third, altering the purpose of the Competition Act would be a grave mistake. Competition law does not serve to protect competitors, but competition; nor can harm to competitors be equated with harm to competition. The quintessential task of competition laws—the Competition Act included—is distinguishing between the two, precisely because the distinction is so subtle, yet at the same time so significant. Similarly, “fairness” is a poor lodestar for competition-law enforcement because of its inherent ambiguity. Instead of these or other standards, the Competition Act should remain rooted in the principle of combating “a substantial lessening or prevention of competition.”

Fourth, the Government should exercise extreme caution in its exploration of labour-market monopsony, as altering the merger-control rules to encompass harms to labour risks both harming consumer welfare and the consistency and predictability of competition law.

Fifth, in its impetus to bolster competition-law enforcement by making it “easier” on the Canadian Competition Bureau, the Government should not sacrifice rights of defense and the rule of law for expediency. In this, at least, it can learn from the example of the EU’s Digital Market Act.

Introduction

We thank the Government of Canada for the opportunity to comment on its Consultation on the future of competition policy in Canada. The International Center for Law and Economics (ICLE) is a non-profit, nonpartisan research center whose work promotes the use of law & economics methodologies to inform public-policy debates. We believe that intellectually rigorous, data-driven analysis will lead to efficient policy solutions that promote consumer welfare and global economic growth. ICLE’s scholars have written extensively on competition and consumer-protection policy. Some of our writings are included as references in the comment below. Additional materials may be found at our website: www.laweconcenter.org.

On 17 November 2022, the Canadian Government (“Government”) published a Consultation for the Future of Competition Policy in Canada (“Consultation”) with the purpose of informing the Government’s next steps for improving competition in emerging and digital markets, including potential legislative changes (Government of Canada, 2022). The Consultation builds on a Discussion Paper issued by the Canadian Competition Bureau (“CCB”) entitled “The Future of Competition Policy in Canada” (“Discussion Paper”) which broaches several issues that have been hotly debated, both in Canada and abroad, such as so-called “killer acquisitions,” self-preferencing practices by dominant online platforms, the effects of monopsony power on labour, private damages claims, the necessity of bolstering antitrust enforcement, and deceptive marketing practices (Discussion Paper: 5). While all these questions undoubtedly deserve extensive commentary, we have decided to focus on five issues where we think our expertise in law and economics, as well as our experience in the regulation of digital markets, bring the most added value.

These comments are organized as follows. In Section I, we outline several general principles that guide any effective competition policy, especially in the realm of digital markets. We argue that sound competition policy needs to account for the economic specificities of the jurisdiction that passes it, the significant heterogeneity of digital platforms, and the important error costs associated with regulating digital markets. In Section II we argue that Canada should not follow the EU in imposing outright bans and ex ante obligations for conduct that is ubiquitous in the digital world, such as self-preferencing. We argue, instead, that there are legitimate reasons—ranging from economic efficiency to safety, privacy, and security—to prefer a more restrained, case-by-case approach. We also connect the skepticism toward self-preferencing with a broader, misguided belief that vertical integration is typically anticompetitive, which is not supported by the available evidence.

In Section III, we argue against a range of proposals that would, in one way or another, alter the purpose clause of the Competition Act. We emphasize that competition law serves to protect competition, not competitors; caution against the reliance on amorphous concepts, such as “fairness,” to guide competition-law enforcement; and hold that merger control should remain tethered to a standard of “substantial lessening or prevention of competition.” In Section IV, we explain that, while it may appear politically expedient and attractive, there are serious limits on the extent to which labour effects can be integrated into competition analysis.

Finally, Section V warns against sacrificing effective procedural safeguards and rights of defense for the sake of facilitating enforcement. More generally, we warn against the increasingly prevalent intuition that making enforcement easier is always good, effective, or costless; or that “more enforcement” is synonymous with the public good. Section VI concludes.

I.        Some General Principles for Effective Competition Policy

When done well, competition policy can provide the governing framework for free enterprise—a set of rules that prevent the formation of inefficient monopolies, while allowing markets to deliver benefits to consumers unfettered by heavy-handed government intervention. To achieve this goal, it is essential for competition policy to be grounded in several principles that ensure it achieves a balance between over- and under-deterrence of harmful conduct. These principles include having a competition policy that fits the specific needs and market realities of the jurisdiction enforcing it; ensuring that competition policy is mindful of error-cost considerations; and avoiding a one-size-fits-all approach that treats all markets, notably digital ones, as identical.

A.      Canada Should Implement the Right Competition Rules for Canada

The Consultation appears to assume that Canada’s adversarial system of competition-law enforcement is too archaic to deal with competition issues arising in the modern, digital economy (Ibid: 51), and that Canada is falling behind the regulatory trends set by “international partners,” such as the United States, Australia, and the European Union.

“[The Government] is committed to a renewed role for the Competition Bureau in protecting the public in our modern marketplace, in line with steps taken by many of Canada’s key international partners” (Ibid: 4).

While these trends exist—despite significant variation in terms of scope and legislative progress across jurisdictions—there is currently a dearth of evidence to suggest that they are a positive development worthy of emulation. It is even less clear whether emulating these developments would be the right move, given Canada’s specific market realities.

The EU’s Digital Markets Act (“DMA”), the most comprehensive legislative attempt to “rein in” digital companies, entered into force only last October, and it will not start imposing obligations on gatekeepers until February or March 2024 at the earliest. (Grafunder et al., 2022). Nevertheless, its sponsors have predictably touted it as a resounding success and a landmark piece of legislation that will upend the ways in which digital platforms do business. The press has also wasted no time in lionizing the EU’s regulatory pièce de résistance as a “victory” over tech companies, as if the relationship between business and government were a zero-sum game (Abend, 2015; Harris, 2022).

But it is important to carefully consider the facts and evidence. Indeed, while the DMA likely will transform how the targeted companies do business (albeit possibly not in the way the regulation’s supporters assume), the jury is still very much out on the question of whether the DMA is, or will be, a success. The DMA’s origins are enlightening in this regard. Prior to its adoption, many leading European politicians touted the text as a protectionist industrial-policy tool that would hinder U.S. firms to the benefit of European rivals—a far cry from the purely consumer-centric tool it is sometimes made out to be. French Minister of the Economy Bruno Le Maire acknowledged as much, saying (Pollet, 2021): “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.”

Andreas Schwab, one of the DMA’s most important backers in the European Parliament, likewise argued that the DMA should focus on non-European firms (Broadbent, 2021): “Let’s focus first on the biggest problems, on the biggest bottlenecks. Let’s go down the line—one, two, three, four, five—and maybe six with Alibaba. But let’s not start with number seven to include a European gatekeeper just to please [U.S. president Joe] Biden.”

Even on its own terms, whether the DMA will achieve its dual goals of “fairness” and contestability is uncertain. Less certain still is whether it will produce negative unintended consequences for consumer prices, product quality, security, innovation, or the rule of law—as some commentators have warned (Auer & Radic, 2023; Barczentewicz, 2022; Colangelo, 2023; Radic, 2022; Ibáñez Colomo, 2021; Cennamo & Santaló, 2023; Bentata, 2021). In a similar vein, no evidence suggests that the competition-law cases against tech companies based on such theories of harm as self-preferencing will withstand the courts’ scrutiny or that they will result in net benefits to consumers or competition.

