Last updated May 16, 2024

Digital Competition Regulations Around the World

The Issue

Inspired by the European Union’s Digital Markets Act (DMA), a growing number of jurisdictions around the world either have adopted or are considering adopting new frameworks of ex-ante rules to more closely regulate the business models and behavior of online platforms.   These digital competition regulations, or “DCRs,” typically share two key features. The first is that they target so-called “gatekeepers” who control the world’s largest online platforms. The rules proceed from the assumption that these firms have accumulated a degree of economic power that allows them to harm competition, exclude rivals, exploit users, and possibly inflict a broader range of social harms—all in ways that cannot adequately be addressed through existing competition laws.  The second common feature is that these regimes impose similar, if not identical, per-se prohibitions and obligations on gatekeepers, including prohibitions on self-preferencing and the use of third-party data, along with such obligations as interoperability and data sharing.  Unfortunately, there is little evidence that these regulations would make digital markets more competitive or improve outcomes for consumers. This is particularly unlikely to be the case in jurisdictions with limited enforcement resources, more pressing policy challenges, and fewer guardrails against corruption and rent seeking.

Antitrust Law Is Sufficient to Address Anticompetitive Harms in Digital Markets

Lawmakers often are fascinated by the prospect of creating new rules. With every new technology or business model, we are told that “this time it’s different” and that laws enacted decades ago cannot possibly be attuned to the unique needs of the new era. 

Digital competition regulations are no different. Most of the prohibitions and obligations contained in DCRs are simply more enforcer-friendly versions of theories of harm that originated in antitrust law. Rather than risk legal fragmentation and subvert time-honed antitrust paradigms, however, lawmakers should assess the adequacy of existing rules. 

Regulate for What? A Closer Look at the Rationale and Goals of Digital Competition Regulations

For more on this topic, see the ICLE Issue Spotlight “Digital Competition Regulations Around the World.”

Executive Summary

Inspired by the European Union’s Digital Markets Act (DMA), a growing number of jurisdictions around the globe either have adopted or are considering adopting a framework of ex-ante rules to more closely regulate the business models and behavior of online platforms.

These digital competition regulations (“DCRs”) share two key features. The first is that they target so-called “gatekeepers” who control the world’s largest online platforms. Such regulations assume that these firms have accumulated a degree of economic and political power that allows them to harm competition, exclude rivals, exploit users, and possibly inflict a broader range of social harms in ways that cannot be adequately addressed through existing competition laws. Typically cited as examples of gatekeepers are the main platforms of Google, Amazon, Facebook/Meta, Apple, and Microsoft.

The second common features of these DCR regimes is that they impose similar, if not identical, per-se prohibitions and obligations on gatekeepers. These often include prohibitions on self-preferencing and the use of third-party party data, as well as obligations for interoperability and data sharing. These two basic characteristics set DCRs apart from other forms of “digital regulation”—e.g., those that concern with AI, privacy, or content moderation and misinformation.

This paper seeks to understand what digital competition regulations aim to achieve and whether a common rationale underpins their promulgation across such a broad swatch of territories.

A. Multiple and Diverging Goals?

We find that DCRs pursue multiple goals that may vary across jurisdictions. Some DCRs are guided by the same goals as competition law, and may even be embedded into such laws. Such is the case, e.g., in Germany and Turkey. Other regulations address competition concerns under differing or modified standards. Examples here include the “material-harm-to-competition” standard in the United States and, arguably, digital competition regulation in the UK and Australia—where traditional competition-law goals such as the protection of competition and consumer welfare comingle with an increased emphasis on “fairness.”

DCRs sometimes pursue a much broader set of goals. For instance, a prospective digital competition regulation in South Africa seeks greater visibility and opportunities for small South African platforms and increased inclusivity of historically disadvantaged peoples, along with other more competition-oriented objectives (this duality is a common feature of South African legislation). Similarly, a bill proposed in Brazil attempts to reduce regional and social inequality, as well as to widen social participation in matters of public interest, alongside its stated effort to protect competition.

In the United States, apart from protection of competition, proponents of the (now-stalled) DCR bills have invoked a broad set of potential benefits, including fairness; fair prices; a more level playing field; reduced gatekeeper power; protections for small and medium-sized enterprises (“SMEs”); reduced costs for consumers; and boosts to innovation.

Some DCRs, however, are not promulgated in pursuit of competition-oriented objectives at all—at least, not explicitly or not in the sense in which such objectives are understood in traditional competition law. The clearest example is the EU’s DMA itself, which openly eschews traditional competition-related goals and instead seeks to make digital markets “fair” and “contestable.”

B. A New Form of Competition Regulation

Regardless of the overarching goals, it is evident that DCRs incorporate themes and concepts familiar to the competition lawyer, such as barriers to entry, exclusionary conduct, competitive constraints, monopolistic outcomes, and, in some cases, even market power. This may, at first blush, hint at a close relationship between digital competition regulation and competition law. While not entirely incorrect, that assessment must come with a number of caveats.

DCRs diverge in subtle but significant ways from mainstream notions of competition law. We posit that DCRs are guided by three fundamental goals: wealth redistribution among firms, the protection of competitors of incumbent digital platforms, and the “leveling down” of those same digital platforms.

C. Rent Redistribution Among Firms

The notion of “gatekeepers” itself presumes asymmetrical power relations between digital platforms and other actors, which are further presumed both to lead to unfair outcomes and to be insurmountable without regulatory intervention. Thus, the first commonality among the DCRs we study is that they all seek to transfer rents directly from gatekeepers to rival firms, complementors, and, to a lesser extent, consumers. This conclusion follows inexorably from the DCRs’ stated goals, the prohibitions and obligations they promulgate, and the public statements of those who promote them.

While the extent to which various groups are intended to benefit from this rent re-allocation might not always be identical, all DCRs aim to redistribute rents generated on digital platforms away from gatekeepers and toward some other group or groups—most commonly the business users active on those platforms.

D. Protection of Competitors

Another important feature that DCRs share is the common goal not just to protect business users, but to directly benefit competitors—including, but not limited to, via rent redistribution. DCRs are concerned with ensuring that competitors—even if they are less efficient—enter or remain on the market. This is evidenced by the lack of overarching efficiency or consumer-welfare goals—at the very least, for those regulations not based on existing competition laws—that would otherwise enable enforcers to differentiate anticompetitive exclusion of rivals from those market exits that result from rivals’ inferior product offerings.

This focus on protecting competitors can also be seen in DCRs’ pursuit of “contestability.” As defined by DCRs, promoting contestability entails diminishing the benefits of network effects and the data advantages enjoyed by incumbents because they make it hard for other firms to compete, not because they are harmful in and of themselves or because they have been acquired illegally or through deceit. In other words, DCRs pursue contestability—understood as other firms’ ability to challenge incumbent digital platforms’ position—regardless of the efficiency of those challengers or the ultimate effects on consumers.

E. ‘Leveling Down’ Gatekeepers

The other way that DCRs seek to balance power relations and achieve fairness is by “leveling down” the status of the incumbent digital platforms. DCRs directly and indirectly worsen gatekeepers’ competitive position in at least three ways:

  1. By imposing costs on gatekeepers not borne by competitors;
  2. By negating gatekeepers’ ability to capitalize on key investments; and
  3. By facilitating third parties’ free riding on those investments.

For example, prohibitions on the use of nonpublic (third-party) data benefit competitors, but they also negate the massive investments that incumbents have made in harvesting that data. Similarly, data-sharing obligations impose a cost on gatekeepers because data-tracking and sharing is anything but free. Gatekeepers are expected to aid and subsidize competitors and third parties at little or no cost, thereby diminishing their competitive position and dissipating their resources (and investments) for the benefit of another group. The same can be said, mutatis mutandis, for other staples of digital competition regulation, such as prohibitions on self-preferencing and sideloading mandates.

F. The Perils of Redistributive and Protectionist Competition Regulation

It should be noted, of course, that direct rent redistribution among firms is generally not the goal of competition law. Rent redistribution entails significant risks of judicial error and rent seeking. Regulators may require firms to supply their services at inefficiently low prices that are not mutually advantageous, and may diminish those same firms’ incentives to invest and innovate. Those difficulties are compounded in the fast-moving digital space, where innovation cycles are faster, and yesterday’s prices and other nonprice factors may no longer be relevant today. In short, rent redistribution is difficult to do well in traditional natural-monopoly settings and may be impossible to do without judicial error in the digital world.

Protecting competitors at the expense of competition, as DCRs aim to do, is equally problematic. Competition depresses prices, increases output, leads to the efficient allocation of resources, and encourages firms to innovate. By facilitating competitors—including those that may have fallen behind precisely because they have not made the same investments in technology, innovation, or product offerings—DCRs may dampen incentives to strive to become a so-called gatekeeper, to the ultimate detriment of consumers. Protecting competition benefits the public, but protecting competitors safeguards their special interests at the public’s expense.

This is not only anathema to competition law but also to free competition. As Judge Learned Hand observed 80 years ago in his famous Alcoa decision: “the successful competitor, having been urged to compete, must not be turned upon when he wins.” Critiques of digital competition regulation’s punitive impulse against incumbent platforms flow from this essential premise—which, we contend, is the cornerstone of good competition regulation. The multiplicity of alternative justifications put forward by proponents of such regulations are generally either pretextual or serve as a signal to the voting public. To paraphrase Aldous Huxley: “several excuses are always less convincing than one.”

We end by speculating that digital competition regulation could signal more than just a digression from established principles in a relatively niche, technical field such as competition law. If extended, the DCR approach could mark a new conception of the roles of companies, markets, and the state in society. In this “post-neoliberal” world, the role of the state would not be limited to discrete interventions to address market failures that harm consumers, invoking general, abstract, and reactive rules—such as, among others, competition law. It would instead be free to intercede aggressively to redraw markets, redesign products, pick winners, and redistribute rents; indeed, to function as the ultimate ordering power of the economy.

Ultimately, however, we conclude that it is too early to make any such generalizations, and that only time will tell whether digital competition regulation was truly a sign of things to come, or merely a small but ultimately insignificant abrupt dirigiste turn in the zig-zagging of antitrust history.

Introduction

Inspired by the European Union’s Digital Markets Act (“DMA”),[1] a growing number of jurisdictions around the globe either have adopted or are considering adopting a framework of ex-ante rules to more closely regulate the business models and behavior of online platforms.

These “digital competition regulations”[2] (“DCRs”) share two key features. The first is that they target so-called “gatekeepers” who control the world’s largest online platforms. Such regulations assume that these firms have accumulated a degree of economic and political power that allows them to harm competition, exclude rivals, exploit users, and possibly inflict a broader range of social harms in ways that cannot be adequately addressed through existing competition laws.[3] Typically cited as examples of gatekeepers are the main platforms of Google, Amazon, Facebook/Meta, Apple, and Microsoft.

The second common feature these DCR regimes share is that they impose similar, if not identical, per-se prohibitions and obligations on gatekeepers. These often include prohibitions on self-preferencing and the use of third-party party data, as well as obligations for interoperability and data sharing. These two basic characteristics set DCRs apart from other forms of “digital regulation”—e.g., those dealing with AI,[4] privacy,[5] or content moderation and misinformation.[6]

It is not, however, always entirely clear what DCRs aim to achieve. A cursory survey suggests that these rules pursue different goals, without an immediately apparent unifying theme. For example, some DCRs have been integrated into existing competition laws and ostensibly pursue the same goals: the protection of competition and consumer welfare. Others aim for a range of goals—including, but not limited to, competition—such as the protection of small and medium-sized enterprises (“SMEs”); regional equality; social participation; and improving the lot of business users who operate on online platforms. Some DCRs purposefully and explicitly sidestep competition-oriented considerations, aiming instead for such adjacent but ultimately distinct goals as “fairness” and “contestability.”[7]

What emerges is a seeming patchwork of goals and objectives. In this paper, we seek to assess those disparate goals and objectives, drawing on many of the major proposed and enacted DCRs.

Part I examines the goals that DCRs claim to pursue. It takes those goals at face value and offers a largely descriptive account of the objectives offered. Where necessary (such as, for example, where those goals are cryptic or not clearly articulated), reference is made to public statements by those who promulgated them.

Part II argues that DCRs are best understood as a new form of law, grounded in ideas that have found limited success in competition law itself. To some extent, DCRs are based on a common narrative that has transformed some of the core principles and themes of antitrust law. As such, DCRs partially jibe with antitrust law, but ultimately diverge from it in subtle but consequential ways.

Part III argues that, despite superficial differences, DCRs share three common goals. The first is a desire to redistribute rents from some companies to others. At the most fundamental level, DCRs all seek to address what are perceived to be extreme power imbalances between digital platforms and the rest of society—especially business users and competitors. Thus, they seek to redistribute rents away from so-called “gatekeepers” and toward the business users that operate on those platforms, and to promote competitors (including, but not limited to, via rent redistribution).

DCRs are particularly concerned with ensuring that competitors, even if they are less efficient, enter or remain in the market. This is evidenced by a lack of overarching efficiency or consumer-welfare goals—even in those regulations that are based on existing competition laws—that would otherwise enable enforcers to differentiate between anticompetitive exclusion of rivals and market exit that results from rivals’ inferior product offerings. The focus on protecting competitors also stems from DCRs’ pursuit of “contestability.” In this context, promoting contestability entails diminishing the benefits of the network effects and the data advantages enjoyed by incumbents on the theory that they make it difficult for other firms to compete—not because they are harmful to consumers or because they have been acquired illegally or through deceit.

The third way that DCRs seek to balance power relations and achieve fairness is by “leveling down” the status of the incumbent digital platforms. DCRs worsen the competitive position of gatekeepers in at least three ways:

  1. By imposing costs on gatekeepers not borne by competitors;
  2. By negating their ability to capitalize on key investments; and
  3. By helping third parties to free ride on those investments.

Essentially, gatekeepers are expected to aid and subsidize competitors and third parties at little or no cost. This, in turn, diminishes their competitive position and dissipates their resources (and investments) for the benefit of another group.

Part IV concludes. It speculates that DCRs might signal the advent of a new paradigm in political economy: a redrawing of the existing lines and roles between states, markets, and firms, with greater emphasis on the role of the state as the ultimate ordering power of the economy. In hindsight, one expression of this could turn out to be the overturning (if only partial) of the essential principles of modern competition policy: the protection of competition rather than competitors, a policy emphasis on maximizing economic output rather than rent redistribution among firms, and a commitment to merit, rather than fairness and equity. It is difficult to overstate how deeply at loggerheads this conception of the role of competition is from the existing, predominant paradigm long found in competition law.

I. A Cacophony of Goals in Digital Competition Regulation

Most DCRs pursue multiple overlapping objectives. The global picture is even more complex, as there is only partial overlap among the various goals pursued by DCRs in different jurisdictions.

Some DCRs are an extension of competition-law frameworks and are sometimes even formally embedded into existing competition laws. In principle, this means that the standard goals and rationale of competition law apply. Germany, for instance, recently amended its Competition Act, emphasizing the need to “intervene at an early stage in cases where competition is threatened by certain large digital companies.”[8] According to the Bundeskartellamt:

The newly introduced Section 19a probably represents the most important change as the Bundeskartellamt will now be able to intervene at an early stage in cases where competition is threatened by certain large digital companies. As a preventive measure the Bundeskartellamt can prohibit certain types of conduct by companies which, due to their strategic position and their resources, are of paramount significance for competition across markets.[9]

Similarly, Turkey currently is looking to amend the Turkish Competition Act with the objectives of promoting competition and innovation in digital markets; protecting consumer and business rights; and ensuring that gatekeepers do not engage in anticompetitive practices.[10] Proponents argue that the current Turkish Competition Act is not adequately equipped to address anticompetitive conduct in digital markets—such as, e.g., that the process of defining relevant markets is inappropriate for dynamic and global digital ecosystems and that specific regulations are needed due to the network effects that digital platforms confer.[11] These are all nominally competition-related concerns.[12] Other proposed changes to the Turkish Competition Act similarly reflect an increased emphasis on competition. For instance, in merger analysis, the current “dominance test” would be substituted with a “significant impediment to effective competition test,” similar to that in the EU merger-control regime. A “de minimis” rule would also be added to Article 41 to exempt agreements “that do not significantly impede competition.”

Other DCRs appear, at least to some extent, to pursue competition-law-inspired goals, despite not being formally incorporated into existing competition laws. In South Korea, for example, the Korean Fair Trade Commission (“KFTC”) recently proposed a draft DMA-style bill, the Platform Competition Promotion Act,  whose purpose is establish ex-ante rules to restore competition rapidly in designated markets “without the tedious process of defining a relevant market through economic analysis.”[13] According to the KFTC, digital competition regulation is necessary to combat monopolization in digital markets, where monopolies tend to become entrenched.[14]  As some observers have noted,[15] the Platform Competition Promotion Act covers conduct already addressed by South Korea’s existing Monopoly Regulation and Fair Trade Act.[16] Thus, while the draft bill is likely to be passed as a separate piece of legislation, there appears to be a continuum between it and South Korean competition law.

In the United Kingdom, the 2023 Digital Markets, Competition, and Consumer Bill (“DMCC”) is in the final stages of legislative approval.[17] The DMCC aims to “provide for the regulation of competition in digital markets” and, in theory, dovetails with goals pursued by competition law (it even invokes familiar competition-law themes, such as market power).[18] The DMCC would grant the UK antitrust enforcer, the Competition and Markets Authority (“CMA”), power to take “pro-competition interventions” where it has reasonable grounds to believer there may be an adverse effect on competition.[19]

The DMCC has, however, also been touted as a tool to “stamp out unfairness in digital markets.”[20] This could refer to the bill’s consumer-protection provisions, which would prohibit, inter alia, unfair commercial practices.[21] But it may also suggest that the DMCC goes beyond the remit of traditional competition law, in which “unfairness” is generally not central, except within the relatively narrow confines of the abuse-of-dominance provision under S.18 of the Competition Act.[22]

Further, in a press release welcoming the DMCC draft, the CMA enumerated the bill’s benefits as falling into the three categories of “consumer protection,” “competition,” and “digital markets.”[23] The second category grants the CMA increased powers to “identify and stop unlawful anticompetitive conduct more quickly.”[24] The third, however, proposes that the bill will “[enable] all innovating businesses to compete fairly.”[25] This could imply that competition rules in “digital markets” would be governed by different principles than those that apply in “traditional” markets—that is, those that do not involve the purchase or sale of goods over the internet, or the provision of digital content.[26] The DMCC’s provisions on “digital markets” are also formally separate from those on “competition.”[27]

In Australia, the Australian Competition and Consumers Commission (“ACCC”) is conducting a five-year digital-platform-services inquiry (“DPS Inquiry”), set to be finalized in March 2025.[28] The ACCC recommended, as part of the inquiry’s fifth interim report, service-specific obligations (similar to the UK’s proposed ex-ante rules) for “designated” digital platforms.[29] These would serve to address “anticompetitive conduct, unfair treatment of business users and barriers to entry and expansion that prevent effective competition in digital platform markets.”[30] Thus, alongside competition law’s traditional concerns (e.g., harms and benefits to consumers, innovation, efficiency, and “effective competition”), the ACCC would also incorporate concerns over “fairness” and, especially, the protection of business users.

In the United States, several bills have been put forward that are formally separate from existing antitrust law, but cover some of the same conduct as would typically be addressed under U.S. antitrust law—albeit with seemingly different goals and standards. Some of these new goals and standards represent only slight variations on the usual goals of competition law. Three main pieces of legislation have so far been put forward: the American Innovation and Choice Online Act (“AICOA”),[31] the Open App Market Act (“OAMA”),[32] and the Augmenting Compatibility and Competition by Enabling Service Switch Act (“ACCESS Act”)[33] (together, “U.S. tech bills”).

Although the U.S. tech bills largely fail to describe their underlying goals, the titles of the bills and statements made by their sponsors suggest a set of overlapping concerns, such as preventing “material harm to competition,”[34] reducing “gatekeeper power in the app economy,”[35] and “increasing choice, improving quality, and reducing costs for consumers.”[36] These goals appear to fall relatively well within the traditional remit of antitrust law.

But there are others. According to U.S. Sen. Amy Klobuchar (D-Minn.), the primary sponsor or cosponsor of several of the U.S. tech bills, AICOA is intended to “restore competition online by establishing commonsense rules of the road,” “ensure small businesses and entrepreneurs still have the opportunity to succeed in the digital marketplace,” and “create a more even playing field,” all “while also providing consumers with the benefit of greater choice online.”[37] “Fairness,” “fair prices,” and “innovation” all have also been invoked by the bills’ supporters.[38]

At the same time, for three out of the 10 types of challenged conduct, AICOA would require demonstrating “material harm to competition,” which would suggest that one of that bill’s goals is to protect competition. As the American Bar Association’s Antitrust Section has observed, however, there is no “material harm to competition” standard in U.S. antitrust law.[39] This suggests that AICOA may posit a different interpretation of what it means to protect competition, or of what sort of competition should be protected, than does traditional U.S. antitrust law.

OAMA, on the other hand, aims to open competitive avenues for startup apps, third-party app stores, and payment services in existing digital ecosystems.[40] Its title reads: “to promote competition and reduce gatekeeper power in the app economy, increase choice, improve quality, and reduce costs for consumers.” Unlike AICOA, however, OAMA would not require a showing of harm to competition—material or otherwise—to establish liability, which appears to suggest that competition might be less of a concern than the bill’s title implies.

Finally, the ACCESS Act is intended to “promote competition, lower entry barriers and reduce switching costs for consumers and businesses online.”[41] U.S. Sen. Mark Warner (D-Va.), the bill’s primary sponsor, has said that the ACCESS Act will promote competition, allow startups to “compete on equal terms with the biggest social media companies,” and “level the playing field between consumers and companies” by giving them more control over who manages their privacy.[42] Again, these are antitrust-adjacent objectives, but with a flavor (“equal terms,” “level playing field,” etc.) that is largely foreign to U.S. antitrust law.

Other DCRs pursue a mix of competition and noncompetition goals. The South African Competition Commission’s (“SACC”) Final Report on the Online Intermediation Platforms Market Inquiry, for example, found that remedial actions similar to the ex-ante rules contemplated in the DMA and elsewhere are needed to grant “[g]reater visibility and opportunity for smaller South African platforms” to compete with international players; “[e]nabl[e] more intense platform competition,” offer “more choice and innovation”; reduce prices for consumers and business users; “[p]rovid[e] a level playing field for small businesses selling through these platforms, including fairer pricing and opportunities”; and “[p]rovid[e] a more inclusive digital economy” for historically disadvantaged peoples.[43]

In a similar vein, Brazil’s proposed law PL 2768/2022 (“PL 2768”) pursues an expansive grab-bag of social and economic goals.[44] Article 4 states that targeted digital platforms must operate based on the following principles: freedom of initiative, free competition, consumer protection, a reduction in regional and social inequality, combatting the abuse of economic power, and widening social participation in matters of public interest.[45] In addition, PL 2768 also states as objectives that it will enable access to information, knowledge, and culture; foster innovation and mass access to new technologies and access models; promote interoperability among apps; and enable data portability.[46]

Finally, there are those DCRs that claim not to pursue competition-oriented goals at all. The DMA has two stated goals: “fairness” and “contestability,”[47] and explicitly denies being bound by, or even pursuing, the traditional goals of competition law: protecting competition and consumer welfare.[48] According to the DMA, competition, consumer welfare, and efficiency considerations such as those that underpin antitrust law are not relevant under the new framework. This is, according to the DMA’s text, because the goals of competition law and the DMA “are complimentary but ultimately distinct.”[49]

Interestingly, however, few other DCRs have so steadfastly disavowed competition considerations, even those that copy the DMA’s provisions verbatim. India is a case in point. In 2023, a report by the Standing Committee on Finance argued that, if digital competition regulation was not passed, “interconnected digital markets will rapidly demonstrate monopolistic outcomes that prevent fair competition. This will restrict consumer choice, inhibit business users, and prevent the rise of dynamic new companies.”[50] These concerns jibe with traditional antitrust goals, as indicated inter alia by the report’s title (“anti-competitive practices by big tech companies”). Later, another report—the Report of the Committee on Digital Competition Law (“CDC Report”)—proposed a Draft Digital Competition Bill (“DCB”).[51] According to the CDC Report, DMA-style digital competition regulation was needed to supplement the 2002 Indian Competition Act (“ICA”),[52] which—and here is the interesting part—supposedly also aims to promote “fairness and contestability.”[53]

But the ICA’s stated aims were the protection of competition, the interests of consumers, and free trade.[54] The Report of the High-Powered Expert Committee on Competition Law and Policy (“Raghavan Committee Report”),[55] which served as the basis for the ICA, modernized Indian competition law by moving it away from the structure-based paradigm of the earlier Anti-Monopolies and Restrictive Trade Practices Act of 1969 and toward an economic-effects-based analysis. The Raghavan Committee Report was unequivocal in its support of consumer welfare as the system’s ultimate goal.[56] Moreover, the report advised against a plurality of goals, including, specifically, “bureaucratic perceptions”[57] of equity and fairness, which, it argued, were mutually contradictory, difficult to quantify, and potentially opposed to the sustenance of free, unfettered competition.[58] It is therefore curious, to say the least, that the CDC Report would now, in hindsight, recast the ICA’s goals to support essentially the opposite idea.

The multiplicity of goals and their unclear, partially overlapping relationship with competition law raises questions about how we should think about these laws and, indeed, whether we can even think of them as a coherent, unified group. In the next section, we seek to untangle the nature and classification of digital competition regulation.

II. A New Form of Competition Regulation

DCRs are likely best understood as a new form of competition regulation. As some authors have noted, the precise relationship between competition law and the EU’s DMA is difficult to pinpoint.[59] In a similar vein, it is evident that many DCRs incorporate themes and concepts familiar to the competition lawyer, such as barriers to entry, exclusionary conduct, competitive constraints, monopolistic outcomes, and, in some cases, even market power. At first blush, this may suggest a direct relationship between digital competition regulation and competition law. While not entirely incorrect, that assessment comes with considerable caveats.

In this section, we argue that DCRs are a new form of competition regulation that diverges in subtle but definitive ways from mainstream notions of competition law. In essence, DCRs take plausible competition-law themes and alter and subvert them in fundamental ways, creating what could be described as sector-specific[60] or enforcer-friendly[61] competition laws. Due to their blend of competition principles and prescriptive, top-down regulatory provisions, we have opted for the term “digital competition regulation.” To understand their nature, we must start with their underlying assumptions and the ills they claim to address.

A. The DCR Narrative

A starting assumption of all DCRs is that there is an extreme imbalance of power between large digital platforms and virtually every other stakeholder with whom they deal—from other industries to the businesses that operate on digital platforms to their competitors to, finally, end-users.[62] Even governments are often presumed to be virtually powerless in the face of the depredations of so-called “Big Tech.”[63] The adage that “big tech has too much power” has been almost universally endorsed by proponents of DCRs and strong antitrust enforcement;[64] is explicitly or implicitly embedded into those DCRs;[65] and now also permeates popular discourse, media, and entertainment.[66] The corollary is that asymmetric regulation is needed to help those other actors that have been “dispossessed” by big-tech platforms.

This notion is widespread and underpins a range of other policy proposals, not just DCRs. For example, the EU is considering a “Fair Share” regulation that would address the supposed power imbalance between tech companies and telecommunications operators, by forcing the former to pay for the infrastructure of the latter.[67] Similarly, various “bargaining codes” either already have been adopted or are currently under consideration to force tech companies to pay news publishers. In Australia, the Treasury Laws Amendment (News Media and Digital Platforms Mandatory Bargaining Code) Act 2021 (“Bargaining Code”) was put in place to address the supposed bargaining-power imbalance between digital platforms and news-media businesses.[68]  According to the ACCC, digital-advertisement regulation was necessary to support the sustainability of the Australian news-media sector, “which is essential to a well-functioning democracy.”[69] Laws with a similar rationale have also been passed or are under consideration in other jurisdictions.[70]

All these initiatives originate from the same foundational assumption, which is that tech companies are more powerful than anyone else, and are therefore able to get away with imposing draconian conditions unilaterally that allow them to benefit disproportionately at the expense of all other parties, business users, complementors, and consumers. While it is not always easy to identify a coherent thread running through the rules and prohibitions contained in DCRs and other initiatives to regulate “Big Tech,” a good rule of thumb to understand the unifying logic behind these initiatives is that digital platforms should have less “power,” and other stakeholders should have more “power.”