The still nascent “trends” in other jurisdictions offer even less in terms of evidence to counsel adoption of far-reaching DMA-style solutions like banning self-preferencing, forcing interoperability, or prohibiting the use of data generated by business users. The U.S. antitrust bills targeting a handful of companies seem unlikely to be adopted soon (Kelly, 2022); the UK’s Digital Markets Unit proposal has still not been put to Parliament; and Japan and South Korea have imposed codes of conduct only in narrow areas. The mere prevalence of trends—especially at a tentative stage—is not, on its own, indicative, much less dispositive, of the appropriateness of a regulatory response. It should therefore be treated neutrally by the Government, not with deference.

Second, the Discussion Paper fails to adequately grapple with the possibility that the EU’s regulatory response might not be well-suited to the Canadian context. For one, Canada’s economy is one-eighth as large as the EU’s (Koop, 2022), meaning that it is much less likely to be seen as an essential market by those companies affected by any potential antitrust/regulatory reform. Thus, while the EU can perhaps afford to impose costly and burdensome regulation on digital companies because it has considerable leverage to ensure—with some, though by no means absolute, certainty—that those companies will not desert the European market, Canada’s position is comparatively more precarious. In addition, the EU has an idiosyncratic digital strategy that has produced no notable digital platforms, with the arguable exceptions of Spotify and Booking.com, and has instead shifted its attention almost entirely to redistributing rents across the supply chain from those digital platforms that have emerged (Manne and Radic, 2022; Manne and Auer, 2019). Even staunch supporters of the DMA have admitted that the DMA will do nothing to help the EU produce its own platforms to challenge the dominant U.S. firms (Caffarra, 2022) . The DMA and the European Commission’s recent flurry of cases against U.S. tech companies are arguably an integral part of that overarching strategy.

B.      Regulation Should Be Scrupulously Mindful of Error Costs

With rare exceptions, the Discussion Paper does not sufficiently acknowledge that regulation is neither free of risk nor costless to implement. Legal decision making and enforcement under uncertainty are, however, always difficult, and always potentially costly. The risk of error is always present, given the limits of knowledge, but it is magnified by the precedential nature of judicial decisions: an erroneous outcome affects not only the parties to a particular case, but also all subsequent economic actors operating in “the shadow of the law” (Manne, 2020a). The uncertainty inherent in judicial decision making is further exacerbated in the competition context, where liability turns on the difficult-to-discern economic effects of challenged conduct. This difficulty is magnified further still when competition decisions are made in innovative, fast-moving, poorly understood, or novel market settings—attributes that aptly describe today’s digital economy (Ibid.).

More specifically, Type I errors—i.e., enforcement of the rules against benign or beneficial conduct—might mean reducing firms’ incentives to make investments in areas where free-riding is seen by competitors as a viable strategy (Auer, 2021), thereby reshaping the products that consumers enjoy (such as Apple’s walled-garden iOS model, Canales 2023; Sohn, 2023; Auer, Manne & Radic, 2022); diminishing quality; or driving up prices (on this last point, see Section II). Where the possibility and likelihood of these costs is not brought into the equation, regulations will exceed the social optimum, to the harm of consumers, taxpayers, and, ultimately, society. To be sure, this is not to say that no regulation or legal reform should ever be undertaken; it is only to say that they should be undertaken within the error-cost framework.

When it comes to considering competition reform, the Government must be careful not to conflate correlation with causation. On several occasions, the Discussion Paper connects certain exogenous phenomena with anemic competition enforcement or a lack of significant competition reform since the 1980s (Discussion Paper: 6-7, 15). While the connection is made rhetorically explicit, however, the Discussion Paper provides no arguments or sources to support it. For instance, it is unclear that heightened competition enforcement would have mitigated the impact of the COVID-19 pandemic or that it attenuates economic inequality, as the Discussion Paper implies. Economic evidence and respect for the rule of law, rather than political expediency, should be the forces driving reform. Lastly, and more generally, if the objectives of the Competition Act are going to be stretched beyond their current understanding to encompass considerations extrinsic to competition—such as protecting the “social landscape and democracy” (Ibid: 7)—a much broader legislative reform is needed. That, in turn, would necessitate substantively more empirical research than the anecdotal evidence currently available on, say, the relationship between economic concentration and un-democratic outcomes (as well as tighter definitions of democracy) (Manne & Stapp, 2019; Stapp, 2019; Manne & Radic, 2022). In this connection, we have often cautioned against a “Swiss Army knife” approach to competition, in favor of tethering it to one quantifiable standard that it is best-placed to deliver (and which is expressly recognised in the Competition Act): providing consumers with competitive prices and product choices (Manne, 2022a; Manne & Hurwitz, 2018). After all, if, as the Discussion Paper suggests, the current iteration of the Competition Act, which focuses specifically on lower prices and product quality for consumers, has not contributed enough to drive down the costs of living for Canadians, why give it more wildly ambitious goals?

The danger here is threefold. The Competition Act may fail in achieving these ulterior goals; it may, by diluting the importance of prices and product quality for consumers, perform even more poorly at lowering the costs of living; and, lastly, the legal uncertainty resulting from the imposition of a quagmire of conflicting goals may chill efficient conduct (see Section III).

C.      ‘Digital Markets’ Are Not Inherently Prone to Market Failure

While any market or industry may be distinctive in certain regards, it is not at all established that digital markets are so distinctive to warrant special treatment under the competition rules—much less to justify new legislation. The Discussion Paper assumes, as has become increasingly popular, that digital markets are marked as special because of their data-driven network effects or extreme returns to scale. (Discussion Paper: 8-9) (Cremer, de Montjoye, & Schweitzer, 2019; Zingales & Lancieri, 2019). The Government, however, should at least contemplate the counterarguments to this assertion.

From the outset, it is worth noting that there is arguably no such thing as a “digital” market. Put differently, every market today—from higher education to supermarkets—employs some level of digital technology, which renders the label “digital” largely superfluous. The flipside of this is that some markets typically seen as the epitome of “digital” rely heavily on physical infrastructure. Online sales platforms like Amazon, for instance, sell physical products, stored in warehouses, through a distribution network made up of a fleet of trucks and planes. Both observations undercut the claim that digital markets embody a distinct kind of competition, and one that can be parsed from markets across the Canadian economy.

More fundamentally, digital markets are arguably less prone to “tipping”—i.e., the emergence of runaway leaders whose competitive advantage can no longer be eroded because of their large userbases—than is generally assumed. The value of data in creating network effects is significantly overestimated. It is important to note that network effects, on the one hand, and economies of scope and scale, on the other, are distinct economic phenomena. Whereas economies of scope and scale reflect cost-side savings, network effects “operate through user benefits enhancement as production increases. Network effects are therefore a reflection of consumers’ perception of value” (Tucker, 2019). While there is a common assumption that acquiring sufficient data and expertise is essential to compete in data-heavy industries, the “learning by doing” advantage of data rapidly reaches a point of diminishing returns, as do advantages of scale and scope in data assets (Manne & Auer, 2021). Critics who argue that firms such as Amazon, Google, and Facebook are successful because of their superior access to data have the causality in reverse. Arguably, it is because these firms have come up with successful industry-defining paradigms that they have amassed so much data, and not the other way around. Indeed, Facebook managed to build a highly successful platform  relative to established rivals like MySpace (Jacobs, 2015).