Sometimes—but by no means always—this also encompasses familiar notions of “market power,” i.e., firms’ ability to profitably raise prices because of the absence of sufficient competition. In fact, in most DCRs, “power” stems from the fact that an online platform is an important gateway for business users to reach consumers.[71] This is considered manifestly evident by the platform’s size, turnover, or “strategic” importance.[72] As Bundeskartellamt (the German competition authority) President Andreas Mundt has put it: “we shouldn’t talk about this narrow issue of price, we should talk about power.”[73]

DCRs embody this principle. They seek to extract better deals for the party or parties that are considered to suffer from an imbalance of bargaining power vis-à-vis digital platforms—such as, for instance, through interoperability and data-sharing mandates. As we argue in Section III, these beneficiaries are intended to be the platform’s business users and competitors.

The reasoning is as follows. The asymmetrical power relations between digital platforms and other actors are presumed to lead to unfair outcomes in how these stakeholders are treated and the ways that rents are allocated across the supply chain. As the DMA explains in its preamble:

The combination of those features of gatekeepers is likely to lead, in many cases, to serious imbalances in bargaining power and, consequently, to unfair practices and conditions for business users, as well as for end users of core platform services provided by gatekeepers, to the detriment of prices, quality, fair competition, choice and innovation in the digital sector.[74]

Once it is accepted that power relations between digital platforms and other stakeholders are unfairly skewed, any outcome resulting from the interaction of the two groups must also, by definition, be “unfair.” For example, under the DMA, “unfairness” is broadly defined as “an imbalance between the rights and obligations of business users where the gatekeeper obtains a disproportionate advantage.”[75] A “fair” outcome would be one in which market participants—including, but not limited to, business users—“adequately” capture the benefits from their innovations or other efforts, something the DMA assumes is currently not taking place due to gatekeepers’ superior bargaining power.

In the world of digital competition regulation, “unfairness” is a foregone conclusion. And, sure enough, the concept of “fairness” is the central normative value driving these regulations. Proponents liberally invoke it[76] and it features prominently in DCRs.[77] This narrative, however, is built on premises that differ markedly from those of antitrust law. We discuss these below.

B. Key Differences in First Principles

The DMA is the original blueprint for all digital competition regulation that has followed in its wake. The DMA’s text states that it is distinct from competition law:

This Regulation pursues an objective that is complementary to, but different from that of protecting undistorted competition on any given market, as defined in competition-law terms, which is to ensure that markets where gatekeepers are present are and remain contestable and fair, independently from the actual, potential or presumed effects of the conduct of a given gatekeeper covered by this Regulation on competition on a given market. This Regulation therefore aims to protect a different legal interest from that protected by those rules and it should apply without prejudice to their application.[78]

Other DCRs are rarely so candid about their break with competition law. On the contrary, some are even outwardly couched in competition-based terms. But in the end, DCRs replicate all or most of the prohibitions and obligations pioneered by the DMA.[79] DCRs also apply largely to the same companies as the DMA or, at the very least, use the same thresholds to establish which companies should be subject to regulation.[80]

This leads to a curious “Schrödinger’s DCR” scenario, where the same substantive rules simultaneously are and are not competition law. In the EU, for example, they are not; but in Turkey and Germany, they are. India’s DCB is a verbatim copy of the DMA, yet it is presented as a specific competition law.[81] This apparent contradiction is salvageable only if one thinks of digital competition regulation neither as competition law, strictu sensu, nor as an entirely separate regulation, but rather, as a partially overlapping tool that regulates competition and competition-related conduct in a different—and sometimes fundamentally different—manner.

Consider the example of the EU. EU competition law seeks to protect competition and consumer welfare. The DMA, on the other hand, is guided by the twin goals of “fairness” and “contestability.” As such, under the DMA (as under all other DCRs) the relevant standards are inverted. Under most DCRs, market power—understood as a firm’s ability to raise praises profitably—is either immaterial or not essential to establish whether a firm is a gatekeeper.[82] The competition-law practice of defining relevant markets on a case-by-case basis to determine whether a company has market power is, therefore, likewise moot.[83]

That approach is instead substituted for a list of pre-determined “core platform services,” which are thought to be sufficiently unique that they necessitate special and more stringent regulation.[84] Notably, and unlike in competition law, this presumption admits no evidence to the contrary. Once a good or service is marked as a core platform service, all a company can do to escape digital competition regulation is to argue either that it is not a gatekeeper, or that its services do not fall into the definition of a core platform service.

A corollary of this is that it is typically irrelevant whether a firm is dominant, or even a monopolist. Instead, DCRs apply to companies with high turnover and many business- or end-users—in other words, to “big” companies or companies people currently rely on or like to use.

Lastly, consumer-welfare considerations, which are central under competition law,[85] play only a marginal role in digital competition regulation, both in imposing prohibitions and mandates and in exempting companies from fulfilling those prohibitions or obligations.[86] While DCR supporters applaud this shift toward a broader conception of power,[87] it is important to understand how this approach differs from competition law.[88]

Competition law generally does not engage companies for being big or “important”—even if they are of “paramount importance”—except in very narrow instances, such as those prescribed by the essential-facilities doctrine.[89] Rather, antitrust targets conduct that restricts competition to the ultimate detriment of consumers. To establish whether a company has the ability and incentive to restrict competition, an assessment of market power is typically required, and definitions of relevant product and geographic markets are instrumental to that end.

Even the concept of dominance in competition law eschews crude arithmetic in favor of evidence-based analysis of market power, including the dynamics of the specific market; the extent to which products are differentiated; and shifts in market-share trends over time.[90] As one leading EU competition-law textbook puts it:

The assessment of substantial market power calls for a realistic analysis of the competitive pressure both from within and from outside the relevant market. A finding of a dominant position derives from a combination of several factors which, taken separately, are not necessarily determinative.[91]

Well-established competition-law principles—such as the prevention of free-riding,[92] the protection of competition rather than competitors,[93] and the freedom of even a monopolist to set its own terms and choose with whom it does business[94]—all preclude the imposition of hard-and-fast prohibitions and obligations without a robust case-by-case analysis or consideration of countervailing efficiencies. The narrow exceptions are those few cases where (substantive) experience shows that per-se prohibitions are warranted. But note that even cartels, “the cancers of the market economy,”[95] can generally be exempted under EU competition law.[96]

There exists no such consensus about the harms inflicted by the sort of gatekeeper conduct covered by DCRs.[97] Yet in digital competition regulation, strict (often per-se) prohibitions and obligations based on a company’s size are the norm.

C. The Transformation of Familiar Antitrust Themes

Even those DCRs that explicitly allude to competition-related objectives—such as the protection of competition and consumers—modify those objectives in subtle, but important ways. The U.S. tech bills are a case in point. AICOA would introduce a new “material harm to competition” standard. This facially sounds like it could be an existing standard under U.S. antitrust law, but it is not.[98]

DCRs also combine traditional competition-law objectives with considerations that would not be cognizable under antitrust law. For example, Brazilian competition law is guided by the constitutional principles of free competition, freedom of initiative, the social role of property, consumer protection, and prevention of the abuse of economic power.[99] PL 2768, however, would add two exogenous elements to these relatively mainstream antitrust goals: a reduction in regional and social inequality and increased social participation in matters of public interest.[100]

Other DCRs—like the UK’s or Australia’s prospective efforts to regulate digital platforms—also combine “fairness” goals with consumer welfare and competition considerations.[101] India’s DCB even offers an ex-post rationalization of competition law that brings it in line with the “fairness and contestability” goals of the new digital competition regulation.[102]

It is also questionable whether the protection of consumers and business users under DCRs accords with antitrust notions of “consumer welfare.” It should be noted that competition law, unlike consumer-protection law, protects consumers only indirectly, through the suppression of anticompetitive practices that may affect them through increased prices or decreased quality. Thus, antitrust law is generally uninterested in a company’s deceptive practices, unless they stem directly from a competitive restraint or the misuse of market power.[103] In this scenario, market power acts as a filter to determine where a company’s conduct can be corrected by market forces, and where intervention may be necessary.[104]

By contrast, most DCRs that claim to protect consumers[105] seek to do so through mandates of increased transparency, explicit consent, choice screens, and the like, imposed independently of market power.[106] While some of the focus on consumers remains (at least nominally), the ways in which DCRs protect consumers are more in line with consumer-protection law than competition law.

As for the protection of business users, according to some interpretations, antitrust law protects both consumers and other trading parties (customers).[107] This could, in principle, also include “business users.” Unlike digital competition regulation, however, antitrust law does not generally protect a predetermined group of businesses such that, for example, business users of online platforms would be afforded special protection. Any trading party—regardless of size, industry, or position in the supply chain, and whether a small developer or a large online platform—could theoretically benefit from the protection afforded by antitrust law to those harmed by the misuse of market power.

D. Partial Conclusion: When Failed Antitrust Doctrine Becomes ‘Groundbreaking’ New Regulation

While digital competition regulation’s approach to competition diverges from that of mainstream competition law, and may even be anathema to it, the arguments it espouses are not new. To the contrary, digital competition regulation, in many ways, codifies ideas that have been repeatedly tried and spurned by competition law.

The fountainhead of these ideas is that size alone should be the determining factor for antitrust action and liability.[108] On this historically recurring view—which is championed today most fervently by American “neo-Brandeisians” and European “ordoliberals”—big business inherently harms smaller companies, consumers, and democracy. It is therefore the role of antitrust law to combat this pernicious influence through structural remedies, merger control, and other interventions intended to disperse economic power.[109]

In a similar vein, digital competition regulation targets companies that, a priori, have little in common. Digital competition regulation applies to information-technology firms that specialize in online advertising, such as Google and Meta, but also to electronics companies that focus on hardware, such as Apple.[110] It covers voice assistants and social media, which are vastly different products. Cloud computing, another “core platform service,” is arguably not even a platform; yet, it was included in the DMA at the 11th hour.[111] In the end, what these “gatekeepers” have in common is that they all enjoy significant turnover, large user bases, are disruptors of legacy industries (such as, for example, news media), and are—possibly for these precise reasons—politically convenient targets.[112]

One corollary of this school of thought is that antitrust law should abandon (or, at least, drastically reduce) its reliance on the consumer-welfare standard as the lodestar of competition.[113] The law’s fixation on consumer welfare, the argument goes, has turned a blind eye to rampant economic concentration and to any form of abuse or exploitation that does not result in decreased output or higher prices.[114] Instead of this “myopic” focus on economic efficiency, proponents argue, antitrust law should strive to uphold a pluralistic market structure, which necessarily implies protecting companies from more efficient competitors.[115] This, they claim, was the Sherman Act’s original intent, which was subverted, in time, by the Chicago School’s emphasis on economic efficiency.[116]

Shunning consumer welfare also has implications for the role of market power in antitrust analysis. At the most fundamental level, competition law is concerned with controlling market power.[117] However, on the neo-Brandeisian view, antitrust’s historical concern with delineating efficient and inefficient market exit gives way to the unitary goal of controlling size and maintaining a certain market structure, regardless of companies’ ability to restrict competition and profitably raise prices.[118] This disenfranchises market power or, at the very least, redefines it as synonymous with size and market concentration.[119] This is familiar ground for digital competition regulation, which, as we have seen, generally does not target companies with market power, but companies with a certain size and “economic significance.”

Throughout antitrust law’s storied history, it has often been argued that antitrust law pursues, or should pursue, a plurality of goals and values.[120] Today, these arguments posit that antitrust law must look beyond a “narrow focus” on consumer welfare,[121] which is still enshrined as the dominant paradigm in most jurisdictions. Some of the alternative goals posited to inform the adjudication of competition-law cases include, but are not limited to, democracy, protection of competitors (especially SMEs), pluralism, social participation, combating undue corporate size, and equality. In turn, many of these goals are mentioned in digital competition regulation. In Section III, we argue that wealth redistribution (equality), the protection of competitors, and combatting size are truly shared goals of DCRs.

Digital competition regulation is a bridge between competition law and regulation. That bridge is built on old but persistent ideas that have found limited success in antitrust law and that have largely been precluded by decades of case-law and the progressively mounting exigencies of robust, effects-based economic analysis.[122] It is therefore perhaps unsurprising that digital competition regulation spurns both in favor or new legislation and per-se rules.

Its break with antitrust law, however, is not total, and was arguably never intended to be. Instead, digital competition regulation revises modern competition law to bring it in line with the regulatory philosophy it seeks to resuscitate, selectively plucking those bits and pieces that conform to that vision, and discarding those that do not.

The partial continuity between competition law and digital competition regulation is not merely hypothetical, either. Consider the example of the DMA. According to EU Commissioner of Competition Margrethe Vestager, “the Digital Markets Act is very different to antitrust enforcement under Article 102 TFEU. First, the DMA is not competition law. Its legal basis is Article 114 TFEU. Therefore, it pursues objectives pertaining to the internal market.”[123]

But observe that the DMA covers conduct identical to that which the Commission has pursued under EU competition law. For instance, Google Shopping is a self-preferencing case that would fall under Article 6(5) DMA.[124] Cases AT.40462 and AT.40703, which related to Amazon’s use of nonpublic trader data when competing on Marketplace, and its supposed bias when awarding the “Buy Box,” would now be caught by Articles 6(2) and 6(5) DMA.[125] The fine issued against Apple for its anti-steering provisions, which would be prohibited by Article 5(4) DMA, mere days before the law’s entry into force, is another case in point.[126]

This casts doubt on the assertion that the DMA and EU competition law are two distinctly different regimes. It suggests instead that the DMA is simply a more stringent, targeted, and enforcer-friendly form of competition regulation, intended specifically to cover certain products, certain companies, and certain markets. Or, as some have put it, “the DMA is just antitrust law in disguise.”[127] Indeed, Australia’s ACCC may have said the quiet part out loud when it contended that its proposed DCR would be both a “compliment to, and an expansion of, existing competition rules.”[128]

Or consider the example of India. In India, digital competition regulation would also be implemented though separate legislation. According to a 2023 report of the Standing Committee on Finance, a “Digital Competition Act”[129] is needed to prevent monopolistic outcomes and anticompetitive practices in “digital markets,” which are thought to differ in important ways from “traditional” markets:

India’s competition law must be enhanced so that it can meet the requirements of restraining anti-competitive behaviours in the digital markets. To that end, it is also necessary to strengthen the Competition Commission of India to take on the new responsibilities. India needs to enhance its competition law to address the unique needs of digital markets. Unlike traditional markets, the economic drivers that are rampant in digital markets quickly result in a few massive players dominating vast swathes of the digital ecosystem.[130]

But it seems that, based on the relevant Report of the Standing Committee on Finance, this new regime would be inspired by goals similar to Indian competition law. One important difference is that, according to Indian ministers, the new Digital Competition Act would adopt a “whole government approach.”[131] Pursuant to the  Digital Competition Act, the government would have the power to override any decisions taken by the Competition Commission of India on public-policy grounds. This, again, underscores the “subtle” but significant differences between the competition regimes that would essentially apply in parallel to digital platforms and all other companies, as India’s Competition Act does not otherwise adopt a “whole government approach” to anticompetitive conduct.[132]

A separate question, beyond the scope of this paper, is whether the sui generis logic of digital competition regulation will eventually be transferred to standard competition law. Now that they have the weight of the law—in jurisdictions like Turkey and Germany, even formally incorporated into competition law—ideas that have hitherto remained at the fringes of mainstream competition law may start to be seen as more respectable. Further, the goals of competition law may even be reconfigured, a posteriori, in accordance with the rationale of digital competition regulation.

This possibility cannot be discarded as entirely hypothetical. For example, Andreas Mundt recently remarked that competition law “has always been about fairness and contestability,”[133] thus de facto extrapolating the logic of the DMA’s sector-specific competition regulation to all competition law.

When populist arguments about equality, fairness, and “anti-bigness” previously have reared their head in competition law, they have largely (though not entirely) failed. It is thus somewhat ironic that such ideas should now be spurred by passage of the DMA, a regulation that is—by its own terms—not even a competition law, sensu proprio.

III. The Real Goals of Digital Competition Regulation

Notwithstanding certain differences, DCRs are largely animated by a common narrative and seek to achieve, on the whole, similar goals. At the most basic level, DCRs seek to tip the balance of power away from digital platforms (see Section IIA); to scatter rents, especially toward app developers and complementors; and to make it easier for potential competitors to contest incumbents’ positions. In this context, traditional antitrust conceptions of competition and consumer welfare are afforded, at best, a ceremonial role.

A. Redistributing Rents Among Firms

Despite the apparent discrepancies identified in Section I, it becomes evident on closer examination that DCRs share a common set of assumptions, rationales, and goals. The first of these goals is direct rent redistribution among firms.

The central conceit of DCRs is that asymmetrical power relations between digital platforms and virtually everyone else produce “unfair” outcomes where, in a zero-sum game, “big tech” gets a big slice of the piece of the pie at the expense of every other stakeholder.[134] Thus, DCRs must step in to reallocate rents across the supply chain, so that other actors receive a share of benefits in line with regulators’ understanding of what constitutes a “fair” distributive outcome.

Indeed, as the OECD has noted, the concept of “fairness” is strongly tied to redistribution.[135] As Pablo Ibanez Colomo wrote of the then-draft DMA: “the proposal is crafted to grant substantial leeway to restructure digital markets and re-allocate rents.”[136] This notion is accepted even by DCR proponents, who have admitted that “the regime is not designed to regulate infrastructure monopolies, but rather to create competition as well as to redistribute some rents.”[137]

As to whom should benefit principally from such interventions, the answer varies across jurisdictions, and may depend on the effectiveness of various groups’ rent-seeking efforts, or the particular country’s political priorities.[138] In countries like Korea and South Africa, there has been an explicit emphasis on SMEs, with attempts made to “equalize” their bargaining position vis-à-vis large digital platforms.[139] Other jurisdictions, such as the EU, emphasize competitors (see Section IIIB) and companies that “depend” on the digital platform to do business—such as, e.g., app developers and complementors that “depend” on access to users through iOS; logistics operators that “depend” on Amazon to reach customers; and shops that “depend” on Google for exposure.[140] Granted, these companies may also be SMEs, but they need necessarily not be.[141] In fact, many of the DMA’s expected beneficiaries, including Spotify, Booking.com, Epic, and Yelp,[142] are not small companies at all.[143]

Elsewhere, it is explicitly recognized that DCRs seek to abet the market position of national companies. Prior to the DMA’s adoption, many leading European politicians touted the act’s text as a protectionist industrial-policy tool that would hinder U.S. firms to the benefit of European rivals. As French Minister of the Economy Bruno Le Maire stated:

Digital giants are not just nice companies with whom we need to cooperate, they are rivals, rivals of the states that do not respect our economic rules, which must therefore be regulated…. There is no political sovereignty without technological sovereignty. You cannot claim sovereignty if your 5G networks are Chinese, if your satellites are American, if your launchers are Russian and if all the products are imported from outside.[144]

This logic dovetails neatly with the EU’s broader push for digital and technology sovereignty, a strategy intended to reduce the continent’s dependence on technologies that originate abroad. This strategy has already been institutionalized at different levels of EU digital and industrial policy.[145] In fact, the European Parliament’s 2020 briefing on “Digital Sovereignty for Europe” explicitly anticipated an ex-ante regulatory regime similar to the DMA as a central piece of that puzzle.[146]

The fact that no European companies were designated as gatekeepers lends credence to theories about the DMA’s protectionist origins.[147] But while protectionism is not explicitly embedded in EU law, it likely will be in South Africa’s digital competition regulation. The understanding of “free competition” that underpins the SACC’s DCR proposal hinges on forcing large, foreign digital platforms to elevate local competitors and complementors, even if it means granting them unique advantages.[148] Moreover, unlike other DCRs, SACC’s proposal explicitly notes that its proposed remedies are designed to redistribute wealth from the targeted digital companies or downstream business users toward certain social groups—namely, South African companies, historically disadvantaged peoples (“HDPs”), and SMEs, especially those owned by HDPs.

For instance, to address the “unfair” advantage enjoyed by larger competitors who are displayed more prominently in Google’s search results and are able to invest in search-engine optimization,[149] the SACC would oblige Google to introduce “new platform sites unit (or carousel) to display smaller SA platforms relevant to the search (e.g., travel platforms in a travel search) for free and augment organic search results with a content-rich display.”[150] In addition, Google would be forced to add a South African flag identifier and South African platform filter to “aid consumers to easily identify and support local platforms in competition to global ones.”[151]

The SACC’s proposal is chock full of similar, blatantly redistributive policies that—despite being formally integrated into competition law—flip its logic on its head by requiring distortions of competition in order to (putatively) preserve undistorted competition. Thus, the SACC’s proposal would require gatekeepers to give free credit to South African SMEs; offer promotional rebates; waive fees; provide direct funding for the identification, onboarding, promotion, and growth of SMEs owned by HDPs; force app stores to have a “local curation of apps” aimed at circumventing “automated curation based on sales and downloads for the SA storefronts, and some geo-relevance criteria”; and ban both volume-based discounts that benefit larger companies (relative to SMEs) and promotions that would otherwise “decimate” local competitors.[152]

One reading is that the SACC’s report deviates from the “standard” in digital competition regulation. Another is that the SACC is simply more forthright about accomplishing the goals implicit in the DMA. Indeed, the SACC targets the same types of digital platforms as the DMA, includes many of the same prohibitions and obligations (e.g., self-preferencing, interoperability, cross-use of data, price parity clauses), and openly references the DMA.[153]

In conclusion, despite some distributional differences, the overarching implication of digital competition regulation is generally the same: competitors and business-users (e.g., app store and app developers in the case of Apple’s iOS; sellers and logistics operators in the case of Amazon’s marketplace; competing search and service providers in the case of Google search) should be propped up by gatekeepers. These parties, DCR proponents argue, should get more and easier access to the platforms, feature more prominently therein, be entitled to a larger slice of the transactions facilitated by those platforms,[154] and pay gatekeepers less (or nothing at all).

In some countries, the beneficiaries are intended to be primarily national companies or SMEs. Ultimately, like many other questions surrounding digital competition regulation, the question of cui bono—who benefits?—is not an economic, but a political one, hinging on whatever parties lawmakers want to favor, and at the expense of whatever parties they wish to disfavor.[155] The bottom line, however, goes back to the same, simple idea: gatekeepers should get less, and other businesses should get more.

Consider, for example, the reaction to Apple’s DMA-compliance plan.[156] Most of the backlash concerned the (frustrated) expectations that Apple would, as a result of the obligations imposed by the DMA, take a smaller cut from in-app payments and paid downloads on its platform.[157] If one strips away the rhetoric, the reaction was not about competitive bottlenecks, competition, fairness, contestability, or any other such lofty ambitions, but about the very simple arithmetic of rent seeking, whereby those who invest in lobbying legislators expect a return on their investments.[158]

Or consider the UK’s DMCC. The DMCC includes a “final offer mechanism” that the CMA can use in some cases where a conduct requirement relating to fair and reasonable payment has been breached, and where the CMA considers other powers would not resolve the breach within a reasonable time period.[159] A key aspect of the mechanism is that the two parties to a transaction (at least one of them being a gatekeeper, or a firm with “strategic market status”) submit suggested payment terms for the transaction. The CMA then decides between the two offers, with no option to take a third or intermediate course.

Under the DMCC, however, this mechanism could be applied to any SMS business relationship with third parties. While, as the British government says, this does not involve “direct price setting,”[160] it does mean the CMA would be empowered to decide between two alternative offers and, thus, will determine the distribution of revenues between gatekeepers and, potentially, any third party.[161]

B. Facilitating Competitors and the Duality of Contestability

DCRs share a common aim not just to protect business users, but to benefit competitors directly.[162] In contrast with modern notions of competition law, which readily accept that protecting competition often forces less-efficient competitors to depart the market,[163] DCRs are chiefly concerned with ensuring that even inferior competitors enter or remain on the market. Simply put: if a designated digital platform acts “unfairly,” its actions are illegal. But it is generally—save limited exceptions—irrelevant whether its behavior is efficient or if it enhances consumer welfare. These are the very questions that typically serve to delineate pro-competitive from anti-competitive conduct in the context of competition law (and competition on the merits from anti-competitive conduct).[164]

This makes sense if one recognizes that digital competition regulation and competition law have fundamentally different goals: the former seeks to make it easier for nonincumbent digital platforms to succeed and stay on the market, regardless of the costs either to consumers or to the regulated platforms; the latter seeks to protect competition to the ultimate benefit of consumers, which often implies (and requires) weeding out laggard competitors (see Section II).[165]

As former Federal Trade Commission (“FTC”) Commissioner Maureen Ohlhausen has observed:

Some recent legislative and regulatory proposals appear to be in tension with this basic premise. Rather than focusing on protection of competition itself, they appear to impose requirements on some companies designed specifically to facilitate their competitors, including those competitors that may have fallen behind precisely because they had not made the same investments in technology, innovation or product offerings. For example, the Digital Markets Act (DMA) would force a ‘gatekeeper’ company to provide business users of its service, as well as those who provide complementary services, access to and interoperability with the same operating system, hardware, or software features that are available to or used by the gatekeeper. While this would restrain gatekeepers and presumably facilitate the interests of the gatekeeper’s rivals, it is not clear how this would protect consumers, as opposed to competitors.[166]

That is because the two kinds of legislation pursue mutually exclusive goals. DCRs aim to facilitate competitors by making covered digital markets more “contestable.” The assumption is that, because consumers consistently use certain dominant platforms, “digital markets” must not contestable, or not sufficiently contestable.[167] The putative reason for this low level of contestability allegedly lies in certain advantages that have accrued to incumbent platforms and that competitors purportedly cannot reasonably replicate, such as network effects, data accumulation, and data-driven economies of scale. Consumer cognitive biases and lock-in are asserted as further cementing incumbents’ positions. Because digital markets are also said to be “winner-takes-all,” the corollary is that currently dominant firms will remain dominant unless regulators intercede swiftly and decisively to bolster contestability.

DCRs seek to achieve this state of contestability by “equalizing” the positions of gatekeepers and competitors in two interconnected ways: by diminishing incumbents’ advantages and by forcing them to share some of those advantages with competitors. Making digital markets more contestable therefore requires undercutting the benefits of network effects and advantages enjoyed by “data-rich” incumbents,[168] not because data harvesting is inherently bad or because incumbents have acquired such data illegally or through deceit; but because it makes it hard for other firms to compete. Contestability—understood as other firms’ ability to challenge incumbent digital platforms’ positions—is therefore put forward as a goal in itself, regardless of those challengers’ relative efficiency or what effects the contestability-enhancing obligations have on consumers (see Section IIID).

It is not hard to see how the deontological focus on contestability is narrowly connected to the protection of competitors. Many, if not most, of the obligations and prohibitions in DCRs are best understood as attempts to improve contestability by facilitating competitors, while stifling incumbents. For instance, data-sharing obligations—such as those included in Article 19a of the German Competition Act and Art.6(j) DMA—make it harder for incumbents to accumulate data, while also forcing them to share the data they harvest with competitors. The objective is clearly not to tackle data harvesting because it is noxious, but to disperse users and data across smaller competitors and thereby make it easier for those competitors to stay on the market and contest the incumbents’ position.

Similarly, so-called “self-preferencing” provisions seek to prohibit designated companies from preferencing their own products’ position ahead of that granted to competitors, even if consumers ultimately benefit from such positioning (e.g., because the incumbent’s package is more convenient).[169]

Interoperability obligations likewise require incumbents to make their products and services compatible with those offered by competitors, often with very limited scope for affirmative defenses grounded solely in objective security and privacy considerations. The logic is that interoperability reduces switching costs and allows competitors to attract more easily the previously “locked-in” users.

There are also prohibitions on the use of data generated by a platform’s business users, which essentially ignore the potentially pro-competitive cost reductions and product improvements that may result from the cumulative use of such data. Instead, the goal is to preclude gatekeepers from outperforming—including through more vigorous competition, such as better products or more relevant offers—the third parties who have generated such data on gatekeepers’ platforms.

Ultimately, what all these provisions have in common is that they primarily seek to increase the number of competitors on the market and to enhance their ability to gain market share at the incumbent’s expense, regardless of the effects on the quality of competition, end products, or concerns related to free-riding on incumbents’ legitimate business investments, superior management decisions, or product design (all of which are considerations that would be cognizable under antitrust law—on which, see Section II).[170] “Contestability” in digital competition regulation thus means an erosion, through regulatory means, of incumbents’ competitive advantages, regardless of how those competitive advantages have been achieved.

Digital competition regulation is therefore inherently competitor-oriented, regardless of its stated goals, and this focus is often enshrined in law in other, subtler ways. For instance, the DMCC explicitly invites potential or actual competitors to provide testimony to the CMA before it imposes or revokes a conduct requirement. It requires the CMA to initiate consultations on the imposition or removal of such conduct requirements (S. 24), as well as on “procompetitive interventions” (S. 48).

The proposed ACCESS Act in the United States likewise gives competitors a privileged seat at the table.[171] According to Sec.4(e) of the bill, if a covered platform wishes to make any changes to its interoperability interface, it must ask the FTC for permission. In deciding the question, the FTC is to consult with a “technical committee” formed by, among others, representatives of businesses that utilize or compete with the covered platform.[172] Representatives of the covered platform also would sit on the technical committee, but have no vote.[173]

Importantly, the FTC’s decision in these matters would be dependent on whether competitors’ interests have been harmed—i.e., “that the change is not being made with the purpose or effect of unreasonably denying access or undermining interoperability for competing businesses or potential competing businesses.”[174] This is tantamount to asking competitors for permission to make product-design decisions on a company’s own platform, based on the vested interests of those competitors.

Finally, less than a month after the DMA’s entry into force, the European Commission launched investigations into four gatekeepers for noncompliance. Critical to the Commission’s decision to investigate these companies was feedback received from stakeholders,[175] most of whom are competing firms who hoped to benefit from its provisions.

C. ‘Levelling Down’ Gatekeepers

There are two ways to promote equality: one is to lift up Party A, the other is to drag down Party B.[176] DCRs typically do both, all in service of suppressing the presumably illegitimate levels of gatekeeper power. In the previous subsection, we argued that DCRs facilitate competitors. But it is just as important to note that they also—sometimes concomitantly and sometimes separately—seek to worsen gatekeepers’ competitive position in at least three ways: by imposing costs on gatekeepers that are not borne by competitors, by negating their ability to capitalize on key investments, and by facilitating free riding by third parties on those investments.

For example, prohibitions on the use of nonpublic third-party data benefit competitors, but they also negate the massive investments made by incumbents to harvest that data. They preclude gatekeepers from monetizing the investments made in their platforms by, say, using that data to improve their own products and product lineup in response to new information about users’ changing tastes. This directly undermines gatekeepers’ competitive position, which depends on their ability to improve and adapt their products (see Section IIID). But this is a feature, not a bug, of DCRs. DCRs seek to dissipate gatekeepers’ “power,” where power does not necessarily mean “market power,” but simply their ability to compete effectively. For example, even if allowing gatekeepers to use nonpublic data would improve their products, to consumers’ ultimate benefit, it would also “harm” competitors in the sense that it would make it harder for them to compete with the gatekeeper. In other words, it would not be anticompetitive, but it would be “unfair.” By contrast, in the moral lexicon of digital competition regulation, free riding and effectively expropriating gatekeepers’ investments is not considered “unfair.”

Nor are data-sharing obligations. Data-sharing obligations clearly impose costs on gatekeepers: tracking and sharing data is anything but free. Nonetheless, gatekeepers are expected to aid and subsidize competitors and third parties at little or no cost,[177] thereby diminishing their competitive position and dissipating their resources (and investments) for the benefit of another group.

Similar arguments can be made about the other prohibitions and obligations that form part of the standard DCR package. Sideloading mandates allow third parties to free ride on gatekeepers’ investments in developing popular and functioning operating systems.[178] Insofar as they worsen gatekeepers’ ability to curate content and monitor safety and privacy risks, they also deprecate platforms’ overall quality and integrity, thereby potentially harming even the very companies they seek to aid.[179] Sideloading and interoperability mandates also essentially turn closed platforms into open ones (or, at the very least, they bring the two much closer together), thus forcing closed platforms to forfeit their competitive benefits relative to the primary alternatives.[180]

Antitrust law is unequivocal in its preference for inter-brand over intra-brand competition.[181] But under digital competition regulation, this principle gives way to a de-facto harmonization toward the model preferred by regulators—i.e., the one that makes every successful platform as open and accessible to competitors as possible, regardless of tradeoffs.

For example, self-preferencing prohibitions destroy one of the primary incentives for (and benefits of) vertical integration, which is the ability to prioritize a company’s own upstream or downstream products.[182] Such prohibitions also allow third parties that without the foresight to invest in a platform to accrue the same benefits as those that have. They also limit a platform’s ability to offer goods whose quality and delivery it can more readily guarantee,[183] another bane for competitiveness recast as a desirable symptom of “fairness and contestability.”

Some DCRs are considerably more candid than others about their intent to hamstring gatekeepers. The Turkish E-Commerce Law includes some provisions that differ from the DMA, despite being evidently inspired by it.[184]  Among those provisions are regulations that would not only prevent electronic-commerce intermediary-service providers (“ECISPs”) from gaining significant market power, but also require that those already in a dominant position must lose this power.[185] Moreover:

Another example of atypical regulations envisaged in the E-Commerce Law is the limitations imposed on the advertising and discount budgets of large-scale ECISPs. Under Additional Article 2/3(a), the annual advertising budget of large-scale ECISPs is limited to the sum of 2% of the amount of 45 Billion Turkish Liras of the net transaction volume of the previous calendar year applied to the twelve-month average Consumer Price Index change rate for the same calendar year and 0.03% of the amount above 45 Billion Turkish Liras. This limit constitutes the total advertising budget for all ECISPs within the same economic unit and for all ECSPs operating in the e-commerce marketplace within the same economic unity.[186]

According to Kadir Bas and Kerem Cen Sanli:

The amended E-Commerce Law goes beyond prohibiting gatekeepers’ behavior that restricts fair and effective competition, and introduces provisions that prevent undertakings in the e-commerce sector from gaining market power through organic internal growth without distorting competition or committing any unfair practices. In this context, the E-Commerce Law gradually imposes obligations and restrictions on undertakings based on their transaction volumes, which are not directly related to market power, and some restrictions significantly limiting the ability to compete are imposed on all undertakings in the sector. When those features of the E-Commerce Law are evaluated together, it can be said that the legislator aims to structurally design the competition conditions and business models in the Turkish e-commerce sector.[187]

Bas and Sanli argue that this distinguishes the E-Commerce Directive from the DMA. While it technically true that the DMA does not impose measures that would, e.g., directly limit a firm’s advertising expenditure or tax additional transactions beyond a certain threshold, it does nevertheless “level down” gatekeepers’ ability to compete and grow organically in other ways. On this view, the Turkish E-Commerce Directive takes the DMA’s logic to its natural conclusion and, much like the SACC’s proposal, simply says the quiet part out loud.

Similarly, the UK’s DMCC is designed to foreclose activities that would otherwise bolster gatekeepers’ “strategic significance.”[188] A company with strategic significance is defined as one that fulfills one or several of the following conditions: has achieved significant size or scale; is used by a significant number of other undertakings in carrying out their business; has a position that allows it to determine or substantially influence the ways in which other undertakings conduct themselves; or is in a position to extend its market power to different activities. At least three of these conditions (the first three) can easily result from organic growth or procompetitive behavior. There are many investments and innovations that would, if permitted, benefit consumers—either immediately or over the longer term—but which may enhance a platform’s “strategic significance,” as defined by the DMCC.[189] Indeed, improving a firm’s products and thereby increasing its sales will often naturally lead to increased size or scale.

The inverse is also true: product improvements, innovation, and efficiencies can result from size or scale.[190] This is especially relevant in the context of digital platforms, where a product’s attractiveness often comes precisely from its size and scope. In two-sided markets like digital platforms, product quality often derives from the direct and indirect network effects that result from adding an additional user to the network. In other words, the more consumers use a product or service, the more valuable that product or service becomes to consumers on both sides of the platform.[191] Capping scale and size thus curtails one of the primary (if not the main) spurs of digital platforms’ growth and competitiveness.

Which, of course, arguably was the intent behind DCRs all along. In this context, some DCRs contain provisions that allow enforcers to impose a moratorium on mergers and acquisitions involving a gatekeeper, even where such concentrations would not ordinarily fall within the scope of merger-control rules.[192]

This degree of animosity may seem puzzling.[193] but one’s priors matter quite a bit here. If one accepts, tout court, the dystopian narrative that casts digital platforms as uniquely powerful, unfair, and abusive (see Section IIA),[194] this punitive approach[195] is understandable and, in a sense, even required.

D. Consumers as an Afterthought

DCRs affect wealth transfers from gatekeepers to other firms (see Section IIIA). But DCRs also affect—or, at least, tacitly accept—wealth transfers from consumers to other firms. First, DCRs generally do not require a finding of consumer harm to intercede. Second, DCRs provide limited scope for efficiency defenses. Generally, only defenses rooted in objective privacy and security concerns are allowed,[196] and even these are subject to a high evidentiary burden.[197]

On the other hand, justifications related to product quality, curation, or that otherwise seek to preserve the consumers’ experience are not typically permitted. For example, the quality-of-life improvements that may come from better curation and selection of apps in a closed platform (e.g., one that does not allow for the sideloading of apps or third-party app stores) are not relevant under the DMA, nor is any other dimension of consumer welfare, including price, quality, aesthetics, or curation. The Turkish DCR goes even further than the DMA, in that does not appear to allow for any exemptions (even on the basis of safety and privacy).[198] The SACC’s proposal likewise does not appear to provide scope for affirmative defenses.

In Australia, the DPI states that exemptions should be put in place to mitigate “unintended consequences.” This could, in principle, include consumer-welfare considerations, but the DPI’s explicit reference to the DMA[199] and various public statements by the ACCC suggest that this is unlikely to be the case. The ACCC said in its Fifth Interim Report that “[t]he drafting of obligations should consider any justifiable reasons for the conduct (such as necessary and proportionate privacy or security justifications).”[200]

The narrow and strict exceptions to the above DCRs confirm the downgraded status of consumer welfare in digital competition regulation (vis-à-vis competition law). German Article 19a, for example, allows for exemptions where there is an “objective justification.”[201] But unlike in every other instance under the German Competition Act, Article 19a reverses the burden of proof and requires the gatekeeper, not the Bundeskartellamt, to prove that the prohibited conduct is objectively justified.

In a similar vein, the AICOA bill in the United States would only require that the plaintiff show “material harm to competition” in provisions related to self-preferencing and service discrimination provisions.[202] The remaining provisions do not contain affirmative-effects requirements, but would not apply if the defendant shows a lack of “material harm to competition.” In other words, the burden of proof is shifted from the plaintiff to the defendant — who must prove a negative.[203]

The UK’s DMCC allows for a “countervailing benefits exception,”[204] which would apply when behavior that breaches a conduct requirement is found to provide sufficient other benefits to consumers without making effective competition impossible, and is “indispensable and proportionate” (s. 29(2)(c)) to the achievement of the benefit.[205] Again, this sets a high bar to clear.[206] For example, a limitation on interoperability might provide a benefit to user security and safety. But the exemption would apply only if the CMA were persuaded that this limitation was the only way to achieve such protection, which could be very hard or impossible to demonstrate.

The marginality of consumer welfare as a relevant policy factor is compounded in the UK by the fact that CMA decisions would only be subject to judicial review. Firms will thus be unable to challenge the authority’s factual assessments on questions such as indispensability and proportionality.[207] Even the chance that such a thing could be shown will be of little value to affected firms since the exemption can apply only once an investigation into a breach of a conduct requirement is underway.[208]

Finally, the Brazilian proposal states that costs, benefits, and proportionality should be observed when establishing an obligation under Art.10, [209] although there is no telling what this would mean in practice, or whether it encompasses consumer welfare (Arts. 10 and 11 of PL 2768 do not mention consumer welfare).[210]

The broader question, however, is whether a pro-consumer approach is even compatible with the overarching goals of digital competition regulation. A corollary of facilitating competitors and levelling down gatekeepers is that successful companies and their products are made worse—often at consumers’ expense. For instance, choice screens may facilitate competitors, but at the expense of the user experience, in terms of the time taken to make such choices. Not integrating products might give a leg up to competing services, but consumers might resent the diminished functionality.[211] Interoperability may similarly reduce the benefits an incumbent enjoys from network effects, but users may prefer the improved safety, privacy, and curation that typically comes with closed or semi-closed “walled-garden” ecosystems, like Apple’s iOS.[212]

In sum, proponents of DCRs appear to see losses in consumer welfare as a valid and potentially even desirable tradeoff for competitors’ increased ability to contest the incumbents’ position, as well as for wealth transfers across the supply chain that are seen as inherently just, equitable, and fair.

E. Partial Conclusion: The Perils of Redistributive and Protectionist Competition Regulation

While competition enforcement can affect the allocation of rents among firms, this is generally not the goal of competition policy. The only rent redistribution that is, in principle, relevant in competition law is the one between companies that misuse their market power and consumers (or, in some cases, trading parties). But the overarching goal is to prevent distortions of competition that result in deadweight loss and transfer consumer surplus to the monopolist, not to allocate resources among a set of hand-picked “big” firms and their smaller rivals in way that legislators or regulators consider “fair.” It is the market, not the government, that determines what is “fair.” Competition laws exist to preserve, not to rewrite, that outcome.

Indeed, even some advocates of incorporating political goals into antitrust law, such as Robert Pitofsky, have opposed using the law to protect small businesses and redistribute income to achieve social goals.[213] This is for good reason. Rent redistribution among firms entails significant risks of judicial error and rent seeking. Regulators may require firms to supply their services at inefficiently low prices that are not mutually advantageous, which may in turn diminish those firms’ incentives to invest and innovate.

DCR backers may retort that rent redistribution is the goal of most natural-monopoly regulations (such as those in the telecommunications and energy-distribution industries), which generally rely on both price regulation and access regimes to favor downstream firms and (ultimately) consumers.[214] But digital markets tend to be very different to those traditionally subject to price regulation and access regimes. And even in those industries, price regulation and access regimes raise many difficulties—such as identifying appropriate price/cost ratios and fleshing out the nonprice aspects of the goods/services or regulated firms.

Those difficulties are compounded in the fast-moving digital space, where innovation cycles are faster and yesterday’s prices and other nonprice factors may no longer be relevant today.[215] In short, rent redistribution is difficult to do well in traditional natural-monopoly settings, and may be impossible to do without judicial error in the digital world.

Assuming that such redistribution was to take place, what would a fair redistribution entail? “Fairness” is subjective and, as such, in the eye of the beholder.[216] Moreover, reasonable people may and often do disagree on what is and is not fair. What is “unfair” for the app distributor who pays a commission to use in-app payments may seem “fair” to the owner of the operating system and the app store that makes significant investments to maintain them.[217] Because fairness is such an inherently elusive concept,[218] DCRs ultimately define “fair” and “unfair” by induction—i.e., from the bottom up, in a “you know it when you see it” approach that is difficult to square with any cogent normative theory or limiting principle.[219]

For example, in response to claims that Apple must allow competing in-app purchases (“IAPs”) on its App Store in order to make its 30% IAP fee more competitive (cheaper), Apple could allow independent payment processors to compete, charge an all-in fee of 30% when Apple’s IAP is chosen and, in order to recoup the costs of developing and running its App Store, charge app developers a reduced, mandatory per-transaction fee (on top of developers’ “competitive” payment to a third-party IAP provider) when Apple’s IAP is not used. Indeed, where such a remedy has already been imposed, that is exactly what Apple has done. In the Netherlands, where Apple is required by the Authority for Consumers and Markets (“ACM”) to uncouple distribution and payments for dating apps, Apple adopted the following policy:

Developers of dating apps who want to continue using Apple’s in-app purchase system may do so and no further action is needed…. Consistent with the ACM’s order, dating apps that . . . use a third-party in-app payment provider will pay Apple a commission on transactions. Apple will charge a 27% commission on the price paid by the user, net of value-added taxes. This is a reduced rate that excludes value related to payment processing and related activities.[220]

The company responded similarly to the DMA.[221] It is not hard to see the fundamental problem with this approach. If a 27% commission plus competitive payment-provider fee permits more “competition,” or is fairer, than complete exclusion of third-party providers, then surely a 26% fee would permit even more competition, or be even fairer. And a 25% fee fairer still. Such a hypothetical exercise logically ends only where a self-interested competitor or customer wants it to end, and is virtually impossible to measure.[222]

Even if it were possible, it would entail precisely the kind of price management that antitrust law has long rejected as being at loggerheads with a free market.[223] Without a measurable market failure, what is the frontier of fairness? When does a complaint stop being a competition or gatekeeper issue and become a private dispute about wanting to pay less—or nothing—for a service?[224]

Another obvious problem with facilitating competitors and levelling down gatekeepers is that it discourages investment, innovation, and competition on the merits. Having been encouraged to bring new, innovative products to market and compete for consumers’ business, successful companies—now branded with the “gatekeeper” epithet—are subject to punitive regulation.[225] The benefits that they have legitimately and arduously acquired are dissipated across the supply chain and their competitors, who lacked the foresight and business acumen to make the same or similar investments, are rewarded for their sluggishness.[226] This stifles the mechanisms that propel competition. As Justice Learned Hand observed almost 80 years ago, “the successful competitor, having been urged to compete, must not be turned upon when he wins.”[227] There is no reason why digital competition regulation should be impervious to that logic.

The abrupt shift from competition law to digital competition regulation also sends investors the wrong message by creating commitment issues.

Commitment issues arise where a government commits itself in one period to behaving in certain ways in the future but, when it comes to a future point in time, reneges on the earlier commitment to reflect its preferences at that later point in time.[228]

For example, today’s gatekeepers have made significant investments in data processing, vertical integration, scaling, and building ecosystems. Many of these investments are sunk, meaning that they can no longer be recouped or can be recouped only partially. With the various DCRs’ entry into force, however, gatekeepers can no longer fully utilize those investments. For instance, they cannot self-preference and thereby reap the full benefits of vertical integration;[229] they cannot use third-party data generated on the platforms they have built and in which they have invested; and they must now allow third-parties and competitors to free ride on those investments in a plethora of ways, ranging from allowing sideloading to mandated data sharing (see Section IIIB).

In dynamic contexts, time-inconsistency can obviously affect firms’ actions and decisions, leading to diminished investments.[230] From a less consequentialist and more deontological perspective, however, it is also questionable how “fair” (to use the mot du jour of digital competition regulation) it is to expropriate a company’s sunk-cost investments by abruptly shifting the regulatory goalposts under a new paradigm of competition regulation that essentially subverts the logic of the previous one, and penalizes what was until recently seen as permissible and even desirable conduct (see Section II).

IV. Conclusion: Beyond Digital Competition Regulation

Aldous Huxley once wrote that several excuses are always less convincing than one.[231] His point was that multiple justifications may often conceal the fact that none of them are entirely convincing in their own right. This maxim aptly captures the doubts that persist surrounding DCRs.

On the surface, DCRs pursue a variety of sometimes overlapping, sometimes contradictory, and sometimes disparate goals and objectives (Section I). Some of these goals and objectives hearken back to familiar antitrust themes, but it would be a mistake to treat DCRs as either an appendix to or extension of competition law (Section II). Unlike mainstream competition laws, DCRs address a moral, rather than an economic failure. DCRs emphasize notions of power that are foreign to competition law, essentially promulgating a new form of competition regulation that subverts the logic, rationale, and goals of the existing paradigm.

This approach to regulating competition may be new, but it is not original. To the contrary, the use of antitrust law to castigate concerns seen as “too big and powerful,” promote visions of social justice, and facilitate laggard competitors (even if it comes at the expense of competition, total, or consumer welfare) have been around since the inception of the Sherman Act.[232] In this sense, those who say that digital competition regulation is not competition law, and should therefore not be judged by competition-law standards, [233] are correct on the form but wrong on the substance.[234] They miss the bigger and more important point, which is that—regardless of its legal classification—digital competition regulation is competition regulation, just not the kind we have known for (at least) the last half a century.

The rationale that underpins digital competition regulation can be explained as follows. (Section III). Competition is no longer about consumer-facing efficiency, but about fairness, equality, and inclusivity. In practice, this means improving the lot of some, while “levelling down” others—regardless of the respective merits or demerits of each group (or their products). In this world, “contestability” is not so much the ability to displace an incumbent through competition on the merits, but very much the reverse. It is about lowering the competitive bar to increase the number of companies on the market—full stop. Whether or not this benefits consumers is largely immaterial, as the normative lodestars of digital competition regulation—fairness and contestability—are seen as having inherent and deontological value and thus removed from any utilitarian calculi of countervailing efficiencies (except, arguably, increases in competitors’ market shares).

Ultimately, however, this “new” approach to competition will have to reckon with the same problems and contradictions as the erstwhile antitrust paradigms from which it draws inspiration. The minefield of redistributive policies is likely to hamstring investment and innovation by targeted digital platforms significantly, while simultaneously encouraging rent-seeking behavior by self-interested third parties. Enabling competitors and purposefully harming incumbents also sends the message that equitable outcomes are preferred to excellence, which could encourage even more free riding and rent seeking and further stifle procompetitive conduct.

Finally, the irony is likely not lost on even the most casual observer that, for regulations so obsessed with “fairness,” it is fundamentally unfair for DCRs to syphon rents away from some companies and into others by fiat; and to force those companies to share their hard-earned competitive advantages with others who have not had the foresight or business acumen to make the same investments in a timely fashion.

It is difficult to overstate how big of a departure from competition law this approach to competition regulation is. But digital competition regulation is potentially more than just a digression from established principles in a relatively niche, technical field like competition law. Under the most expansive version of this interpretation, digital competition regulation heralds a new conception of the role and place of companies, markets, and the state in society.

In this “post-neoliberal” world,[235] the role of the state would not be to address market failures that harm consumers through discrete interventions guided by general, abstract, and reactive rules (such as competition law). Instead, it would be to intercede aggressively to redraw markets, redesign products, pick winners, and redistribute rents; indeed, to act as the ultimate ordering power of the economy.[236] It is not difficult to see how “old” competition-law principles, such as the consumer-welfare standard, effects-based analysis, and the procedural safeguards designed to cabin enforcers’ discretion could disrupt this system.

But for now, this remains just a hypothesis, and some would say—perhaps rightly so—an alarmist one. Yet there are unmistakable signs—as unmistakable as social science will allow—that a new paradigm of political philosophy is in the making: from the rehabilitation of once-maligned industrial policy to the rise of neo-Brandeisianism to recurrent proclamations of the “death of neoliberalism”[237] and its “idols,” including the consumer-welfare standard in antitrust law.[238]

Only time will tell if the digital competition regulation is truly sign of things to come, or merely a small but ultimately insignificant and abrupt dirigiste turn in the zig-zagging of antitrust history.[239] And only time will tell whether the approach to competition regulation promulgated by digital competition regulation will stay confined to the activities of a few large concerns and a handful of core platform services, or whether its logic will, in the end, seep into other spheres of policy and social life.

[1] Regulation (EU) 2022/1925 of the European Parliament and of the Council of 14 September 2022 on Contestable and Fair Markets in the Digital Sector and amending Directives (EU) 2019/1937 and (EU) 2020/1828, 2022 O.J. (L 265) 1 (hereinafter “Digital Markets Act” or “DMA”).

[2] “Digital competition regulation” or “DCR” will be used throughout to refer both to rules already in place and to rules currently under consideration. Context on legislative status will be given where available and appropriate.

[3] The terms “competition law” and “antitrust law” will be used interchangeably.

[4] See, e.g., Proposal for a Regulation of the European Parliament and of the Council Laying Down Harmonised Rules on Artificial Intelligence (Artificial Intelligence Act) and Amending Certain Union Legislative Acts, COM (2021) 206 final (Apr. 21, 2021).

[5] Regulation (EU) 2022/2065 of the European Parliament and of the Council of 19 October 2022 on a Single Market for Digital Services and Amending Directive 2000/31/EC, 2022, O.J. (L 277) 1 (hereinafter “Digital Services Act” or “DSA”).

[6] Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the Protection of Natural Persons with Regard to the Processing of Personal Data and on the Free Movement of Such Data, and Repealing Directive 95/46/EC, 2016 O.J. (L 119) 1 (hereinafter “General Data Protection Regulation” or “GDPR”).

[7] See, e.g., DMA, supra note 1.

[8] Press Release, Amendment of the German Act Against Restraints of Competition, Bundeskartellamt (Jan. 19, 2021), https://www.bundeskartellamt.de/SharedDocs/Meldung/EN/Pressemitteilungen/2021/19_01_2021_GWB%20Novelle.html.

[9] Id.

[10] The Act on the Protection of Competition No. 4054, Official Gazette (Dec. 13, 1994) (Turk.).

[11] See, E-Pazaryeri Platformari Sektor Incelemesi Nihai Raporu, Turkish Competition Authority (2022), available at https://www.tpf.com.tr/dosyalar/2022/06/e-pazaryeri-si-raporu-pdf.pdf (Turkish language only).

[12] Arguably, however, there is an increased emphasis on “business rights.”

[13] See, KFTC Proposes Ex-Ante Regulation of Platforms Under the “Platform Competition Promotion Act,Legal 500 (Jan. 4, 2024), https://www.legal500.com/developments/thought-leadership/kftc-proposes-ex-ante-regulation-of-platforms-under-the-platform-competition-promotion-act.

[14] Park So-Jeong & Lee Jung-Soo, S. Korea Speeds Up to Regulate Platform Giants Such as Google or Apple, The Chosun Daily (Feb. 4, 2024), https://www.chosun.com/english/national-en/2024/02/04/MCCJQZTJ3ZC5JJ7NVDM46D6R2I.

[15] Id.

[16] Monopoly Regulation and Fair Trade Act, Act. No, 3320, Dec. 31, 1980, amended by Act No. 18661, Dec. 28, 2021 (S. Kor.).

[17] Digital Markets Competition and Consumer Bill, 2023-24, H.L. Bill (53) (U.K.)  (hereinafter “DMCC”).

[18] See, e.g., id. at Part 1, S. 2, which defines companies with “strategic market status” as those with “substantial and entrenched market power.” By contrast, Recital 5 of the DMA states: “Although Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU) apply to the conduct of gatekeepers, the scope of those provisions is limited to certain instances of market power, for example dominance on specific markets and of anti-competitive behaviour, and enforcement occurs ex post and requires an extensive investigation of often very complex facts on a case by case basis. Moreover, existing Union law does not address, or does not address effectively, the challenges to the effective functioning of the internal market posed by the conduct of gatekeepers that are not necessarily dominant in competition-law terms.”

[19] DMCC, supra note 18, at Part 1, Chapter 4.

[20] Press Release, New Bill to Stamp Out Unfair Practices and Promote Competition in Digital Markets, UK Competition and Markets Authority (Apr. 25, 2023), https://www.gov.uk/government/news/new-bill-to-stamp-out-unfair-practices-and-promote-competition-in-digital-markets.

[21] DMCC, supra note 18, at Part 4.

[22] Competition Act 1998 c.41 (U.K.).

[23] See Press Release, supra note 21.

[24] Id.

[25] Id. (emphasis added).

[26] The DMCC defines “digital activities” as those involving the purchase or sale of goods over the internet, or the provision of digital content. DMCC, Part 1, S.3.

[27] The provisions on digital markets are covered in Part 1 of the DMCC. DMCC, Part 2 covers competition.

[28] Digital Platform Services Inquiry 2020-25, Australian Competition and Consumer Commission, https://www.accc.gov.au/inquiries-and-consultations/digital-platform-services-inquiry-2020-25 (last accessed May 13, 2024).

[29] Digital Platform Services Inquiry, Interim Report 5, Australian Competition and Consumer Commission (2022), at 5 (“The ACCC recommends a new regulatory regime to promote competition in digital platform services. The regime would introduce new competition measures for digital platforms.”). The term “digital regime” has also been used to describe the authority granted to the UK’s newly created Digital Markets Unit. See Moritz Godel, Mayumi Louguet, Paula Ramada, & Rhys Williams, Monitoring and Evaluating the Digital Markets Unit (DMU) and New Pro-Competition Regime for Digital Markets, London Economics (Jan. 2023), available at https://assets.publishing.service.gov.uk/media/64538076c33b460012f5e65d/monitoring_and_evaluating_the_new_pro-competition_regime_for_digital_markets.pdf.

[30] Digital Platform Services Inquiry, Interim Report 5, id. at 5.

[31] American Innovation and Choice Online Act, S. 2992, 117th Cong. (2022), (hereinafter “AICOA”).

[32] Open App Market Act, S. 2710, 117th Cong. (2022), (hereinafter “OAMA”).

[33] ACCESS Act of 2021, H.R. 3849, 117th Cong. (2021).

[34] AICOA, § 3.

[35] OAMA.

[36] Id.