Third, and relatedly, network effects in digital markets are rarely insurmountable. Several scholars in recent years have called for more muscular antitrust intervention in networked industries on grounds that network externalities, switching costs, and data-related increasing returns to scale lead to inefficient consumer lock-in and raise entry barriers for potential rivals (Discussion Paper: 23). But network effects can also be highly local. “For example, when I consider whether to use Dropbox or another file sharing service, I do not care about the total number of users of Dropbox; instead, I care about how many of my handful of collaborators also use it” (Tucker, 2019). Thus, network effects tend to destabilize market power: “[w]hile network effects facilitate the rapid growth of platforms, they also accelerate their demise.”(Ibid.)

There are countless examples of firms that easily have overcome potential barriers to entry and network externalities, ultimately disrupting incumbents. Recently, Zoom outcompeted long-established firms with vast client bases and far deeper pockets, such as Microsoft, Cisco, and Google, despite the video-communications market exhibiting several traits typically associated with the existence of network effects (Auer, 2019).[1] Other notable examples include the demise of Yahoo, the disruption of early instant-messaging applications and websites, and MySpace’s rapid decline. In each of these cases, outcomes did not match the predictions of theoretical models (Manne & Stapp, 2019).

More recently, TikTok’s rapid rise offers perhaps the greatest example of a potentially superior social-networking platform taking significant market share away from incumbents. According to the Financial Times, TikTok’s video-sharing capabilities and powerful algorithm are the most likely explanations for its success (Nicolaou, 2019). While these developments certainly do not disprove network-effects theory, they eviscerate the belief, common in antitrust circles, that superior rivals cannot overthrow incumbents in digital markets.

Of course, this will not always be the case. The question is ultimately one of comparing institutions—i.e., do markets lead to more or fewer error costs than government intervention? Yet this question is systematically omitted from most policy discussions (Auer, 2022).

Lastly, the widespread assumption that critical, large-scale data are exclusive to a few companies, who then misuse it to distort competition and exclude rivals, is largely unfounded. Data are widely used by a range of industries—not just “digital” services—and they are, or can be, the source of important procompetitive benefits. This is not sufficiently recognized in the Discussion Paper, which instead views data almost exclusively as a “currency” and a barrier to entry that serves to entrench market power. In fact, data can serve to drive innovation, optimize costs, and respond to rapidly changing consumer tastes—among other things (Manne & Auer, 2020: 1355). For instance, data in online search enable customers to find more (and more relevant) products and to compare product quality and price, especially using online reviews. Similarly, e-commerce enables consumers in more remote and thinly populated areas to obtain goods and services that were previously hard to access. Assuming that data are principally a barrier to entry erected to exclude rivals, that access to data should therefore be restricted for certain companies, or that the data at their disposal should be diluted, is not only fundamentally wrong, but also likely to harm consumers.

II.      Canada Should Not Introduce DMA-Style Per Se Prohibitions, nor a Presumption of Illegality for Self-Preferencing

In its section on abuse of dominance, the Discussion Paper toys with the idea of imposing per se prohibitions or presumptions of anticompetitive harm on certain unilateral conduct, notably self-preferencing (Discussion Paper, 2022:31-32). This wariness of self-preferencing is echoed by several scholars, not least Vass Bednar and her co-authors (2022: 28), who argue that:

“In a fair, competitive market, products may come to dominate markets by virtue of being superior to those of competitors in quality, price, or some other characteristic. However, through self-preferencing market operators may gain dominance in specific markets due to the fact that they operate and control how information is presented in the marketplace in which they sell their product. In this way, self-preferencing can undermine the competitive dynamic of these markets, leading to poorer market outcomes. Self-preferencing constitutes an advantage that is not based on the merits of competition, but instead the degree of dominance that the self-preferencing firm has in another market.”

Admittedly, some jurisdictions, including the EU, have prohibited dominant platforms outright from giving preferential treatment to their own products (see, e.g., Article 6(5) of the DMA). But as argued in the previous section, this says nothing on its own about whether Canada should follow suit. Accordingly, Canadian authorities should consider the actual costs and benefits of self-preferencing before they adopt sweeping prohibitions of this sort of conduct.

A.      Self-Preferencing Is Not Presumptively Harmful

Courts and regulators in other countries have recognized that self-preferencing can have important pro-competitive justifications. As the Fifth Interim Report of the Digital Platform Service Inquiry of the Australian Consumer and Competition Commission states:

The ACCC recognises that there may be legitimate justifications for some types of self-preferencing conduct, such as promoting efficiency, or addressing security or privacy concerns, which would need to be carefully considered in developing new obligations. Any new obligations to prevent self-preferencing should be tailored to address specific conduct likely to harm competition, rather than amounting to a broad prohibition on any and all selfpreferencing by Designated Digital Platforms (2020: 131).

Indeed, many companies’ business models, from supermarkets to consultancy firms (Moss, 2022), are based on various forms of vertical integration, which includes self-preferencing (Sokol, 2023). In the specific context of online platforms, self-preferencing allows companies to improve the value of their core products and to earn returns so that they have reason to continue investing in their development (Andrei Hagiu, Tat-How Teh, & Julian Wright , 2022; Manne & Bowman, 2020). The EU’s ban on self-preferencing does not contradict this: it merely indicates that, under the DMA, procompetitive justifications and efficiencies are deemed irrelevant—a blunt approach that the Government might reasonably want to avoid.

One important reason why self-preferencing is often procompetitive is that platforms have an incentive to maximize the value of their entire product ecosystem, which includes both the core platform and the services attached to it. Platforms that preference their own products frequently end up increasing the total market’s value by growing the share of users of a particular product. Those that preference inferior products end up hurting their attractiveness to users of their “core” product, exposing themselves to competition from rivals. (Manne, 2020b).

Along similar lines, the notion that it is harmful (notably to innovation) when platforms enter competition with edge providers is unfounded. Indeed, a range of studies show that the opposite is likely true. Platform competition is more complicated than simple theories of vertical discrimination would have it, and there is certainly no basis for a presumption of harm (Manne, 2020c).

To cite just a few supportive examples from the empirical literature: Li and Agarwal found that Facebook’s integration of Instagram led to a significant increase in user demand, both for Instagram itself and for the entire category of photography apps. Instagram’s integration with Facebook increased consumer awareness of photography apps, which benefited independent developers, as well as Facebook (Li & Agarwal, 2016). Foerderer et al. found that Google’s 2015 entry into the market for photography apps on Android created additional user attention and demand for such apps generally. (Foerderer et al., 2018). Cennamo et al. found that video games offered by console firms often become blockbusters and expand the consoles’ installed base. As a result, these games expand the opportunities for independent game developers, even in the face of competition from first-party games (Cennamo, Ozalp, Kretschmer, 2018). That is, self-preferencing can confer benefits—even net benefits—on competing services, including third-party merchants. Finally, while some have suggested that Zhu and Liu (2018) demonstrate harm from Amazon’s competition with third-party sellers on its platform, the study’s findings are far from clear-cut. As co-author Feng Zhu noted in the Journal of Economics & Management Strategy: “[I]f Amazon’s entries attract more consumers, the expanded customer base could incentivize more third?party sellers to join the platform. As a result, the long-term effects for consumers of Amazon’s entry are not clear” (Zhu, 2018).