[37] Press Release, Klobuchar, Grassley, Colleagues to Introduce Bipartisan Legislation to Rein in Big Tech, U.S. Sen. Amy Klobuchar (Oct. 14, 2021), https://www.klobuchar.senate.gov/public/index.cfm/2021/10/klobuchar-grassley-colleagues-to-introduce-bipartisan-legislation-to-rein-in-big-tech. The bill’s title is somewhat ambiguous, as it reads: “to provide that certain discriminatory conduct by covered platforms shall be unlawful, and for other purposes.” See AICOA, supra note 36.

[38] See id.

[39] Comments of the American Bar Association Antitrust Law Section Regarding the American Innovation and Choice Online Act (S. 2992), American Bar Association Antitrust Law Section (Apr. 27, 2022) at 5, available at https://appliedantitrust.com/00_basic_materials/pending_legislation/Senate_2021/S2992_aba_comments2022_04_27.pdf (hereinafter “ABA Letter”).

[40] Press Release, Klobuchar Statement on Judiciary Passage of Legislation to Set App Store Rules of the Road, U.S. Senator Amy Klobuchar (Feb. 3, 2022), https://www.klobuchar.senate.gov/public/index.cfm/2022/2/klobuchar-statement-on-judiciary-committee-passage-of-legislation-to-set-app-store-rules-of-the-road.

[41] This is stated in the title of the bill. The ACCESS Act also claims to “encourage entry by reducing or eliminating the network effects that limit competition with the covered platform.” See ACCESS ACT at § 6(c).

[42] Press Release, Lawmakers Reintroduce Bipartisan Legislation to Encourage Competition in Social Media, U.S. Sen. Mark R. Warner (May 25, 2022), https://www.warner.senate.gov/public/index.cfm/2022/5/lawmakers-reintroduce-bipartisan-legislation-to-encourage-competition-in-social-media; see also, The ACCESS Act of 2022, U.S. Senator Mark R. Warner, available at https://www.warner.senate.gov/public/_cache/files/9/f/9f5af2f7-de62-4c05-b1dd-82d5618fb843/BA9F3B16A519F296CAEDE9B7EFAB0B7A.access-act-one-pager.pdf.

[43] Online Intermediation Platforms Market Inquiry, Summary of Final Report and Remedial Actions, South African Competition Commission (2023), 13, available at https://www.compcom.co.za/wp-content/uploads/2023/07/CC_OIPMI-Summary-of-Findings-and-Remedial-action.pdf.

[44] Projeto de Lei PL 2768/2022, https://www.camara.leg.br/proposicoesWeb/fichadetramitacao?idProposicao=2337417 (Braz.) (Portuguese language only).

[45] Id. at Art. 4.

[46] Id. at Art. 5.

[47] DMA, supra note 2 at recitals 2, 31. On the two objectives being intertwined, see Recital 34.

[48] Id., at Recital 10.

[49] Id.

[50] Anti-Competitive Practices by Big Tech Companies, Fifty Third Report, Standing Committee on Finance, 17th Lok Sahba (India), (2022-23), available at https://eparlib.nic.in/bitstream/123456789/1464505/1/17_Finance_53.pdf, at 29.

[51] Report of the Committee on Digital Competition Law (India), Annexure IV: Draft Digital Competition Bill (2024), https://www.mca.gov.in/bin/dms/getdocument?mds=gzGtvSkE3zIVhAuBe2pbow%253D%253D&type=open.

[52] The Competition Act, No. 12 of 2003, INDIA CODE (1993).

[53] CDC Report, at 4, 42.

[54] ICA, preamble. The ICA does not mention “contestability.”

[55] Report of the High-Powered Expert Committee on Competition Law and Policy (India) (1999), available at https://theindiancompetitionlaw.wordpress.com/wp-content/uploads/2013/02/report_of_high_level_committee_on_competition_policy_law_svs_raghavan_committee.pdf.

[56] Raghavan Committee Report, at 1.1.9. “The ultimate raison d’être of competition is the interest of the consumer”; see also at 1.2.0.

[57] Raghavan Committee Report, at 2.4.1.

[58] Raghavan Committee Report, at 3.2.8. “If multiple objectives are allowed to rein in the Competition Policy, conflicts and inconsistent results may surface detriment to the consumers… In addition, such concerns as community breakdown, fairness, equity and pluralism cannot be quantified easily or even defined acceptably… it needs to be underscored that attempts to incorporate such concerns may result in inconsistent application and interpretation of Competition Policy, besides dilution of competition principles. The peril is that the competitive process may be undermined, if too many objectives are built into the Competition Policy and too many exemptions/exceptions are laid down in dilution of competition principles.”

[59] See, e.g., Pelle Beems, The DMA in the Broader Regulatory Landscape of the EU: An Institutional Perspective, 19 Eur. Comp. J. 1, 27 (2023); Pierre Larouche & Alexandre De Streel, The European Digital Market: A Revolution Grounded on Traditions, 12 J. Eur. Comp. L. & Practice 542, 542 (2021) (arguing that the DMA’s conceptual nature is in a “difficult epistemological position”).

[60] See Nicolas Petit, The Proposed Digital Markets Act (DMA): A Legal and Policy Review, 12 J. Eur. Competition L. & Practice 529, 530 (2021) (“The DMA is essentially sector-specific competition law.”). The DMA’s competition-law DNA is also explicitly reflected in Section 1.4.1 of the Legislative Financial Statement, which is annexed to the DMA proposal. See id. (“The general objective of this initiative is to ensure the proper functioning of the internal market by promoting effective competition in digital markets.”). See also Beems, supra note 62, at 27 (“In my view, it could be desirable to qualify the DMA as a specific branch of competition law that applies to gatekeepers.”).

[61] See Giuseppe Colangelo, The European Digital Markets Act and Antitrust Enforcement: A Liaison Dangereuse, 5 Eur. L. Rev., 597, 610 (2022) (“In service of this goal of speedier enforcement, the DMA dispenses with economic analysis and the efficiency-oriented consumer welfare test, substituting lower legal standards and evidentiary burdens.”). See also Pablo Iba?n?ez Colomo, The Draft Digital Markets Act: A Legal and Institutional Analysis, 12 J. Eur. Competition L. & Practice 561, 566 (2021).

[62] It should be underscored that “power” here means something much broader and general than the narrow concept of “market power” under competition law. Unlike “market power,” assertions that so-called “Big Tech” wield “power” are not intended to invoke a state-of-the art term, but rather are general references to companies’ size, resources, and capacity. Neo-Brandeisians like Lina Khan and Tim Wu often refer to the “power” of Big Tech in such terms. See generally Tim Wu, The Curse of Bigness: Antitrust in the Gilded Age (2018). For Wu, like Khan, the harmful “power” of Big Tech refers not just to concentrated economic power or market power, but to a range of other mechanisms by which these firms allegedly hold sway over democracy, elections, and society at-large. See also Zephyr Teachout & Lina Khan, Market Structure and Political Law: A Taxonomy of Power, 9 Duke J. Const. L. & Pub. Pol’y 37,74 (2014).

[63] See, e.g., Joshua Q. Nelson, Joe Concha: “Big Tech is More Powerful than Government” in Terms of Speech, Fox News (Jan. 27 2021), https://www.foxnews.com/media/joe-concha-big-tech-more-powerful-government-speech; How 5 Tech Giants Have Become More like Governments than Companies, Fresh Air (Oct. 26, 2017), https://www.npr.org/2017/10/26/560136311/how-5-tech-giants-have-become-more-like-governments-than-companies (“New York Times tech columnist Farhad Manjoo warns that the ‘frightful five’—Amazon, Google, Apple, Microsoft and Facebook—are collectively more powerful than many governments.”).

[64] See, e.g., Press Release, Klobuchar, Grassley Statements on Judiciary Committee Passage of First Major Technology Bill on Competition to Advance to Senate Floor Since the Dawn of the Internet, U.S. Sen. Amy Klobuchar (Jan. 20, 2022), https://www.klobuchar.senate.gov/public/index.cfm/2022/1/klobuchar-grassley-statements-on-judiciary-committee-passage-of-first-major-technology-bill-on-competition-to-advance-to-senate-floor-since-the-dawn-of-the-internet (“Everyone acknowledges the problems posed by dominant online platforms.”).

[65] See, e.g., DMA recitals 3, 4, 33, and 62.

[66] See, e.g., The Social Dilemma (Exposure Labs, Argent Pictures & The Space Program, 2020); Tech Monopolies: Last Week Tonight with John Oliver (HBO, 2022); Yanis Varoufakis, Technofeudalism: What Killed Capitalism (2023); Shoshana Zuboff, The Age of Surveillance Capitalism: The Fight for a Human Future at the New Frontier of Power (2019).

[67] See Luca Bertuzzi, EU Commission Launches Connectivity Package with ‘Fair Share‘ Consultation, EurActiv (Feb. 28, 2023), https://www.euractiv.com/section/digital/news/eu-commission-launches-connectivity-package-with-fair-share-consultation; see also Daniele Condorelli, Jorge Padilla, & Zita Vasas, Another Look at the Debate on the “Fair Share” Proposal: An Economic Viewpoint, Compass Lexecon (2023), available at https://www.telefonica.com/en/wp-content/uploads/sites/5/2023/05/Compass-Lexecon-Report-on-the-fair-share-debate.pdf. On the supposed bargaining-power imbalance between large traffic originators and telecommunications companies, see id. at point 1.34(d). “There is a risk that the current unregulated arrangements result in no payments from LTOs due to asymmetries of information between industry participants, free-riding among LTOs, and the large imbalance in bargaining power between LTOs and TELCOs.” See also id. at points 3.77, 3.78 and 3.79-3.84 for the argument that the power imbalances require intervention. For a different view of “fair share,” see Giuseppe Colangelo, Fair Share of Network Costs and Regulatory Myopia: Learning from Net Neutrality Mistakes, Int’l. Ctr. for Law & Econ. (Jul. 18, 2023) (forthcoming in Law, Innovation and Technology), available at https://ssrn.com/abstract=4452280.

[68] See Treasury Laws Amendment (News Media and Digital Platforms Mandatory Bargaining Code) Act 2021 (Austl.); for a defense of legislation forcing digital platforms to compensate media companies, see Zephyr Teachout, The Big Unfriendly Tech Giants, The Nation (Dec. 25, 2023), https://www.thenation.com/article/society/big-tech-nondiscrimination.

[69] News Media Bargaining Code, Australian Competition and Consumer Commission, https://www.accc.gov.au/focus-areas/digital-platforms/news-media-bargaining-code/news-media-bargaining-code (last accessed May 14, 2024).

[70] See, e.g., Journalism and Competition Preservation Act of 2023, S. 1094, 118th Cong. (2023); Online News Act (S.C. 2023, c.23) (Can.).

[71] See, e.g., DMA at recitals 1, 15, 20, 62, and Art.1(b); DMCC at s.6(b); PL 2768 at Art. 2, which defines the regulation’s targets as companies with the “power to control essential access”; Competition Act in the version published on 26 June 2013 (Bundesgesetzblatt (Federal Law Gazette) I, 2013, p. 1750, 3245), as last amended by Article 1 of the Act of 25 October 2023 (Federal Law Gazette I, p. 294), Art.19(a) (1)5 (Ger.) (hereinafter “German Competition Act”).

[72] See, e.g., DMA at Recital 23, Art.3 and Art.3(8)(a); DMCC at s.6(a); German Competition Act, Art.19(a); but see DSA, Section 5, which imposes special obligations on “very large online platforms.”

[73] “From Price to Power”? Reorienting Antitrust for the New Political Economy, panel at Antitrust, Regulation and the Next World Order conference, Youtube.com (Feb. 2, 2024), https://www.youtube.com/watch?v=rWNIhGA8Rx8&ab_channel=Antitrust%2CRegulationandtheNextWorldOrder.

[74] DMA, at recital 4 (emphasis added).

[75] DMA, at recital 33.

[76] See Press Release, Digital Markets Act: Commission Welcomes Political Agreement on Rules to Ensure Fair and Open Digital Markets, European Commission (Mar. 25, 2022), https://ec.europa.eu/commission/presscorner/detail/en/ip_22_1978 (“What we want is simple: Fair markets also in digital. We are now taking a huge step forward to get there—that markets are fair, open and contestable…. This regulation, together with strong competition law enforcement, will bring fairer conditions to consumers and businesses for many digital services across the EU.”) (emphasis added); see also Press Release, Klobuchar, Grassley, Colleagues to Introduce Bipartisan Legislation to Rein in Big Tech, U.S. Sen. Amy Klobuchar (Oct. 14, 2021), https://www.klobuchar.senate.gov/public/index.cfm/2021/10/klobuchar-grassley-colleagues-to-introduce-bipartisan-legislation-to-rein-in-big-tech (joint statement by Sens. Amy Klobuchar and Chuck Grassley with references to “fair competition,” “fair prices,” “unfairly preferencing their own products,” “fairer prices,” “unfairly limiting consumer choices,” “fair rules for the road”).

[77] For example, the DMA mentions the term “fairness,” or some variation thereof, 90 times in 66 pages.

[78] DMA, at Recital 11 (emphasis added).

[79] See DMA, Arts. 5-7.

[80] See DMA, Art. 3.

[81] CDC Report, at 2.

[82] See, e.g., German Competition Act, at Section 19a(1), stating that, in determining the paramount significance for competition across an undertaking’s markets, there shall be particular account taken of its dominant position; financial strength or access to other resources; vertical integration; access to data relevant to competition; and the relevance of its activities for third-party access to supply and sales markets. See also DMCC, at S. 5 and S.6 (substantial and entrenched market power is a cumulative criterion, together with a position of strategic significance); DMA, at Recital 5 and Art. 3 (market power is irrelevant because the criteria for designation are (a) having a significant impact on the internal market; (b) providing a core platform service that is an important gateway for business users to reach end users; and (c) enjoying an entrenched and durable position). PL 2768 does not mention market power, and instead references control of essential access; the U.S. tech bills do not define covered platforms on the basis of market power either.

[83] The DMA explicitly rejects it. See Recital 23.

[84] Examples include online-intermediation services, online search engines, online social-networking services, and video-sharing platform services. See DMA, at Art. 2.

[85] See Elise Dorsey, Geoffrey A. Manne, Jan M. Rybnicek, Kristian Stout, and Joshua D. Wright, Consumer Welfare & the Rule of Law: The Case Against the New Populist Antitrust Movement, 47 Pepp. L. Rev. 861, 916 (2020).

[86] There are some exceptions to this. Some digital competition regulations seem to incorporate consumer-welfare considerations. One example is the KFTC’s recently proposed digital competition regulation, which is putatively aimed at protecting business users and consumers, and would allow for an efficiency defense. See Lee & Ko, supra note 21.

[87] See supra note 76.

[88] See infra Sections II.C and II.D.

[89] On the essential-facilities doctrine in the United States, see Philip K. Areeda, Essential Facilities: An Epithet in Need of Limiting Principles, 58 Antitrust L.J. 841 (1990); ever since the Supreme Court’s ruling in Trinko, no plaintiff has successfully litigated an essential-facilities claim to judgment. See, Verizon Communications, Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398 (2003) (“As a general matter, the Sherman Act “does not restrict the long recognized right of [a] trader or manufacturer engaged in an entirely private business, freely to exercise his own independent discretion as to parties with whom he will deal.’”) (citations omitted).

[90] Communication from the Commission — Guidance on the Commission’s enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings (2009), at recital 13.

[91] Richard Whish & David Bailey, Competition Law (10th ed. 2021), at 142-3.

[92] See, e.g., Christopher M. Seelen, The Essential Facilities Doctrine: What does it Mean to be Essential? 80 Marq. L. Rev. 1117, 1123 (1997), discussing free-riding and the moral-hazard considerations implicit in defining essential facilities as essential to a competitor, rather than to competition. (“[A]pplication of the doctrine often focuses unduly on the effect of the denial of access on the plaintiff’s ability to compete-not on the infringement of competition which is the objective of the antitrust law.” (citations omitted), and at 1124 (“There exists a moral hazard when plaintiffs bring an essential facility claim against a single competitor. Indeed, firms might try to use the doctrine to take a ‘free ride’ on the efforts of a competitor.”). See also, Verband Deutscher Wetterdienstleister v. Google, Reference No. 408 HKO 36/13, Court of Hamburg (Apr. 4, 2013), 4, available at http://deutschland.taylorwessing.com/documents/get/150/court-order-googleweatherinbox-english-unofficial-translation.pdf (“[A]pplicant’s members have been participating and will continue to participate in Google Search as ‘free riders.’ They demand favorable positioning without offering compensation.”); Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36 (1977) (applying the rule of reason to territorial restrictions because they might be imposed by a manufacturer who wishes to prevent dealers from free-riding on point-of-sale services provided by another dealer).

[93] See, e.g., Brown Shoe Co. v. United States, 370 U.S. 294, 344 (1962) (“It is competition, not competitors, which the Act protects.”). See also Donna E. Patterson and Carl Shapiro, Transatlantic Divergence in GE/Honeywell: Causes and Lessons, Antitrust 18 (2001); Maureen K. Ohlhausen & John M. Taladay, Are Competition Officials Abandoning Competition Principles?, 13 J. Comp. L. & Practice 463 (2022).

[94] See, e.g., Trinko at 408; Pac. Bell Tel. Co. v. Linkline Commc’ns, Inc., 555 U.S. 438, 448 (2009); Chavez v. Whirlpool Corp., 113 Cal. Rptr. 2d, 182-83 (Ct. App. 2001); Foremost Pro Color, Inc. v. Eastman Kodak Co., 703 F.2d 534, 545 (9th Cir. 1983) (“The antitrust laws [do] not impose a duty on [firms] . . . to assist [competitors] . . . to ‘survive or expand.’”) (citations omitted).

[95] Mario Monti, Speech at the Third Nordic Competition Policy Conference, Stockholm: Fighting Cartels Why and How? Why Should We be Concerned with Cartels and Collusive Behaviour? (Sept. 11, 2000); see also Trinko at 408 (characterizing cartels as “the supreme evil of antitrust”).

[96] Although there is a rebuttable presumption to the contrary, undertakings can argue that agreements containing hardcore restrictions should benefit from an individual exemption under Article 101(3) TFEU. See Judgment of 13 October 2011, Pierre Fabre, C?439/09, ECLI:EU:C:2011:649. Moreover, “hardcore restrictions,” like cartels, need to be restrictions of competition “by object,” within the meaning of Art. 101(1) TFEU. Undertakings can hence try to demonstrate that a given hardcore restriction, examined in its economic and legal context, is objectively justified and does not fall within the prohibition laid down in Article 101(1) TFEU. See Opinion of Advocate General Wahl delivered on 16 July 2017, Coty, C-230/16, ECLI:EU:C:2017:603.

[97] For an extensive set of views opposing those endorsed by proponents of digital competition regulations, see, e.g., The Global Antitrust Institute Report on the Digital Economy (Joshua D. Wright & Douglas H. Ginsburg, eds., Nov. 11, 2020), https://gaidigitalreport.com.

[98] See ABA letter, supra note 41.

[99] Law No. 12.529 of 30 November, 2011 (Braz.), available at https://www.icao.int/sustainability/Documents/Compendium_FairCompetition/LACAC/LAW_12529-2011_en.pdf.

[100] PL 2768, art. 4.

[101] See Section I.

[102] See Section I.

[103] See, e.g., Rambus v. Fed. Trade Comm’n, 522 F.3d 456, 459 (D.C. Cir. 2008) (“[D]eceit merely enabling a monopolist to charge higher prices than it otherwise could have charged—would not in itself constitute monopolization.”). See also Judgment of 4 August 2023, Meta Platforms v. Bundeskartellamt, Case C 252-21, ECLI:EU:C:2023:537.

[104] For example, where a small company increases prices or downgrades its product, this can generally be corrected through competition, as the company will lose market share and be forced out of the market unless it changes its behavior. But when the same outcome is achieved through restrictions of competition or the misuse of market power, the market may be unable to respond effectively, and intervention may become necessary.

[105] We question whether this was ever the true intent behind digital competition regulation, see Section IIII.C.

[106] See also Section IIB.

[107] See, e.g., Svend Albaek, Consumer Welfare in EU Competition Policy, in Aims and Values in Competition Law, 67, 75 (Caroline Heide-JørgensenUlla NeergaardChristian Bergqvist, & Sune T. Poulsen eds., 2013) (“In practice it turns out that we should understand ‘consumers’ as customers rather than ‘real’ or ‘final’ consumers. Paragraph 84 of the General Guidelines takes a first step towards clarifying this: ‘[C]onsumers within the meaning of Article 81(3) are the customers of the parties to the agreement and subsequent purchasers.”); see also Article 102 (c) TFEU, which prohibits dominant companies from “applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage” (emphasis added). For a U.S. perspective, see, e.g., Kenneth Heyer, Welfare Standards and Merger Analysis: Why Not the Best? 2 Comp. Pol’y Int’l 29 (2006).

[108] In the United States, the clearest exponent of these ideas was Justice Louis D. Brandeis, who coined the term “curse of bigness” to refer to the material, social, and political ills that accompanied large corporations. See, e.g., Louis D. Brandeis, The Curse of Bigness: Miscellaneous Papers of Louis D. Brandeis (Osmond K. Fraenkel ed., 1934); in Europe, the notion is associated with the ordoliberal school. See, e.g., Wilhelm Roepke, A Humane Economy: The Social Framework of the Free Market (2014) at 32 (“If we want to name a common denominator for the social disease of our times, then it is concentration”).

[109] See, e.g. Wu, 2018 supra note 65; Sally Lee, Tim Wu Explains How Big Tech is Crippling Democracy, Columbia Magazine (Spring 2019) https://magazine.columbia.edu/article/how-mega-corporations-are-crippling-democracy. Asked whether bigness must be bad by its very nature, Tim Wu replies: “well, it’s designed to put its own interests over human interests, to grow like a cancer, and to never die. I once heard someone say that if a corporation were a person, it would be a sociopath. Which brings us to the real question: who is this country for? For humans or these artificial entities?”; See also Khan & Teachout, 2014, supra note 65, at 37. “Ever-increasing corporate size and concentration undercut democratic self-governance by disproportionately influencing governmental actors, as recognized by campaign finance reformers.”; and at 40-1. “Antitrust means, for us, government power to limit company size and concentration; this incarnation is an ethos, not a legal term.”

[110] See, e.g., Amanda Lotz, “Big Tech” Isn’t One Big Monopoly — It’s 5 Companies All in Different Businesses, The Conversation (Mar. 23, 2018), https://theconversation.com/big-tech-isnt-one-big-monopoly-its-5-companies-all-in-different-businesses-92791; Isobel A. Hamilton, Tim Cook Says He‘s Tired of Big Tech Being Painted as a Monolithic Force That Needs Tearing Apart, Business Insider (May 7, 2019), https://www.businessinsider.com/apple-ceo-tim-cook-tired-of-big-tech-being-viewed-as-monolithic-2019-5. (“Tech is not monolithic. That would be like saying ‘all restaurants are the same,’ or ‘all TV networks are the same.’”) See also Nicolas Petit, Big tech and the Digital Economy: The Moligopoly Scenario (2022); Frank H. Easterbrook, Cyberspace and the Law of the Horse, 1996 U. Chi. Leg. Forum 207 (1996).

[111] See Friso Bostoen, Understanding the Digital Markets Act, 68 Antitrust Bull. 263, 282 (2023) (“It is difficult to find a common thread here. For starters, NIICS and cloud services are one-sided rather than multisided, so they can hardly be core platform services”).

[112] See Lazar Radic, Gatekeeping, the DMA, and the Future of Competition Regulation, Truth on the Market (Nov. 8, 2023), https://truthonthemarket.com/2023/11/08/gatekeeping-the-dma-and-the-future-of-competition-regulation. On tech disruption of traditional industries, see Adam Hayes, 20 Industries Threatened by Tech Disruption, Investopedia (Jan. 23, 2022), https://www.investopedia.com/articles/investing/020615/20-industries-threatened-tech-disruption.asp; on the bipartisan hostility toward “Big Tech” in the United States, see Nitasha Tiku, How Big Tech Became a Bipartisan Whipping Boy, Wired (Oct. 23, 2017), https://www.wired.com/story/how-big-tech-became-a-bipartisan-whipping-boy.

[113] See, e.g., Lina Khan, Amazon’s Antitrust Paradox, 126 Yale L.J. 710 (2017); Zephyr Teachout & Lina Khan, Market Power and Political Law: A Taxonomy of Power, 9 Duke J. Const. L. & Pub. Pol’y 37 (2014); Kirk Ott, Event Notes: The Consumer Welfare Standard is Dead, Long Live the Standard, ProMarket (Nov.1, 2022), https://www.promarket.org/2022/11/01/event-notes-the-consumer-welfare-standard-is-dead-long-live-the-standard; Zephyr Teachout, The Death of the Consumer Welfare Standard, ProMarket (Nov. 7, 2023), https://www.promarket.org/2023/11/07/zephyr-teachout-the-death-of-the-consumer-welfare-standard.

[114] See, e.g., Rana Foohar, The Great US-Europe Antitrust Divide, Financial Times (Feb. 5, 2024), https://www.ft.com/content/065a2f93-dc1e-410c-ba9d-73c930cedc14.

[115] Neo-Brandeisians often argue that antitrust law should strive to uphold a dispersed market structure and protect small business. See, e.g., Lina Khan & Sandeep Vaheesan. Market Power and Inequality: The Antitrust Counterrevolution and its discontents, 11 Harv. L. & Pol’y Rev. 235 (2017), at 237. “Antitrust laws must be reoriented away from the current efficiency focus toward a broader understanding that aims to protect consumers and small suppliers from the market power of large sellers and buyers, maintain the openness of markets, and disperse economic and political power.”

[116] See Khan & Vaheesan, supra note 122 at 236-7 (2017). “Antitrust laws historically sought to protect consumers and small suppliers from noncompetitive pricing, preserve open markets to all comers, and disperse economic and political power. The Reagan administration—with no input from Congress—rewrote antitrust to focus on the concept of neoclassical economic efficiency”; and, at 294, “It is important to trace contemporary antitrust enforcement and the philosophy underpinning it to the Chicago School intellectual revolution of the 1970s and 1980s, codified into policy by President Reagan. By collapsing a multitude of goals into the pursuit of narrow ‘economic efficiency,’ both scholars and practitioners ushered in standards and analyses that have heavily tilted the field in favor of defendants.”

[117] See, e.g., Nicolas Petit, Understanding Market Power (Robert Schuman Centre for Advanced Studies Working Paper No. RSC 14, 1, 2022) (“Antitrust laws are concerned with undue market power. In an economic conception of the law, antitrust rules of liability strike down anticompetitive business conduct or mergers that represent illegitimate market power strategies.”).

[118] On inefficient and efficient market exit, see Dirk Auer & Lazar Radic, The Growing Legacy of Intel, 14 J. Comp. L. & Prac. 15 (2023).

[119] According to some, the interpretation of market power as synonymous with size and concentration is the European reading of the concept. See Petit, supra note 124, at 1 (“When European antitrust lawyers think about market power, they do not direct their attention to consumer prices. They think about corporate size and industrial concentration, see giant American firms, and deduce that they have a domestic market power problem.”).

[120] See, e.g., Or Brook, Non-Competition Interests in EU Antitrust Law: An Empirical Study of Article 101 TFEU (1st ed. 2023), discussing the different goals and values of EU competition law throughout the years; Konstantinos Stylianou & Marcos Iacovides, The Goals of EU Competition Law: A Comprehensive Empirical Investigation, 42 Legal Studies 1, 17-8 (2020). “EU competition law is not monothematic but pursues a multitude of goals historically and today;” In the United States, see Robert H. Bork, The Antitrust Paradox: A Policy at War with Itself, 7 (1978) (finding the collection of socio-political goals at the time to be “mutually incompatible”); Joshua D. Wright & Douglas H. Ginsburg, The Goals of Antitrust: Welfare Trumps Choice, 81 Fordham L Rev 2405, 2405 (2013). “The Court interpreted the Sherman and Clayton Acts to reflect a hodgepodge of social and political goals…”; Thomas A. Lambert & Tate Cooper, Neo-Brandeisianism’s Democracy Paradox, University, 49 Journal of Corporation Law, 18 (2023).“In the mid-Twentieth Century, U.S. courts embraced the sort of multi-goaled deconcentration agenda Neo-Brandeisians advocate;” and Joshua D. Wright, Elyse Dorsey, Jonathan Klick, & Jan M. Rybnicek, Requiem for a Paradox: The Dubious Rise and Inevitable Fall of Hipster Antitrust, 51 Ariz. St. L. J. 293, 300-1 (2019) (discussing multi-goaled approach of mid-20th-century antitrust).

[121] See, e.g., Ioannis Lianos, Polycentric Competition Law, 71 Current Legal Problems 161 (2019); Maurice E. Stucke, Reconsidering Antitrust’s Goals, 53 B.C.L. Rev. 551, 551 (2012), “[t]he quest for a single economic goal has failed…this article proposes how to integrate antitrust’s multiple policy objectives into the legal framework.”; The Consumer Welfare Standard in Antitrust: Outdated or a Harbor in a Sea of Doubt?: Hearing Before the Subcomm. on Antitrust, Competition and Consumer Rights of the S. Comm. on the Judiciary, 115th Cong. (2017) (statement of Barry Lynn), arguing for the return to a “political antitrust”; Dina I. Walked, Antitrust as Public Interest Law: Redistribution, Equity, and Social Justice, 65 Antitrust Bull 87, 87 (2020), “[o]nce we frame antitrust as public interest law, in its broadest sense, we are empowered to use it to address inequality;” Saksham Malik, Social Justice as a Goal of Competition Policy, Kluwer Competition Law Blog (Feb. 23, 2024), https://competitionlawblog.kluwercompetitionlaw.com/2024/02/23/social-justice-as-a-goal-of-competition-policy.

[122] It is no coincidence that critics of the “status quo” consistently attempt to cast economic analysis and (certain) antitrust case-law as a mistake brought about by judges adhering to the ideology of “neoliberalism,” rather than as the result of organic, piecemeal progression. See Khan & Vaheesan, supra note 122.

[123] Magrethe Vestager, Keynote of EVP Vestager at the European Competition Law Tuesdays: A Principles Based Approach to Competition Policy (Oct. 25, 2022), https://ec.europa.eu/commission/presscorner/detail/en/SPEECH_22_6393; See also Ohlhausen & Taladay, supra note 70 at 465.

[124] See, supra note 8.

[125] See also Press Release, Antitrust: Commission Accepts Commitments by Amazon Barring It from Using Marketplace Seller Data and Ensuring Equal Access to BuyBox and Prime, European Commission (Dec. 20, 2022), https://ec.europa.eu/commission/presscorner/detail/en/ip_22_7777.

[126] For commentary, see Lazar Radic, Apple Fined at the 11th Hour Before DMA Enters into Force, Truth on the Market (Mar. 5 2024), https://truthonthemarket.com/2024/03/05/apple-fined-at-the-11th-hour-before-the-dma-enters-into-force.

[127] Giuseppe Colangelo (@GiuColangelo), Twitter (Oct. 5, 2023, 2:37 PM), https://x.com/GiuColangelo/status/1709910565496172793?s=20.

[128] Digital Platform Services Inquiry, supra note 18 at 14.

[129] Standing Committee on Finance, supra note 22, at 28, 38-39.

[130] Id. at 30.

[131] Shivi Gupta & Mansi Raghav, Digital Competition Law Committee to Finalise Report by August 2023, Lexology (Jul. 31, 2023), https://www.lexology.com/library/detail.aspx?g=70b95f94-1ee2-4b11-bfc2-96155a8c333d; Whole Government Approach to be Adopted for Digital Competition Laws, The Economic Times (Jul. 4 2023), https://economictimes.indiatimes.com/tech/technology/whole-government-approach-to-be-adopted-for-digital-competition-laws/articleshow/101495358.cms.

[132] The Competition Act, 2002, No.12 of 2003 (India), available at https://www.cci.gov.in/images/legalframeworkact/en/the-competition-act-20021652103427.pdf.

[133] Antitrust, Regulation, and the Next World Order, supra note 53.

[134] See, e.g., the DMA’s definition of “fairness.” DMA, Recital 4.

[135] Ex Ante Regulation in Digital Markets – Background Note, DAF/COMP(2021)15, 16, OECD (Dec. 1, 2021) (“Framing regulations in terms of fairness may therefore also refer to redistribution, better treatment of users, or a host of other goals”). See also id. at 19.

[136] Pablo Ibanez Colomo, The Draft Digital Markets Act: A Legal and Institutional Analysis, 12 Journal of Competition Law & Practice 561, 562 (2021). See also id. at 565(“The driver of many disputes that may superficially be seen as relating to leveraging can be more rationalised, more convincingly, as attempts to re-allocate rents away from vertically-integrated incumbents to rivals”).

[137] See, e.g., Fiona Scott Morton & Cristina Caffarra, The European Commission Digital Markets Act: A Translation, VoxEU (Jan. 5, 021), https://cepr.org/voxeu/columns/european-commission-digital-markets-act-translation. We contest the assertion that the DMA and other digital competition regulations aim to create competition, rather than aid competitors, in Section IIIB.

[138] On the relationship between rent seeking and ex-ante regulation, see generally Thom Lambert, Rent-Seeking and Public Choice in Digital Markets, in The Global Antitrust Institute Report on the Digital Economy (Joshua D. Wright & Douglas H. Ginsburg, eds., Nov. 11, 2020). https://gaidigitalreport.com/2020/08/25/rent-seeking-and-public-choice-in-digital-markets.

[139] See, e.g., Making the Digital Market Easier to Use: The Act on Improving Transparency and Fairness of Digital Platforms (TFDPA), Japanese Ministry of Economy, Trade, and Industry (Apr. 23, 2021), https://www.meti.go.jp/english/mobile/2021/20210423001en.html. The Ministry of Economy, Trade, and Industry specifically links the TFDPA to benefits for SMEs; see also Ebru Gokce Dessemond, Restoring Competition in ”Winner-Took-All” Digital Platform Markets, UNCTAD (Feb. 4, 2020), https://unctad.org/news/restoring-competition-winner-took-all-digital-platform-markets (“Competition law provisions on unfair trade practices and abuse of superior bargaining position, as found in competition laws of Japan and the Republic of Korea, would empower competition authorities in protecting the interests of smaller firms vis-à-vis big platforms”).

[140] See DMA, Recital 2, referring to a significant degree of dependence of both consumers and business users. See, in a similar vein, DMA Recitals 20, 43, 75. On self-inflicted dependence, see Geoffrey A. Manne, The Real Reason Foundem Foundered, Int’l. Ctr. for Law & Econ. (2018), available at https://laweconcenter.org/wp-content/uploads/2018/05/manne-the_real_reaon_foundem_foundered_2018-05-02-1.pdf.

[141] For commentary on how bans on self-preferencing benefit large, but less-efficient competitors, see Lazar Radic & Geoffrey A. Manne, Amazon Italy’s Efficiency Offense, Truth on the Market (Jan. 11, 2022), https://truthonthemarket.com/2022/01/11/amazon-italys-efficiency-offense.

[142] Adam Kovacevich, The Digital Markets Act’s “Statler & Waldorf” Problem, Medium (Mar. 7 2024), https://medium.com/chamber-of-progress/the-digital-markets-acts-statler-waldorf-problem-2c9b6786bb55 (arguing that the companies who lobbied for the DMA are content aggregators like Yelp, Tripadvisor, and Booking.com; big app makers like Spotify, Epic Games, and Match.com; and rival search engines like Ecosia, Yandex, and DuckDuckGo).

[143] For example, Epic Games’ revenue in 2023 was roughly $5.6 billion. In 2023, Epic Games employed about 4,300 workers. See, respectively, https://www.statista.com/statistics/1234106/epic-games-annual-revenue and https://www.statista.com/statistics/1234218/epic-games-employees. According to the OECD, a small and medium-sized enterprise is one that employs fewer than 250 people. Enterprises by Business Size (Indicator), OECD https://data.oecd.org/entrepreneur/enterprises-by-business-size.htm#:~:text=In%20small%20and%20medium%2Dsized,More, (last accessed May 14, 2024).

[144] Mathieu Pollet, France to Prioritise Digital Regulation, Tech Sovereignty During EU Council Presidency, EurActiv (Dec. 14, 2021), https://www.euractiv.com/section/digital/news/france-to-prioritise-digital-regulation-tech-sovereignty-during-eu-council-presidency.

[145] See, e.g., Matthias Bauer & Fredrik Erixon, Europe’s Quest for Technology Sovereignty: Opportunities and Pitfalls, ECIPE (2020), https://ecipe.org/publications/europes-technology-sovereignty; see also Dennis Csernatoni et al., Digital Sovereignty: From Narrative to Policy?, EU Cyber Direct (2022), https://eucyberdirect.eu/research/digital-sovereignty-narrative-policy.

[146] Digital Sovereignty for Europe, European Parliament (2020), available at https://www.europarl.europa.eu/RegData/etudes/BRIE/2020/651992/EPRS_BRI(2020)651992_EN.pdf. For further discussion, see Lazar Radic, Gatekeeping, the DMA, and the Future of Competition Regulation, Truth on the Market (Nov. 8, 2023), https://truthonthemarket.com/2023/11/08/gatekeeping-the-dma-and-the-future-of-competition-regulation.

[147] Press Release, Digital Markets Act: Commission Designates Six Gatekeepers, European Commission (Sep. 6, 2023), https://ec.europa.eu/commission/presscorner/detail/en/ip_23_4328.

[148] Online Intermediation Platforms Market Inquiry, Summary of Final Report, South African Competition Commission (2023), https://www.compcom.co.za/online-intermediation-platforms-market-inquiry.

[149] Note that the unfairness here stems from having the resources to invest in search-engine optimization.

[150] Id. at 3.

[151] Id.

[152] Id. at 10.

[153] Id, at 6, 9, 23, 32, and 67.

[154] It is becoming clearer and clearer that the test for compliance with DMA’s rules will be whether competitors and complementors enjoy an increase in market share. See Foo Yun Chee & Martin Coulter, EU’s Digital Markets Act Hands Boost to Big Tech’s Smaller Rivals, Reuters (Mar. 11 2024) https://www.reuters.com/technology/eus-digital-markets-act-hands-boost-big-techs-smaller-rivals-2024-03-08. The public-policy chief of Ecosia, one of Google’s competitors in search, had this to say about the implementation of the DMA: “the implementation of these new rules is a step in the right direction, but the proof of the pudding is always in the eating, and whether we see any meaningful changes in market share.”

[155] Even the DMA’s supporters accept that the regulation is not grounded in economics. Cristina Caffarra, Europe’s Tech Regulation is Not Economic Policy, Project Syndicate (Oct. 11, 2023), https://www.project-syndicate.org/commentary/european-union-digital-markets-act-will-not-tame-big-tech-by-cristina-caffarra-2023-10?barrier=accesspaylog.

[156] Press Release, Apple Announces Changes to iOS, Safari, and the App Store in the European Union, Apple Inc., (Jan. 25, 2024), https://www.apple.com/newsroom/2024/01/apple-announces-changes-to-ios-safari-and-the-app-store-in-the-european-union.

[157] Andy Yen, Apple’s DMA Compliance Plan Is a Trap and a Slap in the Face for the European Commission, Proton (2024), https://proton.me/blog/apple-dma-compliance-plan-trap; Press Release, Apple’s Proposed Changes Reject the Goals of the DMA, Spotify (Jan. 26, 2024), https://newsroom.spotify.com/2024-01-26/apples-proposed-changes-reject-the-goals-of-the-dma; Morgan Meaker, Apple Isn’t Ready to Release Its Grip on the App Store (Jan. 26, 2024), https://www.wired.com/story/apple-app-store-sideloading-europe-dma.

[158] See, supra note 125 (discussing who lobbied for the DMA).

[159] DMCC, S. 38-45.

[160] See, A New Pro-competition Regime for Digital Markets: Policy Summary Briefing, UK Department for Business & Trade & Department for Science Innovation & Technology (2023), https://www.gov.uk/government/publications/digital-markets-competition-and-consumers-bill-supporting-documentation/a-new-pro-competition-regime-for-digital-markets-policy-summary-briefing; see also, A New Pro-Competition Regime for Digital Markets. Consultation Document, UK Department for Culture, M. S. and Department for Business Energy & Industrial Strategy (2022), available at https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1003913/Digital_Competition_Consultation_v2.pdf.

[161] Dirk Auer, Matthew Lesh, & Lazar Radic, Digital Overload: How the Digital Markets, Competition and Consumers Bill’s Sweeping New Powers Threaten Britain’s Economy, Institute of Economic Affairs (Sep. 18, 2023), https://iea.org.uk/publications/digital-overload-how-the-digital-markets-competition-and-consumers-bills-sweeping-new-powers-threaten-britains-economy.

[162] See also Alfonso Lamadrid & Pablo Ibáñez Colomo, The DMA – Procedural Afterthoughts, Chillin’ Competition (Sep. 5, 2022), https://chillingcompetition.com/2022/09/05/the-dma-procedural-afterthoughts (“Unlike competition law, the DMA is not so much about protecting consumers, but competitors/ third parties”); Chee & Coulter, supra note 137. “As the world’s biggest tech companies revamp their core online services to comply with the European Union’s landmark Digital Markets Act, the changes could give some smaller rivals and even peers a competitive edge.”

[163] See, e.g., Judgment of 6 September 2016, Intel v. Commission, Case C?413/14 P, EU:C:2017:632, para. 134 (“Thus, not every exclusionary effect is necessarily detrimental to competition. Competition on the merits may, by definition, lead to the departure from the market or the marginalisation of competitors that are less attractive to consumers from the point of view of, among other things, price, choice, quality or innovation”) (emphasis added).

[164] See, Auer & Radic, supra note 91.

[165] See, e.g., Competition on the Merits, DAF/COMP(2005)27, 9, OECD (2005), available at https://www.oecd.org/competition/abuse/35911017.pdf (“It is widely agreed that the purpose of competition policy is to protect competition, not competitors”).

[166] Ohlhausen & Taladay, supra note 70 at 465.

[167] See e.g., Questions and Answers, Digital Markets Act: Ensuring Fair and Open Digital Markets, European Commission (Sep. 6, 2023), https://ec.europa.eu/commission/presscorner/detail/en/qanda_20_2349 (“[Gatekeepers] will therefore have to proactively implement certain behaviours that make the markets more open and contestable”).

[168] Jan Krämer & Daniel Schnurr, Big Data and Digital Markets Contestability: Theory of Harm and Data Access Remedies, 18 Journal of Competition Law & Economics 255 (2021).

[169] On self-preferencing in the context of antitrust, see Radic & Manne, supra note 113.

[170] On data portability and free-riding, see Sam Bowman, Data Portability: The Costs of Imposed Openness, Int’l. Ctr. for Law & Econ. (2020), available at https://laweconcenter.org/wp-content/uploads/2020/09/ICLE-tldr-Data-Portability.pdf.

[171] H.R. 3849, supra note 29.

[172] Id. at § 7.

[173] Id. at § 7(b)(4).

[174] Id. at § 4(e)(1).

[175] Remarks by Executive-Vice President Vestager and Commissioner Breton on the Opening of Non-Compliance Investigations under the Digital Markets Act, European Commission (Mar. 25 2024), https://ec.europa.eu/commission/presscorner/detail/es/speech_24_1702. “Stakeholders provided feedback on the compliance solutions offered. Their feedback tells us that certain compliance measures fail to achieve their objectives and fall short of expectations.”

[176] The terms “levelling down” and “levelling up” are, to our knowledge, not normally deployed in the fields of antitrust law and digital competition regulation. They are, however, used frequently in areas of constitutional law, such as equality and free speech. In the context of equality law, see generally Deborah L. Brake, When Equality Leaves Everyone Worse Off: The Problem of Levelling Down in Equality Law, 46 Wm. & Mary L. Rev. 513 (2004). Examples include achieving equality between men and women by levelling down men’s opportunities until they reach parity with women’s, or levelling down public spending in wealthier school districts to reach equality with poorer districts.

[177] See, e.g., DMA Art. 6(7), establishing a duty to provide interoperability with the gatekeepers’ services, free of charge; see also arts.5(4), 5(10), 6(8), 6(9), and 7(1).

[178] See, e.g., Dirk Auer & Geoffrey A. Manne, TL;DR: Apple v Epic: The Value of Closed Systems, Int’l. Ctr. for Law & Econ. (Apr. 20, 2021), available at https://laweconcenter.org/wp-content/uploads/2021/04/tldr-Apple-v-Epic.pdf.

[179] This argument was accepted in the context of in-app payment systems by the U.S. District Court in Epic Games, Inc. v. Apple Inc., 4:20-cv-05640-YGR (N.D. Cal. Nov. 9, 2021). On the security and privacy risks posed by sideloading and interoperability, see, e.g., Mikolaj Barczentewicz, Privacy and Security Implications of Regulation of Digital Services in the EU and in the U.S., Stanford-Vienna Transatlantic Technology Law Forum TTLF Working Papers No. 84 (2022); Bjorn Lundqvist, Injecting Security into European Tech Policy, CEPA (2023), https://cepa.org/comprehensive-reports/reining-in-the-gatekeepers-and-opening-the-door-to-security-risks.

[180] “Open” and “closed” platforms are not synonymous with “good” and “bad” platforms. These are legitimate differences in product design and business philosophy, and neither is inherently more restrictive than the other. Andrei Haigu, Proprietary vs. Open Two-Sided Platforms and Social Efficiency, Harvard Business School Strategy Unit Working Paper No. 09-113 (2007), 2-3 (explaining that there is a “fundamental welfare tradeoff between two-sided proprietary . . . platforms and two-sided open platforms, which allow ‘free entry’ on both sides of the market” and thus “it is by no means obvious which type of platform will create higher product variety, consumer adoption and total social welfare”); see also Jonathan M. Barnett, The Host’s Dilemma: Strategic Forfeiture in Platform Markets for Informational Goods, 124 Harv. L. Rev. 1861, 1927 (2011).

[181] See, e.g., Bus. Elecs. Corp. v. Sharp Elecs. Corp., 485 U.S. 717, 748– 49 (1988) (Stevens, J., dissenting) (“A demonstrable benefit to interbrand competition will outweigh the harm to intrabrand competition that is caused by the imposition of vertical nonprice restrictions on dealers”); Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877 (2007) (“For, as has been indicated already, the antitrust laws are designed primarily to protect interbrand competition, from which lower prices can later result”).

[182] Issue Spotlight: Self-Preferencing, Int’l. Ctr. for Law & Econ. (last updated Nov. 10, 2022), https://laweconcenter.org/spotlights/self-preferencing.

[183] Sam Bowman & Geoffrey A. Manne, Platform Self-Preferencing Can be Good for Consumers and Even Competitors, Truth on the Market (Mar. 4, 2021), https://laweconcenter.wpengine.com/2021/03/04/platform-self-preferencing-can-be-good-for-consumers-and-even-competitors.

[184] Kadir Bas & Kerem Cem Sanli, Amendments to E-Commerce Law: Protecting or Preventing Competition?, Marmara University Law School Journal (2024) (forthcoming).

[185] Id. at 10.

[186] Id. at 21.

[187] Id. at 5 (emphasis added).

[188] DMCC, S. 20(3)(c).

[189] Auer, Lesh, & Radic, supra note 128.

  • [190] Joseph A. Schumpeter, Capitalism, Socialism, and Democracy, 100-1 (Harper and Row, New York 1942), 100-1 (“[t]here cannot be any reasonable doubt that under the conditions of our epoch such [technological] superiority is as a matter of fact the outstanding feature of the typical large-scale unit of control”); Hadi Houlla & Aurelien Portuese, The Great Revealing: Taking Competition in America and Europe Seriously, ITIF 23 (2023). (“In highly innovative industries, greater firm size and concentration lower industry-wide costs. A European study shows that larger high-tech firms could increase technological knowledge better than smaller ones…When economies of scale or network effects are large, firms must be sufficiently large to be efficient”); William Baumol, The Free Market Innovation Machine (2002), 196 (“Oligopolistic competition among large, high-tech, business firms, with innovation as a prime competitive weapon, ensures continued innovative activities and, very plausibly, their growth. In this market form, in which a few giant firms dominate a particular market, innovation has replaced price as the name of the game in a number of important industries.”).

[191] Two-sided markets connect distinct sets of users whose demands for the platform are interdependent—i.e., consumers’ demand for a platform increases as more products are available and, conversely, sellers’ demand for a platform increases as additional consumers use the platform, increasing the overall potential for transactions. These network effects can be direct (more consumers on one side attract more consumers on the same side), or indirect (more consumers on one side attract more consumers on the other side). See Bruno Jullien, Alessandro Pavan, & Marc Rysman, Two-Sided Markets, Pricing and Network Effects, 4 Handbook of Industrial Organization 485, 487 (2021)(“A central aspect of platform economics is the role of network effects, which apply when a product is valued based on the extent to which other market participants adopt or use the same product”); OECD Policy Roundtables, Two-Sided Markets 11 (Dec. 17, 2009), available at https://www.oecd.org/daf/competition/44445730.pdf.

[192] Art. 14 DMA establishes a duty to report mergers that would ordinarily fall under the relevant EU merger-control rules threshold. Art. 18(2) also empowers the Commission to prohibit gatekeepers from entering into future concentrations concerning core platform services or any digital products or services, in cases where gatekeepers have engaged in “systematic non-compliance.” Systemic noncompliance occurs when a gatekeeper receives as few as three noncompliance decisions within eight years (Art. 18(3)); S. 55 of the DMCC mandates companies with SMS to notify certain mergers, even though the UK does not have a compulsory notification regime.

[193] For a tongue-in-cheek remark, see Herbert Hovenkamp (@Sherman1890), Twitter (Jan. 15, 2024, 7:22 AM), https://x.com/Sherman1890/status/1746870481393762534?s=20; see also Robert Armstrong & Ethan Wu, What Big Tech Antitrust Gets Wrong, An Interview with Herbert Hovenkamp, Financial Times (Jan. 19, 2024), https://www.ft.com/content/4eec8bc3-c892-4704-ae66-a4432c6d4fd7 (“With Big Tech, we’re looking at probably the most productive part of the economy. The rate of innovation is high. They spend a lot of money on R&D. They are among the largest patent holders. There’s very little evidence of collusion. They seem to be competing with each other quite strongly. They pay their workers relatively well and have fairly educated workforces. None of this is a sign that these are industries we should be pursuing. That doesn’t mean they don’t do some anti-competitive things. But the whole idea that we should be targeting Big Tech strikes me as fundamentally wrong-headed”). It should be noted that Hovenkamp’s comment is made within the context of antitrust law. But the general sentiment about the unique hostility of certain regulators and legislatures toward certain tech companies could be extrapolated, mutatis mutandis, to digital competition regulation, especially with respect to the competition-oriented elements of DCRs (see Section II).

[194] See also Dirk Auer & Geoffrey Manne, Antitrust Dystopia and Antitrust Nostalgia: Alarmist Theories of Harm in Digital Markets and their Origins, 28(4) Geo. Mason L. Rev. 1279 (2023), https://lawreview.gmu.edu/print__issues/antitrust-dystopia-and-antitrust-nostalgia-alarmist-theories-of-harm-in-digital-markets-and-their-origins.

[195] Oles Andriychuk, Do DMA Obligations for Gatekeepers Create Entitlements for Business Users?, 11 Journal of Antitrust Enforcement 123 (2022) (Referring to the DMA as “punitive” and “interventionist,” and suggesting that exceptionally demanding obligations are put in place to slow down gatekeepers). See also at 127 (“the means for allowing the second-tier ersatz-Big Tech to scale up is punitive: to slow down the current gatekeepers by imposing upon them a catalogue of exceptionally demanding obligations”) and at 131 (“This punitive nature of the DMA also means that the obligations can be blatantly arduous and interventionist”) (emphasis added).

[196] DMA, Art. 7(9). There is also a limited exemption in which the gatekeeper can show that, due to exceptional circumstances beyond its control, complying with the obligations of the DMA endangers the economic viability of its operation in the EU. DMA, Art. 9(1).

[197] Id. (“…provided that such measures are strictly necessary and proportionate and are duly justified by the gatekeeper”) (emphasis added).

[198] Digital Markets Regulation Handbook, Cleary Gottlieb (Thomas Graf, et al., eds. 2022), 59, https://www.clearygottlieb.com/-/media/files/rostrum/22092308%20digital%20markets%20regulation%20handbookr16.

[199] See Digital Platform Services Inquiry, supra note 18 at § 7.2.4.

[200] Id. at 123 (emphasis added).

[201] German Competition Act, supra note 50 at Art. 19a(7).

[202] As discussed in Section II, “material harm to competition” already establishes a lower (but also fundamentally different) threshold for the plaintiff than the standard typically applied in antitrust law, as it implies a showing of harm to competitors, rather than to competition.

[203] Cleary Gottlieb, supra note 162 at 76.

[204] DMCC at S. 29; see also, A New Pro-Competition Regime for Digital Markets: Advice for the Digital Markets Taskforce section 4.40, CMA (2020), available at https://assets.publishing.service.gov.uk/media/5fce7567e90e07562f98286c/Digital_Taskforce_-_Advice.pdf (“Conduct which may in some circumstances be harmful, in others may be permissible or desirable as it produces sufficient countervailing benefits”).

[205] Auer, Lesh, & Radic, supra note 128.

[206] Id.

[207] Id.

[208] This is implied by the fact such an exemption arises only in S. 29, which concerns investigations into breaches of conduct requirements.

[209] PL 2768, supra note 32 at Art. 11.

[210] As discussed in Section I, PL 2768 pursues a multiplicity of goals, and there is no telling how much weight would be afforded to consumer protection under Art. 10.

[211] There is some evidence that this has already happened with Google and Google Maps. See Edith Hancock, “Severe Pain in the Butt”: EU’s Digital Competition Rules Make New Enemies on the Internet, Politico (Mar. 25 2024), https://www.politico.eu/article/european-union-digital-markets-act-google-search-malicious-compliance (“Before [the DMA], users could search for a location on Google by simply clicking on the Google Map link to expand it and navigate it easily. That feature doesn’t work in the same way in Europe anymore and users are irritated.”).

[212] For the importance of interbrand competition between closed and open platforms, see ICLE Brief for the 9th Circuit in Epic Games v. Apple, No. 21-16695 (9th Cir.), ID: 12409936, Dkt Entry: 98, Int’l. Ctr. for Law & Econ. (Mar. 31, 2022), https://laweconcenter.org/resources/icle-brief-for-9th-circuit-for-epic-games-v-apple. See also id. at 26 (“Even if an open platform led to more apps and IAP options for all consumers, some consumers may be better off as a result and others may be worse off. More vigilant users may avoid downloading apps and using IAP systems that are unreliable or which impose invasive data-sharing obligations, but less vigilant users will fall prey to malware, spyware, and other harmful content invited by an open system. The upshot is, “a more competitive market may be better at delivering to vigilant consumers what they want, but may end up exploiting more vulnerable consumers”). See also Mark Armstrong, Interactions Between Competition and Consumer Policy, Competition Policy International (2008), https://ora.ox.ac.uk/objects/uuid:ff166fcf-c3c1-4057-9cf5-10e295b66468/files/m4cc2cf988db14b5da92bb20f1f1a838b.

[213] Robert Pitofsky, The Political Content of Antitrust, 127 Penn. L. Rev. 1051, 1058 (1979).

[214] See, generally, Christopher Decker, Modern Economic Regulation (2014).

[215] In the context of the DMCC, see Auer, Lesh, & Radic, supra note 128.

[216] Pinar Akman, Regulating Competition in Digital Platform Markets: A Critical Assessment of the Framework and Approach of the EU Digital Markets Act, 47(1) European Law Review 85, 110 (2023) ( “The description of “(un)fairness” as provided for in the DMA cannot be said to improve upon the position of the concept in competition law, as it, too, relies on an assessment that is ultimately subjective and involves a value judgement”). See also id. at n. 134 (“This is because it involves establishing what counts as an ‘imbalance of rights and obligations’ on the business users of a gatekeeper and what counts as an ‘advantage’ obtained by the gatekeeper from its business users that is ‘disproportionate’ to the service provided by the gatekeeper to its business users’; see DMA (n 2) Article 10(2)(a) DMA. On the vagueness of the ‘fairness’ concept embodied in the DMA from an economics perspective, see also Monopolkommission (n 38) [23].”). The report Akman references is: Recommendations for an Effective and Efficient Digital Markets Act, Special Report 82, Monopolkommission (2021), https://www.monopolkommission.de/en/reports/special-reports/specialreports-on-own-initiative/372-sr-82-dma.html.

[217] On the in-app payment commission being a legitimate way to recoup investments, see ICLE Brief in Epic Games v. Apple, supra note 177.

[218] Giuseppe Colangelo, In Fairness we (Should Not) Trust. The Duplicity of the EU Competition Policy Mantra in Digital Markets, 68 Antitrust Bulletin 618, 622 (2023) (“Despite its appealing features, fairness appears a subjective and vague moral concept, hence useless as a tool in decisionmaking”).