The ambivalent effects of self-preferencing are no less true when platforms use data from their services to compete against edge providers. Indeed, critics have argued that it is unfair to third parties using digital platforms to allow the platform’s owner to use the data gathered from its service to design new products, when third parties do not have equal access to that data. That seemingly intuitive complaint was, e.g., the basis for the European Commission’s landmark case against Google (see T-604/18, Google v. Comm’n, 2022 ECLI:EU:T:2022:541). But we cannot assume that conduct harms competition simply because it harms certain competitors (see also Section IIIB). Unambiguously procompetitive conduct, such as price-cutting and product improvements, similarly put competitors at a disadvantage. Improvements to a digital platform’s service may be superior (or preferred) to alternatives provided by the platform’s third-party sellers, and therefore procompetitive and beneficial to consumers. The alleged harm in such cases is the burden of having to compete with goods and service offerings that offer lower prices, higher quality, or both.

Finally, prohibiting companies from self-preferencing or significantly constraining their ability to do so could damage the entire venture-capital-backed ecosystem. In discouraging vertical integration, large companies will have diminished incentives to acquire startups; and those startups in turn will have less incentives to exist (Manne, 2022b). As pointed out recently by Daniel Sokol: “Without the ability to ‘self preference,’ companies will be less willing to acquire new businesses and technologies. The combination of weaker incentives for acquisition along with the inability to use contractual self preferencing will reduce scope economies and integration efficiencies” (Sokol, 2023).

The point applies equally to a firm’s internal investments: that is, a firm might invest in developing a successful platform and ecosystem because it expects to recoup some of that investment through, among other means, preferred treatment for some of its own products. And exercising a measure of control over downstream or adjacent products might drive the platform’s development in the first place. In sum, a hardline approach to self-preferencing would harm consumers, stifle innovation, and disrupt the startup ecosystem. There is also insufficient evidence to justify a presumption of harm or shifting the burden of proof to defendants.

B.      Vertical Integration and the Self-Fulfilling Prophecy of Self-Preferencing

At the most basic level, the misplaced condemnation of self-preferencing stems from another, earlier myth that recently has had a resurgence: the notion that vertical integration is commonly anticompetitive. Indeed, vertical conduct by digital firms—whether through mergers or through contract and unilateral action—frequently arouses the ire of critics of the current antitrust regime. Many critics point to a few recent studies that cast doubt on the ubiquity of benefits from vertical integration. But the findings of those studies are easily—and often—overstated. There is considerably more empirical evidence that vertical integration tends to be competitively benign. This includes widely acclaimed work by economists Margaret Slade and Francine Lafontaine (former director of the Federal Trade Commission’s Bureau of Economics under President Barack Obama), whose meta-analysis of vertical transactions led them to conclude:

[U]nder most circumstances, profit-maximizing vertical integration decisions are efficient, not just from the firms’ but also from the consumers’ points of view. Although there are isolated studies that contradict this claim, the vast majority support it. Moreover, even in industries that are highly concentrated so that horizontal considerations assume substantial importance, the net effect of vertical integration appears to be positive in many instances. We therefore conclude that, faced with a vertical arrangement, the burden of evidence should be placed on competition authorities to demonstrate that that arrangement is harmful before the practice is attacked (Lafontaine & Slade, 2007: 629).

Similarly, a study of vertical restraints by Cooper et al. (2005)—former FTC economists, including a former director of the FTC’s Bureau of Economics and three FTC deputy directors (two former and one current)—finds that “[e]mpirically, vertical restraints appear to reduce price and/or increase output. Thus, absent a good natural experiment to evaluate a particular restraint’s effect, an optimal policy places a heavy burden on plaintiffs to show that a restraint is anticompetitive.” As O’Brien (2008) observed, the literature suggests that diverse vertical practices “have been used to mitigate double marginalization and induce demand increasing activities by retailers. With few exceptions, the literature does not support the view that these practices are used for anticompetitive reasons.”

Subsequent research has tended to reinforce these findings. Reviewing the literature from 2009-18, Lipsky et al. (2018),  conclude that more recent studies “continue to support the conclusions from Lafontaine & Slade (2007) and Cooper et al. (2005) that consumers mostly benefit from vertical integration. While vertical integration can certainly foreclose rivals in theory, there is only limited empirical evidence supporting that finding in real markets (Lipsky et al., 2018: 8).”

Ultimately, the notions that self-preferencing and vertical integration are anticompetitive reinforce each other. Self-preferencing purportedly exemplifies why vertical integration is (or can be) harmful, as only companies that are vertically integrated engage in self-preferencing. At the same time, calls to ban or limit self-preferencing are built on the unsubstantiated intuition that vertical integration itself is generally harmful, which is likely why the negative effects of self-preferencing are summarily presumed, despite a lack of clear and convincing evidence to that effect. The circular logic is evident and fallacious.

None of this is to suggest that proposed vertical mergers should not be subject to scrutiny, or that vertical restraints ought to be per se lawful. It is, in fact, possible for vertical mergers or other vertical conduct to harm competition, and vertical conduct—both unilateral and concerted—should remain subject to fact-specific, rule-of-reason inquiry into its effects on competition and consumers. Evidence does not, however, suggest a general skepticism of vertical integration is merited, and nor does it support a fundamental change in the competition standards or presumptions that apply to vertical integration (Fruits, Manne, & Stout, 2020: 950). As discussed in the previous sub-section, it also does not substantiate a presumption of illegality or a per se prohibition on self-preferencing.

III.    Repurposing the Purpose Clause: Antitrust Should Remain Grounded in Robust Effects Analysis and Efficiencies Should Remain a Viable Defense

There is a clear impetus in the Discussion Paper to degrade, if not shun entirely, evidence of procompetitive effects and efficiency considerations in the context of antitrust enforcement. For example, it is suggested that the Competition Act’s Purpose Clause should be reframed as protecting “fair competition,” with “less focus on competitive effects,” and that this reframing would be in the interest of achieving a “level playing field” (Discussion Paper: 38). The Discussion Paper also proposes broadening the definition of “anti-competitive act” for the purpose of abuse of dominance to ensure that it includes harm toward a competitor, not just to competition (lbid: 17). In a similar vein, efficiencies are consistently framed as an obstacle to the Government’s ability to block “potentially harmful” deals, rather than as instances where government intervention should rightly be avoided (lbid: 5).

The Discussion Paper also appears to suggest, albeit less explicitly, the possibility of lowering the evidentiary standard of proof for merger review from “substantial lessening or prevention of competition” to a more enforcer-friendly “appreciable risk” of lessening competition (lbid: 23).  While the combined effect of these proposals would surely be to make enforcement easier for the Bureau, a point we discuss in Section IV, there are also concrete, substantive harms associated with abandoning longstanding competition standards.

A.      Competition Law Serves to Protect Competition, not Competitors

Antitrust law does not serve to protect competitors—only to protect competition. As courts have long recognized, the natural process of competition is such that it results in some companies inevitably abandoning the market. But this is not a flaw to be corrected through antitrust enforcement; it is the central feature of competition. Indeed, as the European Court of Justice has repeatedly held in a well-established line of case-law:

Not every exclusionary effect is necessarily detrimental to competition (see, by analogy, TeliaSonera Sverige, paragraph 43). 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 from the point of view of, among other things, price, choice, quality or innovation (Case C 209/10 Post Danmark, EU:C:2012:172, para 22).