[219] As an example, Chapter III of the DMA is appropriately entitled: “Practices of Gatekeepers that Limit Contestability or are Unfair.” The chapter sets out practices that are, by definition, unfair.

[220] Distributing Dating Apps in the Netherlands, Apple Developer Support, https://developer.apple.com/support/storekit-external-entitlement (last visited Mar. 10, 2024),

[221] Press Release, Apple Announces Changes to IOS, Safari, and the App Store in the European Union, Apple Inc. (Jan. 25, 2024), https://www.apple.com/newsroom/2024/01/apple-announces-changes-to-ios-safari-and-the-app-store-in-the-european-union.

[222] Adam Kovacevich has referred to this as the “Stalter and Waldorf” problem. See, supra note 125.

[223] Trinko at 407 (2003) (“The mere possession of monopoly power, and the concomitant charging of monopoly prices, is not only not unlawful; it is an important element of the free-market system […] Firms may acquire monopoly power by establishing an infrastructure that renders them uniquely suited to serve their customers […] Enforced sharing also requires antitrust courts to act as central planners, identifying the proper price, quantity, and other terms of dealing—a role for which they are ill-suited”); see also Brian Albrecht, Imposed Final Offer Arbitration: Price Regulation by Any Other Name, Truth on the Market (Dec. 7, 2022), https://truthonthemarket.com/2022/12/07/imposed-final-offer-arbitration-price-regulation-by-any-other-name.

[224] See, ICLE Brief in Epic Games v. Apple, supra note 174 (“In essence, Epic is trying to recast its objection to Apple’s 30% commission for use of Apple’s optional IAP system as a harm to consumers and competition more broadly”); on a similar trend in antitrust that we believe is even more relevant in the context of DCRs, see Jonathan Barnett, Antitrustifying Contract: Thoughts on Epic Games v. Apple and Apple v. Qualcomm, Truth on the Market (Oct. 26 2020) https://truthonthemarket.com/2020/10/26/antitrustifying-contract-thoughts-on-epic-games-v-apple-and-apple-v-qualcomm.

[225] Andriychuk, supra note 159.

[226] See also Ohlhausen & Taladay supra note 69.

[227] United States v. Aluminum Co. of America, 148 F.2d 416, 430 (2d Cir. 1945).

[228] Decker, supra note 176.

[229] Many companies vertically integrate to have the ability to preference their own downstream or upstream products or services. See generally Eric Fruits, Geoffrey Manne, & Kristian Stout, The Fatal Economic Flaws of the Contemporary Campaign Against Vertical Integration, 68 Kan. L. Rev. 5 (2020), https://kuscholarworks.ku.edu/handle/1808/30526; Sam Bowman & Geoffrey Manne, Tl;DR: Self-Preferencing: Building an Ecosystem, Int’l. Ctr. for Law & Econ. (Jul. 21, 2020).

[230]Decker, supra note 176 at 190-1.

[231] Aldous Huxley, Point Counter Point (1928).

[232] As discussed, these ideas are, at least to some extent, redolent of the neo-Brandeisian school of thought in the United States and ordoliberalism in Europe. See e.g., Joseph Coniglio, Why the “New Brandeis Movement Gets Antitrust Wrong, Law360 (Apr. 24, 2018), https://www.law360.com/articles/1036456/why-the-new-brandeis-movement-gets-antitrust-wrong (“The [neo-Brandeisian movement] is not a new entrant in the marketplace of ideas”); see also Daniel Crane, How Much Brandeis Do the Neo-Brandeisians Want?, 64 Antitrust Bulletin 4 (2019).

[233] See, e.g., Rupprecht Podszun, Philipp Bongartz, & Sarah Langenstein, Proposals on How to Improve the Digital Markets Act, 3, (Feb. 18, 2021), https://ssrn.com/abstract=3788571 (“Critics who wish to place the tool into the realm of competition law miss the point that this is a fundamentally different approach”).

[234] In the EU, for example, the DMA was proposed on the basis of Article 114 TFEU, rather than Article 352 TFEU. The consequence is that, for the purpose of EU law, the DMA is considered internal market regulation, rather than competition legislation. It has been argued that Article 352 TFEU, or Article 114 TFEU in conjunction with Article 103 TFEU, would have been the more appropriate legal mechanism. See, e.g., Alfonso Lamadrid de Pablo & Nieves Bayón Fernández, Why the Proposed DMA Might be Illegal Under Article 114 TFEU, and How to Fix It, 12 J. Competition L. & Prac. 7, (2021). One reason why the Commission might have preferred to use Art.114 TFEU over Art.352 TFEU is that the process under Art.114 TFEU is less cumbersome. Unlike Art. 114 TFEU, Article 352 TFEU requires unanimity among EU member states and would not enable the European Parliament to function as co-legislator. Alfonso Lamadrid de Pablo, The Key to Understand the Digital Markets Act: It’s the Legal Basis, Chilling Competition (Dec. 03, 2020), https://chillingcompetition.com/2020/12/03/the-key-to-understand-the-digital-markets-act-its-the-legal-basis.

[235] The term is used often in the literature and media. For an example of the former, see William Davies & Nicholas Gane, Post-Neoliberalism? An Introduction, 38 Theory, Culture & Soc’y 3 (2021); for an example of the latter, see Rana Fohar, The New Rules for Business in a Post-Neoliberal World, Financial Times (Oct. 9, 2022), https://www.ft.com/content/e04bc664-04b2-4ef6-90f9-64e9c4c126aa.

[236] Thomas Biebricher and Frieder Vogelmann have used the term in describing the views of ordoliberals on the role of the market and the state. Thomas Biebricher and Frieder Vogelmann, The Birth of Austerity: German Ordoliberalism and Contemporary Neoliberalism, 138-139 (2017).

[237] Davies and Gane, supra note 198 at 1 (“While events of 2020–21 have facilitated new forms of privatization of many public services and goods, they also signal, potentially, a break from the neoliberal orthodoxies of the previous four decades, and, in particular, from their overriding concern for the market”); see also Edward Luce, It’s the End of Globalism As We Know It, Financial Times (May 8, 2020), https://www.ft.com/content/3b64a08a-7d91-4f09-9a31-0157fa9192cf (“The past 40 years have been predicated on a complex system of neoliberalism that is slowly but surely coming undone, but as of yet, we don’t have any global replacement”); Paolo Gerbaudo, A Post-Neoliberal Paradigm is Emerging: Conversation with Felicia Wong, El Pais (Nov. 4, 2022), https://agendapublica.elpais.com/noticia/18303/post-neoliberal-paradigm-is-emerging-conversation-with-felicia-wong.

[238] Zephyr Teachout, The Death of the Consumer Welfare Standard, ProMarket (Nov. 07, 2023), https://www.promarket.org/2023/11/07/zephyr-teachout-the-death-of-the-consumer-welfare-standard.

[239] After Hillary Clinton lost the 2016 U.S. presidential election to Donald Trump, Barack Obama referred to history and progress in the United States as zig-zagging, rather than moving in a straight line. See, Statement by the President, White House Office of the Press Secretary (Nov. 09, 2016), https://obamawhitehouse.archives.gov/the-press-office/2016/11/09/statement-president.

ICLE White Paper

Regulating the Metaverse: Putting the Meta-Cart Before the Meta-Horse

Introduction

We welcome the opportunity to comment on the European Commission’s call for evidence on “Virtual worlds (metaverses) – a vision for openness, safety and respect.”[1]

The metaverse is an exciting and rapidly evolving set of virtual worlds. As with any new technology, concerns about the potential risks and negative consequences that the metaverse may bring have moved policymakers to explore how best to regulate this new space.

In its call for evidence, the commission suggests that preemptive regulatory steps may be needed to avoid the metaverse becoming “a more closed ecosystem with the prevalence of proprietary systems and gatekeepers.”[2] But this diagnosis rests on dubious premises.

From the outset, it is important to recognize that simply because the metaverse is new does not mean that it is unregulated. Existing regulations may not explicitly or exclusively target metaverse ecosystems, but a vast regulatory apparatus already covers most aspects of business in virtual worlds. As we explain in greater detail (Section I), this includes European competition law, the Digital Markets Act (“DMA”), the General Data Protection Act (“GDPR), the Digital Services Act (“DSA”), and many more. Before it enacts any new rules, the commission should carefully consider whether there are any metaverse-specific problems not already addressed by these legal provisions.

This sense that the metaverse is already adequately regulated is reinforced by two important factors.

The first is that competition appears particularly intense in this space (Section II). There are currently multiple firms vying to offer compelling virtual worlds. At the time of writing, however, none appears close to dominating the market. In turn, this intense competition will encourage platforms to design services that meet consumers’ demands, notably in terms of safety and privacy. Nor does the market appear likely to fall into the hands of one of the big tech firms that command a sizeable share of more traditional internet services. Meta notoriously has poured more than $3.99 billion into its metaverse offerings during the first quarter of 2023, in addition to $13.72 billion the previous calendar year.[3] Despite these vast investments and a strategic focus on metaverse services, the company has, thus far, struggled to achieve meaningful traction in the space.[4]

Second, the commission’s primary concern appears to be that metaverses will become insufficiently “open and interoperable”.[5] But to the extent that these ecosystems do, indeed, become closed and proprietary, there is no reason to believe this to be a problem. Closed and proprietary ecosystems have several features that may be attractive to consumers and developers (Section III). These include improved product safety, performance, and ease of development. This is certainly not to say that closed ecosystems are always better than more open ones, but rather that the commission is wrong to assume that one model or the other is optimal. Instead, the proper balance depends on tradeoffs that markets are better placed to decide.

Finally, timing is of the essence (Section IV). The commission’s call for evidence appears to assume that, by acting preemptively, it can shape the metaverse industry according to its idiosyncratic preferences:

It is crucial for the EU to be present in the development of virtual worlds and their governance, and lead the way through important challenges such as setting standards, building infrastructure, and addressing legal, economic, societal and ethical aspects.[6]

The commission has further expressed hopes that this will enable European firms to thrive:

The initiative is expected to create more opportunities for EU industrial players along the value chain, such as for EU providers of hardware and software components, system integrators and content creators.[7]

But intervening so early in a fledgling industry’s life cycle is like shooting a moving target from a mile away. New rules might end up being irrelevant. Worse, by signaling that metaverses will be subject to heightened regulatory scrutiny for the foreseeable future, the commission may chill investment from the very firms is purports to support. In short, the commission should resist the urge to intervene so long as the industry is not fully mature.

I.        Old Rules for a New Frontier

The commission’s call for evidence appears to be premised on the idea there is something new and unique about metaverse ecosystems that warrants industry-specific rules and regulations.

Against this backdrop, Frank Easterbrook’s seminal piece “Cyberspace and the Law of the Horse” seems more relevant than ever.[8] In his article, Easterbrook analogized the then-emerging field of cyberspace law to the “law of the horse.” He argued, in essence, that legal incidents involving horses are best understood by studying general legal disciplines like torts and property law, rather than studying all the legal incidents involving horses:

Lots of cases deal with sales of horses; others deal with people kicked by horses; still more deal with the licensing and racing of horses, or with the care veterinarians give to horses, or with prizes at horse shows. Any effort to collect these strands into a course on “The Law of the Horse” is doomed to be shallow and to miss unifying principles.

From a policy standpoint, Easterbrook’s intuition is clear. Policymakers should be less worried about developing new bodies of law to regulate legal disputes in cyberspace and, instead, concentrate their efforts on understanding how traditional rules apply to the disputes that arise in this space:

When asked to talk about “Property in Cyberspace,” my immediate reaction was, “Isn’t this just the law of the horse?”… This leads directly to my principal conclusion: Develop a sound law of intellectual property, then apply it to computer networks.[9]

Easterbrook’s intuition would appear even more appropriate to law in the metaverse. Policymakers often assume that, because the metaverse is new and not covered by specific regulations, it must surely be a lawless area where few rules apply and companies are free to exclude their competitors and exploit consumers. As the commission puts it, drawing an analogy to the emergence of the first big tech companies:

The first wave of the Internet developed mostly in an uncoordinated and unregulated manner leading to a more closed ecosystem with the prevalence of proprietary systems and gatekeepers.

Although virtual worlds and the transition to Web 4.0 are still in the early stages, we are witnessing the dawn of a similar situation, where global corporations are massively investing in core technologies, filing trademarks, and setting de facto standards as early movers…[10]

A.                  The Internet Was Never an Unregulated World

Unfortunately, this assertion both rewrites the history of the internet and ignores the plethora of regulations that currently apply to metaverse services, particularly when they operate in the European Union.

For a start, it is important to recognize that digital platforms fall under several pieces of European legislation. Chief among these is European competition law, which has long applied to tech firms. After all, the Microsoft competition cases date back to the early 2000s and the commission opened its competition cases against Google way back in 2011.[11] These early cases were followed by investigations into online platforms like Apple’s iPhone and App Store, as well as Amazon’s online marketplace.[12] It is simply not true that the internet emerged in an unregulated environment (at least in terms of competition policy). EU oversight of digital platforms has also grown steadily more capacious, including through the recent passage of the DMA, which will arguably apply to metaverse worlds when they reach a certain size.[13]

And it is not just competition law that has directly shaped the European internet as we know it today. The e-Commerce Directive has governed how online platforms conduct business since it entered into force in 2000.[14] Oversimplifying, the directive shields online intermediaries from liability when illegal content is hosted on their platforms, conditional on them fulfilling certain limited obligations.[15] In turn, this has enabled online platforms to grow without fear of being held liable for their users’ behavior, while guaranteeing some level of safety and compliance with existing laws. More recent legislation, such as the DSA, will only reinforce the extent to which online markets (including virtual worlds) must maintain high standards of safety and content curation. [16]

B.                  Metaverse’s Regulatory Framework Is Already in Place

Existing laws and regulations that govern such areas as intellectual property, contracts, consumer protection, and online safety are equally applicable to the metaverse. The metaverse is not a separate and unique realm, but rather an extension of the physical world we already inhabit. Or, to put it differently, the metaverse is populated by real consumers and firms who are bound by the laws that are applicable in their jurisdictions.

The commission’s call for evidence appears to recognize this much, although it doesn’t appears to consider the possibility that—given this large body of existing laws—more regulation might not be the answer:

Furthermore, the EU already has a strong regulatory framework to address potential impacts that virtual worlds may have on aspects such as competition, cybersecurity, artistic creation and privacy. EU legislation such as the General Data Protection Regulation, Digital Services Act, Digital Markets Act, Net Neutrality Regulation and the Unfair Commercial Practices Directive will ensure that users are protected in relation to several aspects and that EU small and medium-sized enterprises are not driven out of the market. The revised Directive on Security of Network and Information Systems will strengthen supply chain cybersecurity while the upcoming EU Digital ID will give full control to users over their identity and data.[17]

To put this in more concrete terms, a virtual item or avatar created within the metaverse is subject to the same copyright and trademark laws as a physical product. Property over those creations may be transferred, subject to the metaverse platform’s terms of service, which are governed by existing contract and consumer-protection laws. For example, the terms of use governing Decentraland (a blockchain-based virtual world) include a detailed section on how ownership of copyright-protected works may or may not be transferred from users to the platform.[18] In turn, these terms are subject to the same consumer-protection laws that apply to the physical world.

Of course, the application of existing laws to the metaverse is not always straightforward. There are some unique challenges and complexities that arise in this new space. The enforceability of some existing laws may, for example, be complicated in virtual worlds (like Decentraland) that rely on blockchain technology. Indeed, blockchains often have characteristics—such as immutability, decentralized ownership, and a reliance on pseudonymity or anonymity—that complicate legal enforcement.[19] These potential obstacles are specific to blockchain technology, however, not to metaverses.

Indeed, there is no reason to believe that all, or even most, successful metaverse services will be blockchain-based. In fact, two of the most successful virtual worlds do not rely on the blockchain.[20] The upshot is that enacting metaverse-specific rules to deal with blockchain-specific issues is almost certainly the wrong way to proceed.

C.                  New Rules Are Not Always the Best Path Forward

More fundamentally, even if metaverses do give rise to legal blind spots, this does not necessarily mean that new regulation is warranted.

In his seminal rebuttal to Easterbrook’s “Law of the Horse”, Lawrence Lessig cited two examples of cyberspace law that, in his opinion, fell under the radar of existing legal provisions and necessitated the creation of internet-specific laws: the widespread accessibility of pornographic content and firms’ ability to track users’ behavior online.[21] No champion of free markets, Lessig nonetheless argued that blinds spots of this sort do not necessarily warrant the adoption of new regulations (though, in those two cases, that is largely what the European Union decided to do[22]). Instead, he argued four main factors constrain firms’ behavior in cyberspace. Legal provisions are only one of those four constraints—the others being norms, markets, and code.[23] If other constraints are operating, then what may appear to be a legal blind spot may not, in fact, give rise to problematic behavior or outcomes. And because regulation may sometimes be over-inclusive, it will sometimes be better for regulators to adopt a laissez-faire approach.[24]

This intuition is perhaps best understood with reference to Ronald Coase. In his Nobel-winning work on “The Problem of Social Cost”, Coase essentially argued that governments need not worry about the initial allocation of rights (and, by extension, externalities) when they are well-delimited and transaction costs are low:

It is always possible to modify by transactions on the market the initial legal delimitation of rights. And, of course, if such market transactions are costless such a rearrangement of rights will always take place if it would lead to an increase in the value of production.[25]

This has important ramifications for the regulation of business in the metaverse. Even if it were true that existing laws were inapplicable in the metaverse, this is not sufficient justification for passing new regulations. Instead, the real question is whether various frictions prevent consumers and businesses from reaching agreements that grow the value of these online ecosystems. If these agreements can take place, then the scope for beneficial government intervention is more limited. As things stand, there is little reason to believe that frictions of this sort prevent consumers, platforms, and content creators from concluding such deals in the metaverse context—for example, determining how the rights over metaverse creations are allocated.

Finally, even if the commission surmised that there are currently market failures in the metaverse, this does not necessarily mean that entirely new regulations are appropriate. Indeed, it may be preferrable to adapt existing legal principles, rather than enact new rules. As explained in Section IV, creating new regulations that are specific to the metaverse could be counterproductive. They could create uncertainty and additional compliance costs for businesses, without necessarily achieving any meaningful improvements in consumer protection or other regulatory goals. Furthermore, new rules could stifle innovation and limit the potential of this exciting new technology.

In short, there is little to suggest that new rules are required to govern the metaverse. The existing legal framework appears largely sufficient to address most concerns that may arise in this space. Policymakers should instead focus on adapting and refining this existing framework, as necessary.

II.      Competing for Consumer Trust

As suggested above, the extent to which metaverse services compete with each other (and continue to do so in the future) will largely determine whether they fulfil consumers’ expectations and meet the safety and trustworthiness requirements to which the commission aspires. As even the left-leaning Lessig put it:

Markets regulate behavior in cyberspace too. Prices structures often constrain access, and if they do not, then busy signals do. (America Online (AOL) learned this lesson when it shifted from an hourly to a flat-rate pricing plan.) Some sites on the web charge for access, as on-line services like AOL have for some time. Advertisers reward popular sites; online services drop unpopular forums. These behaviors are all a function of market constraints and market opportunity, and they all reflect the regulatory role of the market.[26]

The commission’s call for evidence implicitly recognizes the important role that competition plays, although it frames the subject primarily in terms of the problems that would arise if competition ceased to operate:

There is a risk of having a small number of big players becoming future gatekeepers of virtual worlds, creating market entry barriers and shutting out EU start-ups and SMEs from this emerging market. Such a closed ecosystem with the prevalence of proprietary systems can negatively affect the protection of personal information and data, the cybersecurity and the freedom and openness of virtual worlds at the same time.[27]

It is thus necessary to ask whether there is robust competition in the market for metaverse services. The short answer is a resounding yes.

A.                  Competition Without Tipping

While there is no precise definition of what constitutes a metaverse—much less a precise definition of the relevant market—available data suggests the space is highly competitive. This is evident in the fact that even a major global firm like Meta—having invested billions of dollars in its metaverse branch (and having rebranded the company accordingly)—has struggled to gain traction.[28]

Other major players in the space include the likes of Roblox, Fortnite, and Minecraft, which all have somewhere between 70 and 200 million active users.[29] This likely explains why Meta’s much-anticipated virtual world struggled to gain meaningful traction with consumers, stalling at around 300,000 active users.[30] Alongside these traditional players, there are also several decentralized platforms that are underpinned by blockchain technology. While these platforms have attracted massive investments, they are largely peripheral in terms of active users, with numbers often only in the low thousands.[31]

There are several inferences that can be drawn from these limited datasets. For one, it is clear that the metaverse industry is not yet fully mature. There are still multiple paradigms competing for consumer attention: game-based platforms versus social-network platforms; traditional platforms versus blockchain platforms, etc. In the terminology developed by David Teece, the metaverse industry has not yet reached a “paradigmatic” stage. It is fair to assume there is still significant scope for the entry of differentiated firms.[32]

It is also worth noting that metaverse competition does not appear to exhibit the same sort of network effects and tipping that is sometimes associated with more traditional social networks.[33] Despite competing for nearly a decade, no single metaverse project appears to be running away with the market.[34] This lack of tipping might be because these projects are highly differentiated.[35] It may also be due to the ease of multi-homing among them.[36]

More broadly, it is far from clear that competition will lead to a single metaverse for all uses. Different types of metaverse services may benefit from different user interfaces, graphics, and physics engines. This cuts in favor of multiple metaverses coexisting, rather than all services coordinating within a single ecosystem. Competition therefore appears likely lead to the emergence of multiple differentiated metaverses, rather than a single winner.

Ultimately, competition in the metaverse industry is strong and there is little sense these markets are about to tip towards a single firm in the year future.

B.                  Competing for Consumer Trust

As alluded to in the previous subsection, the world’s largest and most successful metaverse entrants to date are traditional videogaming platforms that have various marketplaces and currencies attached.[37] In other words, decentralized virtual worlds built upon blockchain technology remain marginal.

This has important policy implications. The primary legal issues raised by metaverses are the same as those encountered on other digital marketplaces. This includes issues like minor fraud, scams, and children buying content without their parents’ authorization.[38] To the extent these harms are not adequately deterred by existing laws, metaverse platforms themselves have important incentives to police them. In turn, these incentives may be compounded by strong competition among platforms.

Metaverses are generally multi-sided platforms that bring together distinct groups of users, including consumers and content creators. In order to maximize the value of their ecosystems, platforms have an incentive to balance the interests of these distinct groups.[39] In practice, this will often mean offering consumers various forms of protection against fraud and scams and actively policing platforms’ marketplaces. As David Evans puts it:

But as with any community, there are numerous opportunities for people and businesses to create negative externalities, or engage in other bad behavior, that can reduce economic efficiency and, in the extreme, lead to the tragedy of the commons. Multi-sided platforms, acting selfishly to maximize their own profits, often develop governance mechanisms to reduce harmful behavior. They also develop rules to manage many of the same kinds of problems that beset communities subject to public laws and regulations. They enforce these rules through the exercise of property rights and, most importantly, through the “Bouncer’s Right” to exclude agents from some quantum of the platform, including prohibiting some agents from the platform entirely…[40]

While there is little economic research to suggest that competition directly increases hosts’ incentive to policy their platforms, it stands to reason that doing so effectively can help platforms to expand the appeal of their ecosystems. This is particularly important for metaverse services whose userbases remain just a fraction of the size they could ultimately reach. While 100 or 200 million users already comprises a vast ecosystem, it pales in comparison to the sometimes billions of users that “traditional” online platforms attract.

The bottom line is that the market for metaverses is growing. This likely compounds platforms’ incentives to weed out undesirable behavior, thereby complementing government efforts to achieve the same goal.

III.    Opening Platforms or Opening Pandora’s Box?

In its call for evidence, the commission implicitly assumes that open ecosystems are better for consumers than closed ones. Indeed, the commission laments that a lack of regulation made the Internet less open than it would otherwise have been. In its own words:

The first wave of the Internet developed mostly in an uncoordinated and unregulated manner leading to a more closed ecosystem with the prevalence of proprietary systems and gatekeepers.[41]

According to the commission, it would be detrimental to consumers if metaverse competition led to closed and proprietary ecosystems:

Such a closed ecosystem with the prevalence of proprietary systems can negatively affect the protection of personal information and data, the cybersecurity and the freedom and openness of virtual worlds at the same time.[42]

But this assumption is simply wrong. There are many benefits to closed ecosystems. Choosing the optimal degree of openness entails tradeoffs. At the very least, this suggests that policymakers should be careful not to assume that opening platforms up will systematically provide net benefits to consumers.

A.      Antitrust Enforcement and Regulatory Initiatives

To understand why open (and highly propertized) platforms are not always better for consumers, it is worth looking at past competition enforcement in the online space. Recent interventions by competition authorities have generally attempted (or are attempting) to move platforms toward more openness and less propertization. For their part, these platforms are already tremendously open (as the “platform” terminology implies) and attempt to achieve a delicate balance between centralization and decentralization.

The Microsoft cases and the Apple investigation both sought or seek to bring more openness and less propertization to those respective platforms. Microsoft was made to share proprietary data with third parties (less propertization) and to open its platform to rival media players and web browsers (more openness).[43] The same applies to Apple. Plaintiffs in private antitrust litigation brought in the United States[44] and government enforcement actions in Europe[45] are seeking to limit the fees that Apple can extract from downstream rivals (less propertization), as well as to ensure that it cannot exclude rival mobile-payments solutions from its platform (more openness).

The various cases that were brought by EU and U.S. authorities against Qualcomm broadly sought to limit the extent to which it was monetizing its intellectual property.[46] The European Union’s Amazon investigation centers on the ways in which the company uses data from third-party sellers (and, ultimately, the distribution of revenue between those sellers and Amazon).[47] In both cases, authorities are ultimately trying to limit the extent to which firms can propertize their assets.

Finally, both of the EU’s Google cases sought to bring more openness to the company’s main platform. The Google Shopping decision sanctioned Google for purportedly placing its services more favorably than those of its rivals.[48] The separate Android decision sought to facilitate rival search engines’ and browsers’ access to the Android ecosystem. The same appears to be true of ongoing litigation brought by state attorneys general in the United States.[49]

Much of the same can be said of the numerous regulatory initiatives pertaining to digital markets. Indeed, draft regulations being contemplated around the globe mimic the features of the antitrust/competition interventions discussed above. For instance, it is widely accepted that Europe’s DMA effectively transposes and streamlines the enforcement of the theories harm described above.[50] Similarly, several scholars have argued that the proposed American Innovation and Choice Online Act (“AICOA”) in the United States largely mimics European competition policy.[51] The legislation would ultimately require firms to open up their platforms, most notably by forcing them to treat rival services as they would their own and to make their services more interoperable with those rivals.[52]

What is striking about these decisions and investigations is the extent to which authorities are pushing back against the very features that distinguish the platforms they are investigating. Closed (or relatively closed) platforms are forced to open up, and firms with highly propertized assets are made to share them (or, at the very least, monetize them less aggressively).

B.      The Empty Quadrant

All of this would not be very interesting if it weren’t for a final piece of the puzzle: the model of open and shared platforms that authorities apparently favor has traditionally struggled to gain traction with consumers. Indeed, there seem to be vanishingly few successful consumer-oriented products and services in this space.

There have been numerous attempts to introduce truly open consumer-oriented operating systems in both the mobile and desktop segments. Most have ended in failure. Ubuntu and other flavors of the Linux operating system remain fringe products. There have been attempts to create open-source search engines, but they have not met with success.[53] The picture is similar in the online retail space. Amazon appears to have beaten eBay, despite the latter being more open and less propertized. Indeed, Amazon has historically charged higher fees than eBay and offers sellers much less freedom in the ways in which they may sell their goods.[54]

This theme is repeated in the standardization space. There have been innumerable attempts to impose open, royalty-free standards. At least in the mobile-internet industry, few (if any) of these have taken off. Instead, proprietary standards such as 5G and WiFi have been far more successful. That pattern is repeated in other highly standardized industries, like digital-video formats. Most recently, the proprietary Dolby Vision format seems to be winning the war against the open HDR10+ format.[55]

This is not to say that there haven’t been any successful examples of open, royalty-free standards. Internet protocols, blockchain, and Wikipedia all come to mind. Nor does it mean that we will not see more decentralized goods in the future. But by and large, firms and consumers have not yet taken to the idea of fully open and shared platforms. Or, at least, those platforms have not yet achieved widespread success in the marketplace (potentially due to supply-side considerations, such as the difficulty of managing open platforms or the potentially lower returns to innovation in weakly propertized ones).[56] And while some “open” projects have achieved tremendous scale, the consumer-facing side of these platforms is often dominated by intermediaries that opt for much more traditional business models (think of Coinbase in the blockchain space, or Android’s use of Linux).