Repurposing competition law to protect all competitors, rather than competition itself, vitiates the essence of antitrust law, rendering it, and competition, pointless. Indeed, at the most essential level, the purpose of the competition rules is to distinguish between conduct that anticompetitively serves to exclude competitors, on the one hand, and competition on the merits that may lead firms to exit the market, on the other. While even first-year law students intuitively understand this critical distinction, it can prove challenging to distinguish between the two in real-world cases. The reason is simple: anticompetitive foreclosure and competition on the merits both ultimately result in the same observable outcome—that rivals exit the market. To draw the line, antitrust enforcers and policymakers have developed a wealth of tools to infer both the root causes and the effects of firms’ market exit, such as, e.g., the “as efficient competitor test” in the EU (Auer & Radic, 2023).

Blurring this subtle but crucial conceptual boundary by reorienting the Competition Act toward the protection of competitors would also have serious economic ramifications. By artificially retarding or foreclosing firm exit, the Competition Act would have the perverse effect of encouraging free-riding, discouraging efficient firm behavior and, ultimately, harming consumers and the economy as a whole.

B.      “Fairness” Is Not a Useful Goal for Antitrust Law—or Regulation, for that Matter

Fairness is not a foreign concept to antitrust law, and fairness considerations are not new to it (Colangelo, 2023). Its perennial allure lies in the evocation of principles of equality and justice with which few would disagree. (Who, after all, is in favor of “unfairness?”)

The problem lies in the inherent ambiguity of the concept, which makes it much more valuable as a rhetorical device—albeit a politically attractive one—than a working, quantifiable threshold of anticompetitive conduct. Under traditional liberal notions of fairness, understood as equality before the law, the case for redistributing rents away from dominant digital companies—especially where such dominance has resulted from a superior business model, management, and/or product-design decisions—is comparatively weak. On the other hand, if fairness is understood as equality of outcome, then ensuring that rents generated by digital platforms are distributed equally across the supply chain and horizontally to competitors suddenly becomes more defensible.

This conceptual fuzziness is exacerbated by the existence of multiple sets of stakeholders, which diminishes the possibility of identifying “fair” outcomes for any given group. Thus, what may seem like “fair” compensation for access to a platform and customer base from the perspective of, e.g., app developers, may not seem “fair” to the platforms that have invested time, research, and money into developing such a platform, or to low-usage consumers who may be asked to pay more for their devices to compensate developers whose apps they don’t use.

The use of fairness as either a goal of competition policy or a standard to adjudicate antitrust disputes inevitably raises complicated value judgements: Which group should competition authorities favor; what definition of “fairness” should enforcers mobilize; and, more fundamentally, should competition authorities be empowered to make such value-laden judgments in the first place? Contemporary competition policy has traditionally steered clear of these largely intractable questions (Ibid: 12). As the Discussion Paper rightly indicates, the Competition Act “does not proactively dictate how to conduct business, allocate resources among stakeholders, or designate participants, winners or losers in the free market (Discussion Paper: 13).”

And yet, under the inherent uncertainty of a DMA-style fairness standard, the Bureau would inevitably be forced to do just that—whether it wanted to or not. This would subvert the entire edifice of Canadian competition law, ensconcing a new standard as the system’s lodestar with entirely unpredictable material consequences. It would also, and perhaps even more importantly, signal a shift away from the rule of law and toward government discretion, transforming the Bureau from an executive enforcer of the law to a social engineer. Ironically, for all the talk about market concentration and democracy, the inverse relationship between unfettered government discretion and democracy is much better understood, and historically accounted for, than the supposed link between market concentration and undemocratic outcomes (Hayek, 2007, 2011; Mises, 2014; Friedman, 2002).

C.      Merger Control Should Remain Tethered to a “Substantial Lessening or Prevention of Competition” Principle

The Discussion Paper notes that “[o]ne of the antitrust reform bills before the U.S. Senate would modify the legal test for merger intervention from substantial lessening of competition to ‘an appreciable risk of materially lessening competition’” (Discussion Paper: 23). Specifically, the Discussion Paper identifies the U.S. bill’s proposal that the burden of proof for certain mergers be reversed, based on, e.g., increases in concentration, the size of the merger (valuations exceeding US$5 billion), or the identity (and presumed dominance) of the acquiring firm (Ibid). In the alternative, it is suggested that there be a more stringent competition test or reporting threshold for certain sensitive sectors. While the question of the best competition policy for Canada remains paramount, it is worth noting that the U.S. bill was not enacted by the U.S. Congress, and for good reasons.

1.     Industry concentration, firm size and mergers

As a background matter, the Government should consider that some of the concerns motivating the failed U.S. legislation stemmed from potentially misleading characterizations of concentration across U.S. industries. Of signal influence was a 2016 brief issued by then-President Barack Obama’s Council of Economic Advisors (“CEA”) (White House, 2016). As observed by Carl Shapiro—a former Obama CEA member and a former chief economist at the U.S. Justice Department’s Antitrust Division—certain statements in the exhibits and the text were potentially (and, for many, actually) misleading:

[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 (Shapiro, 2018: 727-28).

Shapiro did not deny that changes in concentration in specific markets could be concerning. Rather, he pointed out that key indicators in the CEA issue brief were not relevant to competition analysis.  For example, cited concentration ratios were far higher than any that should flag competition concerns, and identified industry groupings were far too broad to assess market power in any specific markets (Ibid: 721-722). At bottom: “Industrial organization economists have understood for at least 50 years that it is extremely difficult to measure market concentration across the entire economy in a systematic manner that is both consistent and meaningful (Ibid: 722).”

One approach to assessing the relationship between concentration, profits, and competition is embodied in the Structure-Conduct-Performance (“SCP”) paradigm, which tended to measure concentration by the Herfindahl-Hirschman Index (HHI), and which used specific HHI thresholds for competitive screening or evaluation. But while HHIs may still be used for rough and preliminary screening purposes, merger analysis has—by and large, and for decades—left the SCP framework behind, as both theoretical and empirical work has undermined the approach (Schmalensee, 1989; Evans, Froebd, & Werden, 1993; Berry, 2017; Salinger, 1990; Miller et al., 2022). Industry-specific research has only reinforced the wisdom of rejecting the SCP framework, demonstrating that, e.g., various new screening tools are more accurate than concentration measures in flagging health-care-provider mergers that are potentially anticompetitive (Garmon, 2017).

The “substantial lessening of competition” standard focuses on the question of whether harm to competition has occurred, or is likely to occur, with a focus on actual or likely consequences: harm to consumers, often in terms of increased prices, but also in terms of reduced output and nonprice dimensions of competition, such as lower product quality and diminished convenience or availability. Alternatives tend to be less clear, harmful to consumer welfare, or both.

The suggestion that merger policy should alter its methods or standards according to the size of the firm (or firms) involved recalls the “big is bad” approach to antitrust enforcement prevalent in the first half of the twentieth century. That approach, and the assumption of market power (and harm to competition) had no real economic basis:

In short, 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. . . .

Our own view, based on the well-established mainstream wisdom in the field of industrial organization for several decades, is that regressions of market outcomes on measures of industry structure like the Herfindahl-Hirschman Index should be given little weight in policy debates (Berry et al., 2019: 48).