C.      Potential Explanations

The preceding section posited a recurring reality: the digital platforms that competition authorities wish to bring into existence are fundamentally different from those that emerge organically. But why have authorities’ ideal platforms, so far, failed to achieve truly meaningful success?

Three potential explanations come to mind. First, “closed” and “propertized” platforms might systematically—and perhaps anticompetitively—thwart their “open” and “shared” rivals. Second, shared platforms might fail to persist (or grow pervasive) because they are much harder to monetize, and there is thus less incentive to invest in them. This is essentially a supply-side explanation. Finally, consumers might opt for relatively closed systems precisely because they prefer these platforms to marginally more open ones—i.e., a demand-side explanation.

In evaluating the first conjecture, the key question is whether successful “closed” and “propertized” platforms overcame their rivals before or after they achieved some measure of market dominance. If success preceded dominance, then anticompetitive foreclosure alone cannot explain the proliferation of the “closed” and “propertized” model.[57]

Many of today’s dominant platforms, however, often overcame open/shared rivals, well before they achieved their current size. It is thus difficult to make the case that the early success of their business models was due to anticompetitive behavior. This is not to say these business models cannot raise antitrust issues, but rather that anticompetitive behavior is not a good explanation for their emergence.

Both the second and the third conjectures essentially ask whether “closed” and “propertized” might be better adapted to their environment than “open” and “shared” rivals.

In that respect, it is not unreasonable to surmise that highly propertized platforms would generally be easier to monetize than shared ones. For example, to monetize open-source platforms often requires relying on complementarities, which tend to be vulnerable to outside competition and free-riding.[58] There is thus a natural incentive for firms to invest and innovate in more propertized environments. In turn, competition enforcement that limits a platform’s ability to propertize their assets may harm innovation.

Similarly, authorities should reflect on whether consumers really want the more “competitive” ecosystems that they are trying to design. The European Commission, for example, has a long track record of seeking to open digital platforms, notably by requiring that platform owners do not preinstall their own web browsers (the Microsoft decisions are perhaps the most salient example). And yet, even after these interventions, new firms have kept using the very business model that the commission reprimanded, rather than the “pro-consumer” model it sought to impose on the industry. For example, Apple tied the Safari browser to its iPhones; Google went to some length to ensure that Chrome was preloaded on devices; and Samsung phones come with Samsung Internet as default.[59] Yet this has not ostensibly steered consumers away from those platforms.

Along similar lines, a sizable share of consumers opt for Apple’s iPhone, which is even more centrally curated than Microsoft Windows ever was (and the same is true of Apple’s MacOS). In other words, it is hard to claim that opening platforms is inherently good for consumers when those same consumers routinely opt for platforms with the very features that policymakers are trying to eliminate.

Finally, it is worth noting that the remedies imposed by competition authorities have been anything but successes. Windows XP N (the version of Windows that came without Windows Media Player) was an unmitigated flop, selling a paltry 1,787 copies.[60] Likewise, the internet-browser “ballot box” imposed by the commission was so irrelevant to consumers that it took months for authorities to notice that Microsoft had removed it, in violation of the commission’s decision.[61]

One potential inference is that consumers do not value competition interventions that make dominant ecosystems marginally more open and less propertized. There are also many reasons why consumers might prefer “closed” systems (at least, relative to the model favored by many policymakers), even when they must pay a premium for them.

Take the example of app stores. Maintaining some control over the apps that can access the store enables platforms to easily weed out bad actors. Similarly, controlling the hardware resources that each app can use may greatly improve device performance. Indeed, it may be that a measure of control facilitates the very innovations that consumers demand. Therefore, “authorities and courts should not underestimate the indispensable role control plays in achieving coordination and coherence in the context of systemic ef?ciencies. Without it, the attempted novelties and strategies might collapse under their own complexity.”[62]

Relatively centralized platforms can eliminate negative externalities that “bad” apps impose on rival apps and consumers.[63] This is especially true when consumers will tend to attribute dips in performance to the overall platform, rather than to a particular app.[64] At the same time, they can take advantage of positive externalities to improve the quality of the overall platform.

And it is surely the case that consumers prefer to make many of their decisions at the inter-platform level, rather than within each platform. In simple terms, users arguably make their most important decision when they choose between an Apple or Android smartphone (or a Mac and a PC, etc.). In doing so, they can select their preferred app suite with one simple decision. They might thus purchase an iPhone because they like the secure App Store, or an Android smartphone because they like the Chrome Browser and Google Search. Absent false information at the time of the initial platform decision, this decision will effectively incorporate expectations about subsequent constraints.[65]

Furthermore, forcing users to make too many “within-platform” choices may undermine a product’s attractiveness. Indeed, it is difficult to create a high-quality reputation if each user’s experience is fundamentally different.[66] In short, contrary to what antitrust authorities appear to believe, closed platforms might give most users exactly what they desire.

All of this suggests that consumers and firms often gravitate spontaneously toward both closed and highly propertized platforms, the opposite of what the commission and other competition authorities tend to favor. The reasons for this trend are still misunderstood, and mostly ignored. Too often it is simply assumed that consumers benefit from more openness, and that shared/open platforms are the natural order of things. Instead, what some regard as “market failures” may in fact be features that explain the rapid emergence of the digital economy.

When considering potential policy reforms targeting the metaverse, policymakers would be wrong to assume openness (notably, in the form of interoperability) and weak propertization are always objectively superior. Instead, these platform designs entail important tradeoffs. Closed metaverse ecosystems may lead to higher consumer safety and better performance, while interoperable systems may reduce the frictions consumers face when moving from one service to another. There is little reason to believe policymakers are in a better position to weigh these tradeoffs than consumers, who vote with their virtual feet.

IV.    Conclusion

A final important argument against intervening today is that the metaverse industry is nowhere near mature. Tomorrow’s challenges and market failures might not be the same as today’s. This makes it exceedingly difficult for policymakers to design appropriate regulation and increases the risk that regulation might harm innovation.

At the time of writing, the entire metaverse industry (both hardware and software) is estimated to be worth somewhere in the vicinity of $80 billion, and projections suggest this could grow by a factor of 10 by 2030.[67] Growth projections of this sort are notoriously unreliable. But in this case, they do suggest there is some consensus that the industry is not fully fledged.

Along similar lines, it remains unclear what types of metaverse services will gain the most traction with consumers, what sorts of hardware consumers will use to access these services, and what technologies will underpin the most successful metaverse platforms. In fact, it is still an open question whether the metaverse industry will foster any services that achieve widespread consumer adoption in the foreseeable future.[68] In other words, it is not exactly clear what products and services metaverse-specific rules would end up covering.

Given these uncertainties—and the other arguments against regulation discussed in the previous sections—it would be premature to enact metaverse-specific rules. And yet, that is precisely what the commission appears to be contemplating.

In its call for evidence, the commission suggests that acting now will enable it to shape the metaverse industry to fit its own preferences, while guaranteeing that European firms are central to metaverse ecosystems:

The EU is well positioned to shape this next evolution, reflecting the EU‘s vision for the Digital Decade 20302 and in line with the European Declaration on Digital Rights and Principles , from the outset: open, interoperable, trusted, secure, privacy preserving, virtual worlds, respecting our legislation.[69]

But this outcome is anything but certain. Intervening so early in the industry’s life cycle is like aiming at a moving target. New rules or guidelines might end up being irrelevant before they have any influence on the products that firms develop. More worryingly, acting now signals that the metaverse industry will be subject to heightened regulatory scrutiny for the foreseeable future. In turn, this may deter large platforms from investing in the European market. It also may funnel venture-capital investments away from the European continent.

The core problem is that, without a clear sense of the market failures that need to be fixed, there is little apparent upside to offset the costs of regulation. The best evidence concerning these potential costs comes from the GDPR. While privacy regulation is obviously not the same as other types of economic regulation, the evidence concerning the GDPR suggests that regulation may, at least in some instances, slow down innovation and reduce competition.

The most-cited empirical evidence concerning the effects of the GDPR comes from a paper by Garrett Johnson and co-authors, who link the GDPR to widespread increases to market concentration, particularly in the short-term:

We show that websites’ vendor use falls after the European Union’s (EU’s) General Data Protection Regulation (GDPR), but that market concentration also increases among technology vendors that provide support services to websites…. The week after the GDPR’s enforcement, website use of web technology vendors falls by 15% for EU residents. Websites are relatively more likely to retain top vendors, which increases the concentration of the vendor market by 17%. Increased concentration predominantly arises among vendors that use personal data, such as cookies, and from the increased relative shares of Facebook and Google-owned vendors, but not from website consent requests. Although the aggregate changes in vendor use and vendor concentration dissipate by the end of 2018, we find that the GDPR impact persists in the advertising vendor category most scrutinized by regulators.[70]

Along similar lines, an NBER working paper by Jian Jia and co-authors finds that enactment of the GDPR markedly reduced venture-capital investments in Europe:

Our findings indicate a negative differential effect on EU ventures after the rollout of GDPR relative to their US counterparts. These negative effects manifest in the overall number of financing rounds, the overall dollar amount raised across rounds, and in the dollar amount raised per individual round. Specifically, our findings suggest a $3.38 million decrease in the aggregate dollars raised by EU ventures per state per crude industry category per week, a 17.6% reduction in the number of weekly venture deals, and a 39.6% decrease in the amount raised in an average deal following the rollout of GDPR.[71]

In another paper, Samuel Goldberg and co-authors find that the GDPR led to a roughly 12% reduction in website pageviews and e-commerce revenue in Europe.[72] Finally, Rebecca Janssen and her co-authors show that the GDPR decreased the number of apps offered on Google’s Play Store between 2016 and 2019:

Using data on 4.1 million apps at the Google Play Store from 2016 to 2019, we document that GDPR induced the exit of about a third of available apps; and in the quarters following implementation, entry of new apps fell by half.[73]

Of course, the body of evidence concerning the GDPR’s effects is not entirely unambiguous. For example, Rajkumar Vekatesean and co-authors find that the GDPR had mixed effects on the returns of different types of firms.[74] Other papers also show similarly mixed effects.[75]

Ultimately, the empirical literature concerning the effects of the GDPR shows that regulation—in this case, privacy protection—is no free lunch. Of course, this does not mean that regulating the metaverse would necessarily have these same effects. But in the absence of a clear market failure to solve, it is unclear why policymakers should run such a risk in the first place.

In the end, regulating the metaverse is unlikely to be costless. The metaverse is still in its infancy, regulation could deter essential innovation, and the commission has thus far failed to identify any serious market failures that warrant public intervention. The result is that the commission’s call for evidence appears premature or, in other words, that the commission is putting the meta-cart before the meta-horse.

[1] Virtual Worlds (Metaverses) – A Vision for Openness, Safety and Respect, European Commission, https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/13757-Virtual-worlds-metaverses-a-vision-for-openness-safety-and-respect/feedback_en?p_id=31962299H (hereafter, “Call for Evidence”).

[2] Id.

[3] Jonathan Vaian, Meta’s Reality Labs Records $3.99 Billion Quarterly Loss as Zuckerberg Pumps More Cash into Metaverse, CNBC (Apr. 26, 2023), https://www.cnbc.com/2023/04/26/metas-reality-labs-unit-records-3point99-billion-first-quarter-loss-.html.

[4] Alan Truly, Horizon Worlds Leak: Only 1 in 10 Users Return & Web Launch Is Coming, Mixed News (Mar. 3, 2023), https://mixed-news.com/en/horizon-worlds-leak-only-1-in-10-users-return-web-launch-coming; Kevin Hurler, Hey Fellow Kids: Meta Is Revamping Horizon Worlds to Attract More Teen Users, Gizmodo (Feb. 7, 2023), https://gizmodo.com/meta-metaverse-facebook-horizon-worlds-vr-1850082068; Emma Roth, Meta’s Horizon Worlds VR Platform Is Reportedly Struggling to Keep Users, The Verge (Oct. 15, 2022),
https://www.theverge.com/2022/10/15/23405811/meta-horizon-worlds-losing-users-report; Paul Tassi, Meta’s ‘Horizon Worlds’ Has Somehow Lost 100,000 Players in Eight Months, Forbes, (Oct. 17, 2022), https://www.forbes.com/sites/paultassi/2022/10/17/metas-horizon-worlds-has-somehow-lost-100000-players-in-eight-months/?sh=57242b862a1b.

[5] Call for Evidence, supra note 1.

[6] Id.

[7] Id.

[8] Frank H. Easterbrook, Cyberspace and the Law of the Horse, 1996 U. Chi. Legal F. 207 (1996).

[9] Id. at 208.

[10] Call for Evidence, supra note 1.

[11] See Case COMP/C-3/37.792, Microsoft, OJ L 32 (May 24, 2004); see also, Case COMP/39.530, Microsoft (Tying), OJ C 120 (Apr. 26, 2013); Case AT.39740, Google Search (Shopping), 2017 E.R.C. I-379; Case AT.40099 Google Android, 2018 E.R.C.

[12] See European Commission Press Release IP/20/1073, Antitrust: Commission Opens Investigations into Apple’s App Store Rules (Jun. 16, 2020); European Commission Press Release IP/20/1075, Antitrust: Commission Opens Investigation into Apple Practices Regarding Apple Pay (Jun. 16, 2020); European Commission Press Release IP/19/4291, Antitrust: Commission Opens Investigation into Possible Anti-Competitive Conduct of Amazon (Jul. 17, 2019).

[13] Regulation (EU) No 2022/1925 of the European Parliament and of the Council of 14 September 2022 on contestable and fair markets in the digital sector and amending Directives (EU) 2019/1937 and (EU) 2020/1828 (Digital Markets Act), https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:32022R1925.

[14] Directive 2000/31/EC of the European Parliament and of the Council of 8 June 2000 on Certain Legal Aspects of Information Society Services, in Particular Electronic Commerce, in the Internal Market (hereafter, “eCommerce Directive”), https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=celex%3A32000L0031.

[15] Id. art. 12 to 15.

[16] Regulation EU 2022/2065 of the European Parliament and of the Council of 19 October 2022 on a Single Market For Digital Services and Amending Directive 2000/31/EC (Digital Services Act), https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:32022R2065 (hereafter, “DSA”).

[17] Call for Evidence, supra note 1.

[18] Terms of Use, Decentraland, https://decentraland.org/terms (last visited May 2, 2023).

[19] Andrew N. Choi & Cynthia A. Gierhart, Intellectual Property Enforcement in the Metaverse, Part 2, Holland & Knight (Oct. 13, 2022), https://www.hklaw.com/en/insights/publications/2022/10/intellectual-property-enforcement-in-the-metaverse-part-2; see, more generally, Thibault Schrepel, Blockchain + Antitrust (Elgar, 2021).

[20] Aron Garst, Fortnite and Roblox Are Dueling for the Future of User-Built Games, The Verge (Apr. 7, 2023), https://www.theverge.com/23674121/fortnite-roblox-user-generated-games.

[21] Lawrence Lessig, The Law of the Horse: What Cyberlaw Might Teach, 113 Harv. L. Rev. 510 (1999).

[22] Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the Protection of Natural Persons with Regard to the Processing of Personal Data and on the Free Movement of Such Data, and Repealing Directive 95/46/EC (General Data Protection Regulation); DSA, supra note 16; eCommerce Directive, supra note 14

[23] Lessig, supra note 22, at 507 (“Behavior, we might say, is regulated by four kinds of constraints. Law is just one of those constraints. Law (in at least one of its aspects) orders people to behave in certain ways; it threatens punishment if they do not obey. The law tells me not to buy certain drugs, not to sell cigarettes without a license, and not to trade across international borders without first filing a customs form. It promises strict punishments if these orders are not followed. In this way, we say that law regulates. But not only law regulates in this sense. Social norms do as well. Norms control where I can smoke; they affect how I behave with members of the opposite sex; they limit what I may wear; they influence whether I will pay my taxes. Like law, norms regulate by threatening punishment ex post. But unlike law, the punishments of norms are not centralized. Norms are enforced (if at all) by a community, not by a government. In this way, norms constrain, and therefore regulate. Markets, too, regulate. They regulate by price. The price of gasoline limits the amount one drives – more so in Europe than in the United States. The price of subway tickets affects the use of public transportation – more so in Europe than in the United States. Of course the market is able to constrain in this manner only because of other constraints of law and social norms: property and contract law govern markets; markets operate within the domain permitted by social norms. But given these norms, and given this law, the market presents another set of constraints on individual and collective behavior. And finally, there is a fourth feature of real space that regulates behavior – “architecture.””).

[24] Id. at 538-541; see also, Frank H. Easterbrook, Limits of Antitrust, 63 Tex. L. Rev. 1 (1984); Geoffrey A. Manne & Joshua D. Wright, Innovation and the Limits of Antitrust, 6 J. Comp. L. & Econ. 153 (2010); Geoffrey A. Manne, Error Costs in Digital Markets, 3 GAI Report on Competition in Digital Markets 33 (2020).

[25] R. H. Coase, The Problem of Social Cost, 9 J.L. & Econ. 15 (1960).

[26] Lessig, supra note 22, at 508.

[27] Call for Evidence, supra note 1.

[28] Catherine Thorbecke, What Metaverse? Meta Says Its Single Largest Investment Is Now in ‘Advancing AI’, CNN Business (Mar. 15, 2023), https://www.cnn.com/2023/03/15/tech/meta-ai-investment-priority/index.html; Ben Marlow, Mark Zuckerberg’s Metaverse Is Shattering into a Million Pieces, The Telegraph (Apr. 23, 2023), https://www.telegraph.co.uk/business/2023/04/21/mark-zuckerbergs-metaverse-shattering-million-pieces; Will Gendron, Meta Has Reportedly Stopped Pitching Advertisers on the Metaverse, BusinessInsider (Apr. 18, 2023), https://www.businessinsider.com/meta-zuckerberg-stopped-pitching-advertisers-metaverse-focus-reels-ai-report-2023-4.

[29] Mansoor Iqbal, Fortnite Usage and Revenue Statistics, Business of Apps (Jan. 9, 2023), https://www.businessofapps.com/data/fortnite-statistics; Matija Ferjan, 76 Little-Known Metaverse Statistics & Facts (2023 Data), Headphones Addict (Feb. 13, 2023), https://headphonesaddict.com/metaverse-statistics.

[30] James Batchelor, Meta’s Flagship Metaverse Horizon Worlds Struggling to Attract and Retain Users, Games Industry (Oct. 17, 2022), https://www.gamesindustry.biz/metas-flagship-metaverse-horizon-worlds-struggling-to-attract-and-retain-users; Ferjan, id.

[31] Richard Lawler, Decentraland’s Billion-Dollar ‘Metaverse’ Reportedly Had 38 Active Users in One Day, The Verge (Oct. 13, 2022), https://www.theverge.com/2022/10/13/23402418/decentraland-metaverse-empty-38-users-dappradar-wallet-data; The Sandbox, DappRadar, https://dappradar.com/multichain/games/the-sandbox (last visited May 3, 2023); Decentraland, DappRadar, https://dappradar.com/multichain/social/decentraland (last visited May 3, 2023).

[32] David J. Teece, Profiting from Technological Innovation: Implications for Integration, Collaboration, Licensing and Public Policy, 15 Research Policy 285-305 (1986), https://www.sciencedirect.com/science/article/abs/pii/0048733386900272.

[33] Geoffrey Manne & Dirk Auer, Antitrust Dystopia and Antitrust Nostalgia: Alarmist Theories of Harm in Digital Markets and Their Origins, 28 Geo. Mason L. Rev. 1279 (2021).

[34] Roblox, Wikipedia, https://en.wikipedia.org/wiki/Roblox (last visited May 3, 2023); Minecraft, Wikipedia, https://en.wikipedia.org/wiki/Minecraft (last visited May 3, 2023); Fortnite, Wikipedia, https://en.wikipedia.org/wiki/Fortnite (last visited May 3, 2023); see Fiza Chowdhury, Minecraft vs Roblox vs Fortnite: Which Is Better?, Metagreats (Feb. 20, 2023), https://www.metagreats.com/minecraft-vs-roblox-vs-fortnite.

[35]  Marc Rysman, The Economics of Two-Sided Markets, 13 J. Econ. Perspectives 134 (2009) (“First, if standards can differentiate from each other, they may be able to successfully coexist (Chou and Shy, 1990; Church and Gandal, 1992). Arguably, Apple and Microsoft operating systems have both survived by specializing in different markets: Microsoft in business and Apple in graphics and education. Magazines are an obvious example of platforms that differentiate in many dimensions and hence coexist.”).

[36] Id. at 134 (“Second, tipping is less likely if agents can easily use multiple standards. Corts and Lederman (forthcoming) show that the fixed cost of producing a video game for one more standard have reduced over time relative to the overall fixed costs of producing a game, which has led to increased distribution of games across multiple game systems (for example, PlayStation, Nintendo, and Xbox) and a less-concentrated game system market.”).

[37] What Are Fortnite, Roblox, Minecraft and Among Us? A Parent’s Guide to the Most Popular Online Games Kids Are Playing, FTC Business (Oct. 5, 2021), https://www.ftc.net/blog/what-are-fortnite-roblox-minecraft-and-among-us-a-parents-guide-to-the-most-popular-online-games-kids-are-playing; Jay Peters, Epic Is Merging Its Digital Asset Stores into One Huge Marketplace, The Verge (Mar. 22, 2023), https://www.theverge.com/2023/3/22/23645601/epic-games-fab-asset-marketplace-state-of-unreal-2023-gdc.

[38] Luke Winkie, Inside Roblox’s Criminal Underworld, Where Kids Are Scamming Kids, IGN (Jan. 2, 2023), https://www.ign.com/articles/inside-robloxs-criminal-underworld-where-kids-are-scamming-kids; Fake Minecraft Updates Pose Threat to Users, Tribune (Sept. 11, 2022), https://tribune.com.pk/story/2376087/fake-minecraft-updates-pose-threat-to-users; Ana Diaz, Roblox and the Wild West of Teenage Scammers, Polygon (Aug. 24, 2019) https://www.polygon.com/2019/8/24/20812218/roblox-teenage-developers-controversy-scammers-prison-roleplay; Rebecca Alter, Fortnite Tries Not to Scam Children and Face $520 Million in FTC Fines Challenge, Vulture (Dec. 19, 2022), https://www.vulture.com/2022/12/fortnite-epic-games-ftc-fines-privacy.html; Leonid Grustniy, Swindle Royale: Fortnite Scammers Get Busy, Kaspersky Daily (Dec. 3, 2020), https://www.kaspersky.com/blog/top-four-fortnite-scams/37896.

[39] See, generally, David Evans & Richard Schmalensee, Matchmakers: The New Economics of Multisided Platforms (Harvard Business Review Press, 2016).

[40] David S. Evans, Governing Bad Behaviour By Users of Multi-Sided Platforms, Berkley Technology Law Journal 27:2 (2012), 1201.

[41] Call for Evidence, supra note 1.

[42] Id.

[43] See Case COMP/C-3/37.792, Microsoft, OJ L 32 (May 24, 2004). See also, Case COMP/39.530, Microsoft (Tying), OJ C 120 (Apr. 26, 2013).

[44] See Complaint, Epic Games, Inc. v. Apple Inc., 493 F. Supp. 3d 817 (N.D. Cal. 2020) (4:20-cv-05640-YGR).

[45] See European Commission Press Release IP/20/1073, Antitrust: Commission Opens Investigations into Apple’s App Store Rules (Jun. 16, 2020); European Commission Press Release IP/20/1075, Antitrust: Commission Opens Investigation into Apple Practices Regarding Apple Pay (Jun. 16, 2020).

[46] See European Commission Press Release IP/18/421, Antitrust: Commission Fines Qualcomm €997 Million for Abuse of Dominant Market Position (Jan. 24, 2018); Federal Trade Commission v. Qualcomm Inc., 969 F.3d 974 (9th Cir. 2020).

[47] See European Commission Press Release IP/19/4291, Antitrust: Commission Opens Investigation into Possible Anti-Competitive Conduct of Amazon (Jul. 17, 2019).

[48] See Case AT.39740, Google Search (Shopping), 2017 E.R.C. I-379. See also, Case AT.40099 (Google Android), 2018 E.R.C.

[49] See Complaint, United States v. Google, LLC, (2020), https://www.justice.gov/opa/pr/justice-department-sues-monopolist-google-violating-antitrust-laws; see also, Complaint, Colorado et al. v. Google, LLC, (2020), available at https://coag.gov/app/uploads/2020/12/Colorado-et-al.-v.-Google-PUBLIC-REDACTED-Complaint.pdf.

[50] See, e.g., Giorgio Monti, The Digital Markets Act: Institutional Design and Suggestions for Improvement, Tillburg L. & Econ. Ctr., Discussion Paper No. 2021-04 (2021), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3797730 (“In sum, the DMA is more than an enhanced and simplified application of Article 102 TFEU: while the obligations may be criticised as being based on existing competition concerns, they are forward-looking in trying to create a regulatory environment where gatekeeper power is contained and perhaps even reduced.”) (Emphasis added).

[51] See, e.g., Aurelien Portuese, “Please, Help Yourself”: Toward a Taxonomy of Self-Preferencing, Information Technology & Innovation Foundation (Oct. 25, 2021), available at https://itif.org/sites/default/files/2021-self-preferencing-taxonomy.pdf. (“The latest example of such weaponization of self-preferencing by antitrust populists is provided by Sens. Amy Klobuchar (D-MN) and Chuck Grassley (R-IA). They introduced legislation in October 2021 aimed at prohibiting the practice.2 However, the legislation would ban self-preferencing only for a handful of designated companies—the so-called “covered platforms,” not the thousands of brick-and-mortar sellers that daily self-preference for the benefit of consumers. Mimicking the European Commission’s Digital Markets Act prohibiting self-preferencing, Senate and the House bills would degrade consumers’ experience and undermine competition, since self-preferencing often benefits consumers and constitutes an integral part, rather than an abnormality, of the process of competition.”).

[52] Efforts to saddle platforms with “non-discrimination” constraints are tantamount to mandating openness. See Geoffrey A. Manne, Against the Vertical Discrimination Presumption, Foreword, Concurrences No. 2-2020 (2020) at 2 (“The notion that platforms should be forced to allow complementors to compete on their own terms, free of constraints or competition from platforms is a species of the idea that platforms are most socially valuable when they are most ‘open.’ But mandating openness is not without costs, most importantly in terms of the effective operation of the platform and its own incentives for innovation.”).

[53] See, e.g., Klint Finley, Your Own Private Google: The Quest for an Open Source Search Engine, Wired (Jul. 12, 2021), https://www.wired.com/2012/12/solar-elasticsearch-google.

[54] See Brian Connolly, Selling on Amazon vs. eBay in 2021: Which Is Better?, JungleScout (Jan. 12, 2021), https://www.junglescout.com/blog/amazon-vs-ebay; Crucial Differences Between Amazon and eBay, SaleHOO, https://www.salehoo.com/educate/selling-on-amazon/crucial-differences-between-amazon-and-ebay (last visited Feb. 8, 2021).

[55] See, e.g., Dolby Vision Is Winning the War Against HDR10 +, It Requires a Single Standard, Tech Smart, https://voonze.com/dolby-vision-is-winning-the-war-against-hdr10-it-requires-a-single-standard (last visited June 6, 2022).

[56] On the importance of managers, see, e.g., Nicolai J Foss & Peter G Klein, Why Managers Still Matter, 56 MIT Sloan Mgmt. Rev., 73 (2014) (“In today’s knowledge-based economy, managerial authority is supposedly in decline. But there is still a strong need for someone to define and implement the organizational rules of the game.”).

[57] It is generally agreed upon that anticompetitive foreclosure is possible only when a firm enjoys some degree of market power. Frank H. Easterbrook, Limits of Antitrust, 63 Tex. L. Rev. 1, 20 (1984) (“Firms that lack power cannot injure competition no matter how hard they try. They may injure a few consumers, or a few rivals, or themselves (see (2) below) by selecting ‘anticompetitive’ tactics. When the firms lack market power, though, they cannot persist in deleterious practices. Rival firms will offer the consumers better deals. Rivals’ better offers will stamp out bad practices faster than the judicial process can. For these and other reasons many lower courts have held that proof of market power is an indispensable first step in any case under the Rule of Reason. The Supreme Court has established a market power hurdle in tying cases, despite the nominally per se character of the tying offense, on the same ground offered here: if the defendant lacks market power, other firms can offer the customer a better deal, and there is no need for judicial intervention.”).