Scale is not an accurate proxy for either market power or anticompetitive conduct. To reimplement the big-is-bad approach risks arbitrary impediments to broad categories of procompetitive mergers, and reduced innovation in business models that would benefit consumers. It would protect inefficient (high-cost) producers from precisely the kinds of competitive pressures that competition law is supposed to foster (Manne & Hurwitz, 2018: 1,6).

To be sure, large tech firms’ impressive scale might appear to imply market power; and such firms, among others, may possess a degree of market power in one or another market. Large firms, like small ones, also may engage in anticompetitive conduct. Nonetheless, and especially in the contemporary tech industry, it is “not unusual for efficient, competitive markets to comprise only a few big, innovative firms. Unlike the textbook models of monopoly markets, these markets tend to exhibit extremely high levels of research and development, continual product evolution, frequent entry, almost as frequent exit—and economies of scope and scale (i.e., ‘bigness’). Size simply does not correlate with anything recognizable as ‘consumer harm’” (Ibid).

A presumption against large firms (and large transactions) would necessarily benefit smaller firms, independent of the question of whether they provide consumers with superior or less-costly goods and services. Indeed, some courts have expressly recognized that deciding competition matters for the purpose of favoring small firms entailed that “occasional higher costs and prices might result from the maintenance of fragmented industries and markets” (Brown Shoe Co. v. United States, 370 U.S. 294, 344 (1967)). Such maintenance has always raised the question of which decision standard should be employed, and what its economic basis should be, as well as the rationale for trading consumer welfare for benefits to certain smaller firms. Not incidentally, thresholds recently proposed for presumptively suspect firms or transactions are such that many very large firms escape heightened scrutiny. That includes firms that may have significant market power in one or more markets. And, of course, small firms might well enjoy significant market power in niche markets.

There remain legitimate debates about the optimal methods and standards for competition policy, but the drive toward a consumer welfare standard, begun in the 1960s and 1970s, ultimately identified a coherent and predictable outcome against which to evaluate both specific competition matters and competition policy: greater consumer welfare is achieved through the condemnation of conduct that suppresses innovation, increases prices, or diminishes desirable nonprice dimensions of goods and service, such as quality and convenience. Application of the consumer welfare standard is not always trivial, but it is generally tractable, and increasingly so, as developments in data sources and industrial-organization economics continue.

A recent policy statement by the U.S. Federal Trade Commission (FTC) set a template for the disadvantages of popular reform proposals, with something akin to an “appreciable risk” standard. The FTC had withdrawn its prior Unfair Methods of Competition policy statement and, in doing so, disavowed the consumer welfare standard as “open ended” and capable of delivering “inconsistent and unpredictable results” (Federal Trade Commission, 2021). In its place, the FTC announced a new standard: a prohibition of “unfair” conduct that “tend[s] to negatively affect competitive conditions.”

What that means is not clear. We are told that unfair conduct is “coercive, exploitative, collusive, abusive, deceptive, predatory”—terms that may be evocative in ordinary usage and some of which occur, in dicta, in certain historical U.S. antitrust cases. But those terms have no clear established meaning in Canadian, U.S., or European competition jurisprudence. The statement also declares as unfair any conduct that “involve[s] the use of economic power of a similar nature,” or that “may” be “otherwise restrictive or exclusionary.” That all seems relatively open-ended.

Further, as Gilman and Hurwitz (2022) explain, the phrase “tends to negatively affect competitive conditions” is noteworthy mostly for what it is not. It does not specify either harm to competition or harm to consumers, but rather a tendency (not necessarily a likelihood) to “negatively affect” (perhaps to harm) “competitive conditions.” Thus, we have a sort of any-party-in-the-marketplace standard, concerned with effects on “consumers, workers, or other market participants” and whether conduct “tends to” affect (negatively) any party, and which does not turn to whether the conduct directly caused actual harm in the specific instance at issue. Effects need not be “current” or “measurable” or even “actual.” And they need not be likely.

The new FTC standard is certainly no model of clarity. Establishing “harm to consumers, workers, or other market participants” may be more tractable than establishing harm to consumers. But that’s only because nearly any potential harm to anyone would seem to suffice, no matter the cost to consumers. Indeed, in disclaiming the need to show either actual or likely harm, the relevance of efficiencies, and of relative costs and benefits, the FTC sets the enforcement bar lower still. Whatever degree of unpredictability might attach to the consumer welfare standard, it is impossible to see the FTC’s 2022 proposal as an improvement.

The FTC’s new policy also appears to buy lower administrative costs at the expense of both predictability and, necessarily, consumer welfare. Fundamentally, the FTC ignores completely the problem of error costs. To the extent that competition policy is concerned with consumer welfare, loose (and seemingly arbitrary) standards will lower administrative costs but increase Type 1 errors (false positives) by sometimes condemning procompetitive and benign conduct as anticompetitive. But amorphous standards may also increase Type 2 errors, as enforcement untethered from consumer welfare and economic foundations may well increase the total number of cases and determinations of liability, while missing difficult cases where real harms might have been found through traditional methods.

Thomas Lambert (2021) employs a decision-theoretic framework to compare competing institutional approaches to competition law and, specifically, to address the market power of large digital platforms, both actual and presumed:

(1) the traditional U.S. antitrust approach; (2) imposition of ex ante conduct rules such as those in the EU’s Digital Markets Act and several bills recently advanced by the Judiciary Committee of the U.S. House of Representatives; and (3) ongoing agency oversight, exemplified by the UK’s newly established “Digital Markets Unit.” After identifying the advantages and disadvantages of each approach, this paper examines how they might play out in the context of digital platforms. . . . [and] shows how three features of the agency oversight model—its broad focus, political susceptibility, and perpetual control—render it particularly vulnerable to rent-seeking efforts and agency capture. The paper concludes that antitrust’s downsides (relative indeterminacy and slowness) are likely to be less significant than those of ex ante conduct rules (large error costs resulting from high informational requirements) and ongoing agency oversight (rent-seeking and agency capture) (Lambert, 2021).

2.     Nascent Competition

Finally, some argue that an “appreciable risk” to competitive harm standard would be more appropriate in the context of acquisitions of nascent or potential competitors. The argument is that, by their nature, the risks associated with acquisitions of nascent competitors is more speculative. Since we cannot know for sure, given their current size and scope, we need to account for these risks and have a standard that can incorporate them. The argument is laid out most completely by Steven Salop in his paper Potential Competition and Antitrust Analysis: Monopoly Profits Exceed Duopoly Profits. In it, he argues that:

Acquisitions of potential or nascent competitors by a dominant firm raise inherent anticompetitive concerns. By eliminating the procompetitive impact of the entry, an acquisition can allow the dominant firm to continue to exercise monopoly power and earn monopoly profits. The dominant firm also can neutralize the potential innovation competition that the entrant would provide (Salop, 2021:6).

Taken to its logical conclusion, this approach would support a presumption against any acquisition, because there is always a risk, no matter how remote, that any company could compete with the incumbent in the future. It is unclear how far the qualifier “appreciable” goes toward countering this overly stringent presumption. On this note, it is important to realize that eliminating a potential competitor is not the same thing as eliminating potential competition. The market power of firms, even monopolists, is disciplined by how closely the closest potential competitor is to the incumbent. In the jargon of economics: the marginal competitor matters. How quickly could the marginal competitor enter? How closely could the marginal competitor compete on price?

When there are just two firms in a market, we are confident that the second-largest firm is the marginal competitor for the largest. Once we open consideration to all possible or potential competitors, our ability to know in advance which may provide a disciplinary force greatly decreases. As such, any competition standard needs to recognize such limitations and keep potential-competition challenges to clearly articulated cases.

The FTC’s recent challenge of Meta’s acquisition of Within serves as a natural experiment in showcasing the limits of opening potential-competition challenges to more speculative cases. The FTC’s case rested on arguing that Facebook was a potential competitor to Within’s virtual-reality fitness app Supernatural. While the judge ultimately did not reject the possibility of potential-competition harms, in theory, he rejected the evidence of such harms in this case (Paul Weiss, 2023).

IV.    There Are Serious Limits to Considering the Effects of Mergers on Labour

The Discussion Paper notes “at least two points in the Canadian System where a closer examination of labour effects could occur” (Discussion Paper: 28) Those are, first “in the evaluation of competitive effects, namely as to whether mergers may result in distortions to the labour market, even if there are no harmful competitive effects downstream”; and second, “in the evaluation of efficiencies, in which reduction of labour may be viewed as efficient or pro-competitive” (Ibid.). We recommend the Commission exercise extreme caution in these areas, as both risk harms to consumer welfare, and to the consistency and predictability of competition law.

The Discussion Paper notes “various challenges and pitfalls of applying competition law to labour markets, including, inter alia, the difficulty of integrating the role (and benefits) of technological change and ‘creative destruction,’” complexities in assessing compensation wholistically, and the question of market definition (Discussion Paper: 28). These measurement difficulties exceed those typically observed in product markets and raise questions regarding whether—and if so, how—to account for trade-offs among, e.g., labour interests and pro-consumer efficiencies and innovation in products, production, or distribution, or between labour interests and consumer welfare.

The concerns cited by the Boyer report are important. For one thing, one cannot distinguish between efficiency gains and the exercise of monopsony power if one looks only to price and quantity in an input market, such as labour. Consider a merger that generates either efficiency gains or market (now monopsony) power. A merger that creates monopsony power will necessarily reduce the prices (wages) and quantity purchased (hired) of inputs, such as labour. But this same effect (reduced prices/wages and quantities for inputs) could be observed if the merger is efficiency-enhancing. If we assess downstream output, efficiency-enhancing mergers will necessarily be associated with greater output. Efficiencies achieved through innovation in product offerings, production, management, or distribution will lead to increased output. If, on the other hand, the merger increases monopsony power, the post-merger firm will perceive its marginal cost as higher than it was pre-merger, and it will reduce downstream output accordingly (Hemphill & Rose, 2018).

To parse labour markets from downstream product and service markets, and to consider the impact on the latter of “out-of-market” effects, would confound the distinction of efficiency-enhancing mergers from monopsony-creating ones, while simultaneously isolating competition analysis of labour markets from observations of pro-consumer efficiencies. It is unclear whether (and, if so, how) using competition law to discipline alleged harm to labour markets is consistent with the consumer welfare standard, the lodestar of antitrust enforcement, at least as it is currently understood.

Marinescu & Hovenkamp assert that, “[p]roperly defined, the consumer welfare standard applies in exactly the same way to monopsony. Its goal is high output, which comes from the elimination of monopoly power in the purchasing market…. [W]hen consumer welfare is properly defined as targeting monopolistic restrictions on output, it is well suited to address anticompetitive consequences on both the selling and the buying side of markets, and those that affect labor as well as the ones that affect products (Marinescu & Hovenkamp, 2014).”

But there are at least two problems with this reasoning.

First, the assertion that harm to input providers alone should be actionable is based on a tenuous assertion that a mere pecuniary transfer is sufficient to establish anticompetitive harm. As Marinescu and Hovenkamp note “there is merely a transfer away from workers and towards the merging firms. Yet. . . such a transfer is a harm for antitrust law.” (Ibid: 1062) But such harms to labour (and other input suppliers) may benefit consumers. In the typical case, at least some of the benefits of employer leverage (relative advantage in negotiation) are passed along to consumers; in the limit, all such benefits are passed on to consumers (Salop, 2010: 342). The main justification for ignoring such cross-market effects is primarily a pragmatic one, but one considerably diminished by modern analytical methods (Rybnicek & Wright, 2014: 10). Particularly in the context of inputs to a specific output market, these cross-market effects are inextricably linked and hardly beyond calculation.

The assertion that pure pecuniary transfers are actionable is also inconsistent with the fundamental basis for competition law, which seeks to mitigate deadweight loss, not mere pecuniary transfers that do not result in anticompetitive effects (Bork, 2021: 110).

Finally, market definition, too, is a confounding problem for the prospect of labour competition analysis. In monopoly cases, enforcers and courts can face enormous challenges in identifying a relevant market. These challenges are multiplied in input markets—especially labour markets—in which monopsony is alleged. Many inputs are highly substitutable across a wide range of industries, firms, and geographies. For example, changes in technology, such as the development of PEX tubing and quick-connect fittings, allows for labourers and carpenters to perform work previously done exclusively by plumbers. Technological changes have also expanded the relevant market in skilled labour: Remote work during the COVID-19 pandemic, for example, demonstrates that many skilled workers are not bound by geography and compete in national—if not international—labour markets.

At the same time, many labour markets—especially (but not only) lower-wage labour markets—remain local. They have the potential to crosscut both product markets and their associated geographic markets. And both mergers and unilateral conduct can raise questions concerning how to trade harm to labour—e.g., reduced wages, benefits, or jobs—in one locale against benefits in another.

In short, there is a serious knowledge gap to plug before competition authorities can satisfactorily analyze the impact of mergers on labour markets. Until that is the case, competition law would gain by limiting its focus to output markets.

V.      Bolstering the Bureau’s Powers and the ‘Effectiveness’ of Enforcement Should not Come at the Expense of Parties’ Rights of Defense, the Rule of Law, and Procompetitive Outcomes

One of the key themes of the Discussion Paper is “the often-narrow circumstances where the Competition Bureau can intervene (Discussion Paper: 4).” For example, the Discussion Paper laments that bringing abuse-of-dominance cases is currently too burdensome for the CCB and suggests implementing EU-style presumptions (Ibid: 34-35) or substituting the need to show intent and (likely) effects for a mere capability of anticompetitive effects (Ibid: 37).  But the fact that some cases are not easy to bring is not, on its own, a justification for reform (see Section I). Procedural safeguards and burdens of proof exist for a reason: to cabin enforcers’ discretion, ensure that rights of defense and the rule of law are respected, and to minimize errors. Furthermore, “more enforcement” is neither good nor bad. What makes it one or other is contingent on the likelihood and extent of the error costs of intervention vs. non-intervention (see Section IB).

In this way, the EU’s experience warns of the risk of granting to public authorities extensive powers to enforce novel regulations, while treating the rights of defense as an afterthought (Lamadrid, 2022; Auer and Radic, 2023). Like the ethos that undergirds the Discussion Paper, the DMA is propelled by the (dubious) logic that the competition laws in their current form cannot be deployed easily or quickly enough to address the supposedly unique, endemic challenges of “digital” markets (for the opposite view, see Colangelo, 2022).

But this eagerness to intervene at any cost itself comes at a cost. In the EU, for instance, the draft implementing regulation of the DMA (DIR) indulges in serious procedural over-reach, which is likely to have significant ramifications for targeted companies, third parties, and the Commission itself. Thus, from the outset, the DIR makes clear that the Commission prioritizes procedural effectiveness over procedural fairness (Lamadrid, 2022). It establishes a “succinct” (short) right to respond to the Commission’s preliminary findings, thereby abridging parties’ rights to defense in ways that the Commission is not similarly constrained in issuing its preliminary findings.

Procedural rules exist to protect parties from abuses by the administration, as well as to protect the administration from costly and unnecessary litigation. This has been recognized, in one way or another, by the European courts. Just this past year, two marquee decisions were quashed by the European Court of Justice, at least partially because of procedural irregularities: Qualcomm and Intel. The lesson to be learned for the CCB is that, even if the Competition Act is reformed, Canadian law still recognizes robust rights of defense and procedural safeguards that, if breached because of an administrative over-eagerness to “do more,” will be promptly checked by the courts.

VI.    Conclusion

In this “moment of reckoning,” (Discussion Paper: 6) it is crucial that the Government not overreact with experimental legislative reform that will be exceedingly difficult to unwind. Five main conclusions can be drawn from this submission, and they warrant a much more restrained approach. First, the Government should critically reassess the assumptions that underpin the Discussion Paper. Evidence does not recommend that Canada follow the sort of competition regulation or reform contemplated elsewhere, nor should Canada be compelled to act just because other countries are “doing something.” Any potential reform should be based on careful examination of the facts and evidence and should be scrupulous in applying the error-costs framework. In addition, despite frequent rhetoric to the contrary, it is entirely unclear that “digital” markets present the sort of unique challenges that would necessitate an overhaul of the Competition Act.

Second, there is no rhyme or reason to presumptions against self-preferencing behavior. Self-preferencing is normal business conduct that can—and often does—yield procompetitive benefits, including improved economies of scope, greater efficiencies, and improved products for consumers. In addition, a ban on self-preferring could harm the startup ecosystem by discouraging acquisitions by large firms, which would ultimately diminish the incentives for startups. This is presumably not what the Government wants to achieve.

Third, altering the purpose of the Competition Act would be a grave mistake. Competition law does not serve to protect competitors, but competition; nor can harm to competitors be equated with harm to competition. To do so would harm competition and, necessarily, Canadian consumers. The quintessential task of competition laws—the Competition Act included—is to distinguish between the two, precisely because the distinction is so subtle, yet at the same time so significant. Similarly, “fairness” is a poor lodestar for competition-law enforcement because of its inherent ambiguity. Instead of these, or other standards, the Competition Act should remain rooted in the standard of “substantial lessening or prevention of competition.”

Fourth, the Government should exercise extreme caution in addressing labour-market monopsony, as altering the merger-control rules to encompass harms to labour risks both harming consumer welfare and the consistency and predictability of competition law.

Fifth, in its impetus to bolster competition-law enforcement by making it “easier” on the CCB, the Government should not sacrifice rights of defense and the rule of law for expediency. In this, at least, it can learn from the DMA’s example.

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The U.S. Department of Justice and eight states recently sued Google, claiming it runs its digital ad business to unfairly advantage its own business, to the detriment of its customers and potential rivals. Some commentators have expressed concerns that the government would make its case using novel and untested legal models, but Salil Mehra writes that these concerns are misplaced and that the case will be primarily argued using traditional antitrust law.

Read the full piece here.

Abstract

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

Introduction

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

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

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

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

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

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

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

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

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

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

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

I.        The Vestager Mandate: Fairness as Political Signaling

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

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

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

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

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

II.      EU Antitrust Enforcement: Fairness as a Standard

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

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

A.      Unfair Terms and Excessive Pricing

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

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

B.      Margin Squeeze

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

C.      FRAND-Encumbered SEPs

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

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

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

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

D.     Abuse of Economic Dependence

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

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

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

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

E.      Summary of Findings

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

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

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

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

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

A.      Platform-to-Business Regulation

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

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

B.      Digital Markets Act

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

C.      Data Act

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

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

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

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

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

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

D.     Summary of Findings

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

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

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

IV.    Fairness as a Blanket License for Regulatory Intervention

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

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

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

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

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

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

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

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

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

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

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

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

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

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

V.      Conclusion

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

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

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

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

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

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

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

[3] Ibid.

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

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

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

[7] Bedoya, supra note 6, 8.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

[26] Ibid.

[27] Ibid.

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

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

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

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

[32] Vestager, supra note 25.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

[62] Ibid., para. 46.

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

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

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

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

[67] Ibid., Recital 2.

[68] Ibid., Recital 49.

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

[70] Ibid., 8-9.

[71] Ibid., 8.

[72] Regulation (EU) 2022/1925 on contestable and fair markets in the digital sector and amending Directives (EU) 2019/1937 and (EU) 2020/1828 (Digital Markets Act), (2022) OJ L 265/1.

[73] Ibid., Recital 7.

[74] Ibid., Recital 2.

[75] Ibid., Recitals 2 and 4.

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

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

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

[79] Ibid.

[80] Ibid.

[81] Ibid.

[82] Ibid., Recital 11.

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

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

[85] Ibid..

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

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

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

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

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

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

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

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

[94] Ibid., Recital 46; see also European Commission, Commission Sends Statement of Objections to Amazon for the Use of Non-Public Independent Seller Data and Opens Second Investigation into Its E-Commerce Business Practices (Nov. 10, 2020), https://ec.europa.eu/commission/presscorner/detail/en/ip_20_2077.

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

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

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

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

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

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

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

[102] Ibid., Recital 39.

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

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

[105] Ibid., para. 372.

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

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

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

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

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

[111] Ibid., Recital 5.

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

[113] Ibid., Recital 52

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

[115] Ibid., Recital 55.

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

[117] Colangelo, supra note 106.

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

[119] Ibid..

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

[121] Vestager, supra note 4.

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

[123] Vestager, supra note 28.

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

[125] Ibid., Recital 3.

[126] Ibid., Article 15.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

[143] Ibid., 4-5.

[144] Ibid., 5.

[145] Ibid., 7-8.

[146] Ibid., 11-14.

[147] Bedoya, supra note 6, 8.

Having just comfortably secured re-election to a third term, embattled Texas Attorney General Ken Paxton is likely to want to change the subject from investigations of his own conduct to a topic where he feels on much firmer ground: the 16-state lawsuit he currently leads accusing Google of monopolizing a segment of the digital advertising business.

Read the full piece here.

ICLE Director of Law & Economics Programs Gus Hurwitz joined Steptoe & Johnson LLP’s The Cyberlaw Podcast to discuss (among other topics):

• The FTC is likely to strengthen enforcement tools for its consent decrees, mainly by tagging individuals with potential fines for violations. Gus doubts this will work out well in practice.
• The FTC is also end-running a recent Supreme Court decision that denied it the authority to impose certain financial penalties. Now the Commission will bring cases jointly with state agencies who have that authority.
• That private antitrust cases remain hard to win, especially without evidence, as Amazon and major book publishers gain the dismissal of antitrust lawsuits over book pricing.
• An upcoming executive order to cool off the fight over data transfers across the Atlantic

The full podcast episode is embedded below.

The Federal Trade Commission (FTC), an agency historically concerned with vigorous market competition that leads to more output and lower prices, has of late been seemingly determined to raise prices for consumers.

Read the full piece here.