[58] See, e.g., Josh Lerner & Jean Tirole, Some Simple Economics of Open Source, 50 J. Indus. Econ. 197 (2002).

[59] See Matthew Miller, Thanks, Samsung: Android’s Best Mobile Browser Now Available to All, ZDNet (Aug. 11, 2017), https://www.zdnet.com/article/thanks-samsung-androids-best-mobile-browser-now-available-to-all.

[60] FACT SHEET: Windows XP N Sales, RegMedia (Jun. 12, 2009), available at https://regmedia.co.uk/2009/06/12/microsoft_windows_xp_n_fact_sheet.pdf.

[61] See Case COMP/39.530, Microsoft (Tying), OJ C 120 (Apr. 26, 2013).

[62] Konstantinos Stylianou, Systemic Efficiencies in Competition Law: Evidence from the ICT Industry, 12 J. Competition L. & Econ. 557 (2016).

[63] See, e.g., Steven Sinofsky, The App Store Debate: A Story of Ecosystems, Medium (Jun. 21, 2020), https://medium.learningbyshipping.com/the-app-store-debate-a-story-of-ecosystems-938424eeef74.

[64] Id.

[65] See, e.g., Benjamin Klein, Market Power in Aftermarkets, 17 Managerial & Decision Econ. 143 (1996).

[66] See, e.g., Simon Hill, What Is Android Fragmentation, and Can Google Ever Fix It?, DigitalTrends (Oct. 31, 2018), https://www.digitaltrends.com/mobile/what-is-android-fragmentation-and-can-google-ever-fix-it.

[67] Metaverse Market Revenue Worldwide from 2022 to 2030, Statista, https://www.statista.com/statistics/1295784/metaverse-market-size (last visited May 3, 2023); Metaverse Market by Component (Hardware, Software (Extended Reality Software, Gaming Engine, 3D Mapping, Modeling & Reconstruction, Metaverse Platform, Financial Platform), and Professional Services), Vertical and Region – Global Forecast to 2027, Markets and Markets (Apr. 27, 2023), https://www.marketsandmarkets.com/Market-Reports/metaverse-market-166893905.html; see also, Press Release, Metaverse Market Size Worth $ 824.53 Billion, Globally, by 2030 at 39.1% CAGR, Verified Market Research (Jul. 13, 2022), https://www.prnewswire.com/news-releases/metaverse-market-size-worth–824-53-billion-globally-by-2030-at-39-1-cagr-verified-market-research-301585725.html.

[68] See, e.g., Megan Farokhmanesh, Will the Metaverse Live Up to the Hype? Game Developers Aren’t Impressed, Wired (Jan. 19, 2023), https://www.wired.com/story/metaverse-video-games-fortnite-zuckerberg; see also Mitch Wagner, The Metaverse Hype Bubble Has Popped. What Now?, Fierce Electronics (Feb. 24, 2023), https://www.fierceelectronics.com/embedded/metaverse-hype-bubble-has-popped-what-now.

[69] Call for Evidence, supra note 1.

[70] Garret A. Johnson, et al., Privacy and Market Concentration: Intended and Unintended Consequences of the GDPR, Forthcoming Management Science 1 (2023).

[71] Jian Jia, et al., The Short-Run Effects of GDPR on Technology Venture Investment, NBER Working Paper 25248, 4 (2018), available at https://www.nber.org/system/files/working_papers/w25248/w25248.pdf.

[72] Samuel G. Goldberg, Garrett A. Johnson, & Scott K. Shriver, Regulating Privacy Online: An Economic Evaluation of GDPR (2021), available at https://www.ftc.gov/system/files/documents/public_events/1588356/johnsongoldbergshriver.pdf.

[73] Rebecca Janßen, Reinhold Kesler, Michael Kummer, & Joel Waldfogel, GDPR and the Lost Generation of Innovative Apps, Nber Working Paper 30028, 2 (2022), available at https://www.nber.org/system/files/working_papers/w30028/w30028.pdf.

[74] Rajkumar Venkatesan, S. Arunachalam & Kiran Pedada, Short Run Effects of Generalized Data Protection Act on Returns from AI Acquisitions, University of Virginia Working Paper 6 (2022), available at: https://conference.nber.org/conf_papers/f161612.pdf. (“On average, GDPR exposure reduces the ROA of firms. We also find that GDPR exposure increases the ROA of firms that make AI acquisitions for improving customer experience, and cybersecurity. Returns on AI investments in innovation and operational efficiencies are unaffected by GDPR.”)

[75] For a detailed discussion of the empirical literature concerning the GDPR, see Garrett Johnson, Economic Research on Privacy Regulation: Lessons From the GDPR And Beyond, NBER Working Paper 30705 (2022), available at https://www.nber.org/system/files/working_papers/w30705/w30705.pdf.

Written Testimonies & Filings

The Digital Markets Act and EU Antitrust Enforcement: Double & Triple Jeopardy

Executive Summary

In contrast to its stated aims to promote a Digital Single Market across the European Union, the proposed Digital Markets Act (DMA) could serve to fragment Europe’s legal framework even further, largely due to overlaps with competition law. This paper provides an analytical overview of areas where conflicts would inevitably arise from dual application of the DMA and European and national-level antitrust rules. It counsels full centralization of the DMA’s enforcement at the EU level to avoid further fragmentation, as well as constraining the law’s scope by limiting its application to a few large platform ecosystems.

Introduction

The Digital Markets Act (DMA) has entered the last and decisive stage of its approval process. With the Council of Europe having reached consensus on its general approach[1] and the European Parliament having adopted amendments,[2] the DMA proposal has moved into the inter-institutional negotiations known as the so-called “trilogue.”

The DMA has spurred a lively debate since it initially was proposed by the European Commission in December 2020.[3] This deliberative process has touched on all the proposal’s features, including its aims and scope, the regulations and rule-based approach it would adopt, and the measure’s institutional design. However, given the positions expressed by the Council and the Parliament, the rationale for DMA intervention and the proposal’s relationship with antitrust law remain relevant topics for exploration.

The DMA is grounded explicitly on the notion that competition law alone is insufficient to effectively address the challenges and systemic problems posed by the digital platform economy. Indeed, the scope of antitrust is limited to certain instances of market power (e.g., dominance on specific markets) and of anti-competitive behavior.[4] Further, its enforcement occurs ex post and requires extensive investigation on a case-by-case basis of what are often very complex sets of facts.[5] Moreover, it may not effectively address the challenges to well-functioning markets posed by the conduct of gatekeepers, who are not necessarily dominant in competition-law terms.[6] As a result, proposals such as the DMA invoke regulatory intervention to complement traditional antitrust rules by introducing a set of ex ante obligations for online platforms designated as gatekeepers. This also allows enforcers to dispense with the laborious process of defining relevant markets, proving dominance, and measuring market effects.

The DMA’s framers declare that the law aims to protect different legal interests than antitrust rules do. That is, rather than seeking to protect undistorted competition on any given market, the DMA look to ensure that markets where gatekeepers are present remain contestable and fair, independent from the actual, likely, or presumed effects of the conduct of a given gatekeeper.[7] Accordingly, the relevant legal basis for the DMA is found not in Article 103 of the Treaty on the Functioning of the European Union (TFEU), which is intended to implement antitrust rules pursuant to Articles 101 and 102 TFEU, but rather in Article 114 TFEU, covering “Common Rules on Competition, Taxation and Approximation of Laws.” Further, from an institutional-design perspective, the DMA opts for centralized implementation and enforcement at the EU level, rather than the traditional decentralized or parallel antitrust enforcement at the national level.

Because the intent of the DMA is to serve as a complementary regulatory scheme, traditional antitrust rules will remain applicable. However, those rules would not alleviate the obligations imposed on gatekeepers under the forthcoming DMA regulations and, particularly, efforts to make the DMA’s application uniform and effective.[8]

Despite claims that the DMA is not an instrument of competition law[9] and thus would not affect how antitrust rules apply in digital markets, the forthcoming regime appears to blur the line between regulation and antitrust by mixing their respective features and goals. Indeed, the DMA shares the same aims and protects the same legal interests as competition law.[10] Further, its list of prohibitions is effectively a synopsis of past and ongoing antitrust cases.[11] Therefore, the proposal can be described as a sector-specific competition law,[12] or a shift toward a more regulatory approach to competition law—one that is designed to allow assessments to be made more quickly and through a more simplified process.[13]

Acknowledging the continuum between competition law and the DMA, the European Competition Network (ECN) and some EU member states (self-anointed “friends of an effective DMA”) have proposed empowering national competition authorities (NCAs) to enforce DMA obligations.[14] Under this approach, while the European Commission would remain primarily responsible for enforcing the DMA and would have sole jurisdiction for designating gatekeepers or granting exemptions, NCAs would be permitted to enforce the DMA’s obligations and to use investigative and monitoring powers at their own initiative. According to supporters of this approach, the concurrent competence of the Commission and NCAs is needed to avoid the risks of conflicting decisions or remedies that would undermine the effectiveness and coherence of both the DMA and antitrust law (and, ultimately, the integrity of the internal market.)[15]

These risks have been heightened by the fact that Germany (one of the “friends of an effective DMA”) subsequently empowered its NCA, the Bundeskartellamt, to intervene at an early stage in cases where it finds that competition is threatened by large digital companies—in essence, granting the agency a regulatory tool that is functionally equivalent to the DMA.[16] Further, several member states are preparing to apply national rules on relative market power and economic dependence to large digital platforms, with the goal of correcting perceived imbalances of bargaining power between online platforms and business users.[17] As a result of these intersections among the DMA, national and European antitrust rules, and national laws on superior bargaining power, a digital platform may be subject to cumulative proceedings for the very same conduct, facing risks of double (or even triple and quadruple) jeopardy.[18]

The aim of this paper is to guide the reader through the jungle of potentially overlapping rules that will affect European digital markets in the post-DMA world. It attempts to demonstrate that, despite significant concerns about both the DMA’s content and its rationale, full centralization of its enforcement at EU level will likely be needed to reduce fragmentation and ensure harmonized implementation of the rules. Frictions with competition law would be further confined by narrowing the DMA’s scope to ecosystem-related issues, thereby limiting its application to the few large platforms that are able to orchestrate an ecosystem.

The paper is structured as follows. Section II analyzes the intersection between the DMA and competition law. Section III examines the DMA’s enforcement structure and the solutions advanced to safeguard cooperation and coordination with member states. Section IV illustrates the arguments supporting full centralization of DMA enforcement and the need to narrow its scope. Section V concludes.

Read the full white paper here.

[1] Proposal for a Regulation of the European Parliament and of the Council on Contestable and Fair Markets on the Digital Sector (Digital Markets Act) – General Approach, Council of the European Union (Nov. 16, 2021), available at https://data.consilium.europa.eu/doc/document/ST-13801-2021-INIT/en/pdf.

[2] Amendments Adopted on the Proposal for a Regulation of the European Parliament and of the Council on Contestable and Fair Markets in the Digital Sector (Digital Markets Act), European Parliament (Dec. 15, 2021), https://www.europarl.europa.eu/doceo/document/TA-9-2021-12-15_EN.html.

[3] Proposal for a Regulation on Contestable and Fair Markets in the Digital Sector (Digital Markets Act), European Commission (Dec. 15, 2020), available at https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52020PC0842&from=en.

[4] Ibid., Recital 5.

[5] Ibid.

[6] Ibid.

[7] Ibid., Recital 10.

[8] Ibid., Recital 9 and Article 1(5).

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

[10] 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 (Jun. 11, 2021).

[11] Cristina Caffarra and Fiona Scott Morton, The European Commission Digital Markets Act: A Translation, Vox EU (Jan. 5, 2021), https://voxeu.org/article/european-commission-digital-markets-act-translation.

[12] Nicolas Petit, The Proposed Digital Markets Act (DMA): A Legal and Policy Review, 12 J. Eur. Compet. Law Pract 529 (May 11, 2021).

[13] Marco Cappai and Giuseppe Colangelo, Taming Digital Gatekeepers: The More Regulatory Approach to Antitrust Law, 41 Comput. Law Secur. Rev. 1 (Apr. 9, 2021).

[14] How National Competition Agencies Can Strengthen the DMA, European Competition Network (Jun. 22, 2021), available at https://ec.europa.eu/competition/ecn/DMA_joint_EU_NCAs_paper_21.06.2021.pdf; Strengthening the Digital Markets Act and Its Enforcement, German Federal Ministry for Economic Affairs and Energy, French Ministére de l’Économie, les Finance et de la Relance, Dutch Ministry of Economic Affairs and Climate Policy, (May 27, 2021), available at https://www.bmwi.de/Redaktion/DE/Downloads/XYZ/zweites-gemeinsames-positionspapier-der-friends-of-an-effective-digital-markets-act.pdf?__blob=publicationFile&v=4.

[15] European Competition Network, supra note 14, 6-7.

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

[17] See, e.g., German GWB Digitalization Act, supra note 16; See, also, 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, Belgian Official Gazette (Jul. 19, 2020), http://www.ejustice.just.fgov.be/cgi_loi/change_lg.pl?language=fr&la=F&cn=2019040453&table_name=loi.

[18] Marco Cappai and Giuseppe Colangelo, A Unified Test for the European Ne Bis in Idem Principle: The Case Study of Digital Markets Regulation, SSRN working paper (Oct. 27, 2021), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3951088.

ICLE White Paper

Antitrust Dystopia and Antitrust Nostalgia: Alarmist Theories of Harm in Digital Markets and Their Origins

Introduction

The dystopian novel is a powerful literary genre. It has given us such masterpieces as Nineteen Eighty-Four, Brave New World, Fahrenheit 451, and Animal Farm. Though these novels often shed light on some of the risks that contemporary society faces and the zeitgeist of the time when they were written, they almost always systematically overshoot the mark (whether intentionally or not) and severely underestimate the radical improvements commensurate with the technology (or other causes) that they fear. Nineteen Eighty-Four, for example, presciently saw in 1949 the coming ravages of communism, but it did not guess that markets would prevail, allowing us all to live freer and more comfortable lives than any preceding generation. Fahrenheit 451 accurately feared that books would lose their monopoly as the foremost medium of communication, but it completely missed the unparalleled access to knowledge that today’s generations enjoy. And while Animal Farm portrayed a metaphorical world where increasing inequality is inexorably linked to totalitarianism and immiseration, global poverty has reached historic lows in the twenty-first century, and this is likely also true of global inequality. In short, for all their literary merit, dystopian novels appear to be terrible predictors of the quality of future human existence. The fact that popular depictions of the future often take the shape of dystopias is more likely reflective of the genre’s entertainment value than of society’s impending demise.

But dystopias are not just a literary phenomenon; they are also a powerful force in policy circles. For example, in the early 1970s, the so-called Club of Rome published an influential report titled The Limits to Growth. The report argued that absent rapid and far-reaching policy shifts, the planet was on a clear path to self-destruction:

If the present growth trends in world population, industrialization, pollution, food production, and resource depletion continue unchanged, the limits to growth on this planet will be reached sometime within the next one hundred years. The most probable result will be a rather sudden and uncontrollable decline in both population and industrial capacity.

Halfway through the authors’ 100-year timeline, however, available data suggests that their predictions were way off the mark. While the world’s economic growth has continued at a breakneck pace, extreme poverty, famine, and the depletion of natural resources have all decreased tremendously.

For all its inaccurate and misguided predictions, dire tracts such as The Limits to Growth perhaps deserve some of the credit for the environmental movements that followed. But taken at face value, the dystopian future along with the attendant policy demands put forward by works like The Limits to Growth would have had cataclysmic consequences for, apparently, extremely limited gain. The policy incentive is to strongly claim impending doom. There’s no incentive to suggest “all is well,” and little incentive even to offer realistic, caveated predictions.

As we argue in this Article, antitrust scholarship and commentary is also afflicted by dystopian thinking. Today, antitrust pessimists have set their sights predominantly on the digital economy—“big tech” and “big data”—alleging a vast array of potential harms. Scholars have argued that the data created and employed by the digital economy produces network effects that inevitably lead to tipping and more concentrated markets. In other words, firms will allegedly accumulate insurmountable data advantages and thus thwart competitors for extended periods of time. Some have gone so far as to argue that this threatens the very fabric of western democracy. Other commentators have voiced fears that companies may implement abusive privacy policies to shortchange consumers. It has also been said that the widespread adoption of pricing algorithms will almost inevitably lead to rampant price discrimination and algorithmic collusion. Indeed, “pollution” from data has even been likened to the environmental pollution that spawned The Limits to Growth: “If indeed ‘data are to this century what oil was to the last one,’ then—[it’s] argue[d]—data pollution is to our century what industrial pollution was to the last one.”

Some scholars have drawn explicit parallels between the emergence of the tech industry and famous dystopian novels. Professor Shoshana Zuboff, for instance, refers to today’s tech giants as “Big Other.” In an article called “Only You Can Prevent Dystopia,” one New York Times columnist surmised:

The new year is here, and online, the forecast calls for several seasons of hell. Tech giants and the media have scarcely figured out all that went wrong during the last presidential election—viral misinformation, state-sponsored propaganda, bots aplenty, all of us cleaved into our own tribal reality bubbles—yet here we go again, headlong into another experiment in digitally mediated democracy.

I’ll be honest with you: I’m terrified . . . There’s a good chance the internet will help break the world this year, and I’m not confident we have the tools to stop it.

Parallels between the novel Nineteen Eighty-Four and the power of large digital platforms were also plain to see when Epic Games launched an antitrust suit against Apple and its App Store in August 2020. Indeed, Epic Games released a short video clip parodying Apple’s famous “1984” ad (which upon its release was itself widely seen as a critique of the tech incumbents of the time).

Similarly, a piece in the New Statesman, titled “Slouching Towards Dystopia: The Rise of Surveillance Capitalism and the Death of Privacy,” concluded that: “Our lives and behaviour have been turned into profit for the Big Tech giants—and we meekly click ‘Accept.’ How did we sleepwalk into a world without privacy?”

Finally, a piece published in the online magazine Gizmodo asked a number of experts whether we are “already living in a tech dystopia.” Some of the responses were alarming, to say the least:

I’ve started thinking of some of our most promising tech, including machine learning, as like asbestos: … it’s really hard to account for, much less remove, once it’s in place; and it carries with it the possibility of deep injury both now and down the line.

. . . .

We live in a world saturated with technological surveillance, democracy-negating media, and technology companies that put themselves above the law while helping to spread hate and abuse all over the world.

Yet the most dystopian aspect of the current technology world may be that so many people actively promote these technologies as utopian.

Antitrust pessimism is not a new phenomenon, and antitrust enforcers and scholars have long been fascinated with—and skeptical of—high tech markets. From early interventions against the champions of the Second Industrial Revolution (oil, railways, steel, etc.) through the mid-twentieth century innovations such as telecommunications and early computing (most notably the RCA, IBM, and Bell Labs consent decrees in the US) to today’s technology giants, each wave of innovation has been met with a rapid response from antitrust authorities, copious intervention-minded scholarship, and waves of pessimistic press coverage. This is hardly surprising given that the adoption of antitrust statutes was in part a response to the emergence of those large corporations that came to dominate the Second Industrial Revolution (despite the numerous radical innovations that these firms introduced in the process). Especially for unilateral conduct issues, it has long been innovative firms that have drawn the lion’s share of cases, scholarly writings, and press coverage.

Underlying this pessimism is a pervasive assumption that new technologies will somehow undermine the competitiveness of markets, imperil innovation, and entrench dominant technology firms for decades to come. This is a form of antitrust dystopia. For its proponents, the future ushered in by digital platforms will be a bleak one—despite abundant evidence that information technology and competition in technology markets have played significant roles in the positive transformation of society. This tendency was highlighted by economist Ronald Coase:

[I]f an economist finds something—a business practice of one sort or another—that he does not understand, he looks for a monopoly explanation. And as in this field we are very ignorant, the number of ununderstandable practices tends to be rather large, and the reliance on a monopoly explanation, frequent.

“The fear of the new—and the assumption that ‘ununderstandable practices’ emerge from anticompetitive impulses and generate anticompetitive effects—permeates not only much antitrust scholarship, but antitrust doctrine as well.” While much antitrust doctrine is capable of accommodating novel conduct and innovative business practices, antitrust law—like all common law-based legal regimes—is inherently backward looking: it primarily evaluates novel arrangements with reference to existing or prior structures, contracts, and practices, often responding to any deviations with “inhospitality.” As a result, there is a built-in “nostalgia bias” throughout much of antitrust that casts a deeply skeptical eye upon novel conduct.

“The upshot is that antitrust scholarship often emphasizes the risks that new market realities create for competition, while idealizing the extent to which previous market realities led to procompetitive outcomes.” Against this backdrop, our Article argues that the current wave of antitrust pessimism is premised on particularly questionable assumptions about competition in data-intensive markets.

Part I lays out the theory and identifies the sources and likely magnitude of both the dystopia and nostalgia biases. Having examined various expressions of these two biases, the Article argues that their exponents ultimately seek to apply a precautionary principle within the field of antitrust enforcement, made most evident in critics’ calls for authorities to shift the burden of proof in a subset of proceedings.

Part II discusses how these arguments play out in the context of digital markets. It argues that economic forces may undermine many of the ills that allegedly plague these markets—and thus the case for implementing a form of precautionary antitrust enforcement. For instance, because data is ultimately just information, it will prove exceedingly difficult for firms to hoard data for extended periods of time. Instead, a more plausible risk is that firms will underinvest in the generation of data. Likewise, the main challenge for digital economy firms is not so much to obtain data, but to create valuable goods and hire talented engineers to draw insights from the data these goods generate. Recent empirical findings suggest, for example, that data economy firms don’t benefit as much as often claimed from data network effects or increasing returns to scale.

Part III reconsiders the United States v. Microsoft Corp. antitrust litigation—the most important precursor to today’s “big tech” antitrust enforcement efforts—and shows how it undermines, rather than supports, pessimistic antitrust thinking. It shows that many of the fears that were raised at the time didn’t transpire (for reasons unrelated to antitrust intervention). Rather, pessimists missed the emergence of key developments that greatly undermined Microsoft’s market position, and greatly overestimated Microsoft’s ability to thwart its competitors. Those circumstances—particularly revolving around the alleged “applications barrier to entry”—have uncanny analogues in the data markets of today. We thus explain how and why the Microsoft case should serve as a cautionary tale for current enforcers confronted with dystopian antitrust theories.

In short, the Article exposes a form of bias within the antitrust community. Unlike entrepreneurs, antitrust scholars and policy makers often lack the imagination to see how competition will emerge and enable entrants to overthrow seemingly untouchable incumbents. New technologies are particularly prone to this bias because there is a shorter history of competition to go on and thus less tangible evidence of attrition in these specific markets. The digital future is almost certainly far less bleak than many antitrust critics have suggested and yet the current swath of interventions aimed at reining in “big tech” presume. This does not mean that antitrust authorities should throw caution to the wind. Instead, policy makers should strive to maintain existing enforcement thresholds, which exclude interventions that are based solely on highly speculative theories of harm.

Read the full white paper here.

Scholarship

DCRs Are Antitrust Law Without the Guardrails

DCRs are generally premised on the dubious argument that the economy, democracy, or society at-large would be better served if it were easier for enforcers to win competition cases in digital markets. As a result, these regulations create presumptions of anticompetitive harm that defendants are not granted the opportunity to rebut. One such example is per-se bans on self-preferencing, even though platforms’ self-preferencing can be benign and even pro-competitive. Unfortunately, these presumptions creates acute risks of government failure and Type II errors (see below). They also encroach on fundamental due-process rights, while often fomenting costly litigation. 

Interpreting the EU Digital Markets Act Consistently with the EU Charter’s Rights to Privacy and Protection of Personal Data

Abstract

Depending on implementation details, the EU Digital Markets Act (DMA) may have negative consequences regarding information privacy and security. The DMA’s interoperability mandates are a chief example of this problem. Some of the DMA’s provisions that pose risks to privacy and to the protection of personal data are accompanied either by no explicit safeguards or by insufficient safeguards. The question is then: how to interpret the DMA consistently with Articles 7-8 of the EU Charter of Fundamental Rights which ground the rights to privacy and the protection of personal data? Using the example of the prohibition on restricting users from switching and subscribing to third-party software and services (Article 6(6) DMA), I show that Charter-compatible interpretation of the DMA may depart from the intentions of the DMA’s drafters and even be perceived by some as significantly limiting the effectiveness of the DMA’s primary tools. However, given that—unlike the GDPR—the Charter takes precedence over a mere regulation like the DMA, such policy objections may have limited legal import. Thus, the true legal norms (legal content) of the DMA may be different than what a superficial reading of the text could suggest or, indeed, what the drafters hoped to achieve.

Scholarship

Implementing the DMA: Great Power Requires Great Procedural Safeguards

Background…

In December 2022, the European Commission launched a public consultation on the regulation to implement the Digital Markets Act, including how the DMA will be enforced procedurally. Among the issues the regulation covers are parties’ rights to be heard, firms’ deadlines to submit documents to the Commission, access to those documents and to the Commission’s case file, and how confidentiality will be protected.

However…

While reasonable people may disagree about the merits of digital-markets regulation, appropriate procedural rules that safeguard parties’ rights and create legal certainty are essential. The timing, background, and content of the Implementing Regulation, however, all raise legitimate concerns and underscore broader issues in the DMA.

Read the full explainer here.

TL;DR

DCRs Can Harm Consumers and Stifle Innovation

Digital competition regulations flout the old antitrust adage that the law should protect competition, not competitors. Unlike competition laws, DCRs do not put consumer welfare at the forefront of analysis.

In the EU’s DMA, for example, prohibitions, obligations, and exemptions are not guided by their likely impact on consumers. Other jurisdictions, such as the UK, do nominally account for a practice’s impact on consumers, but they invert the burden of proof and set a high bar to demonstrate consumer benefits (e.g.—mandating a showing of indispensability, which will likely be difficult to discharge in practice).

As a consequence, DCRs could leave consumers worse off, with less innovative products, less privacy and security, and higher prices. Indeed, the early stages of the DMA’s entry into force have been marked by user complaints of degraded online experiences.

Network Effects and Interoperability

Background: The European Union’s Digital Markets Act (DMA), which went into effect in November 2022,  requires online platforms deemed to be “gatekeepers” to make their services interoperable. Interoperability refers to the ability of different systems, devices, or applications to communicate and exchange information. Importantly, the DMA envisions horizontal interoperability for messaging services, as well as vertical interoperability obligations. These include the ability to install third-party app stores and to install applications through sideloading, along with ensuring access to operating systems’ critical functionalities and specific devices’ hardware capabilities.

However… While interoperability requirements can reduce switching costs between platforms and possibly  help consumers avoid being “locked-in” to inferior products, the net effects on new technology and greater competition are mostly speculative. Claims that mandatory interoperability is a “super tool” for platform competition rely on excessive switching costs between platforms effectively serving as a barrier to entry. The rise of new social networks like TikTok and messaging services like Discord suggests that network effects may be less pervasive than previously thought. Many consumers are perfectly comfortable with “multi-homing” and using multiple platforms. 

Network Effects Are Everywhere; Network Harms Are More Specific

Consumers in any market—not exclusively or even predominantly digital markets—strike a balance between using multiple providers (multi-homing) and remaining loyal to just one. Network effects can give incumbents an advantage over challengers, but identifying that a given market has network effects does not, in itself, justify mandating interoperability. For any potential interoperability mandate, we must ask how costly it is for consumers to multi-home. 

For example, a consumer may find it low-cost to download multiple apps—such as Zelle, PayPal, or Venmo—that each allow one to send money to a friend. By contrast, it may be quite costly to gain followers on a new social-media platform. Interoperability mandates have tended to focus on markets that already have low switching costs, hence limiting potential gains.

Lock-In Can Increase Competition

We say a consumer is “locked-in” when high switching costs make it difficult for them to switch suppliers even when quality changes. But markets subject to lock-in may still see fierce competition for users. Companies compete upfront to attract such consumers through tactics like penetration pricing, introductory offers, and price wars. This “competition for the market” can effectively substitute for standard compatible competition and might even be more intense, as it reduces differentiation. It is not a simple linear relationship, where lower switching costs are always better for consumers.

Interoperability Isn’t Always Good

Interoperability proponents argue that it levels the playing field between tech giants and smaller competitors. The debate often imagines a low-quality incumbent using lock-in to keep a high-quality challenger at bay. But we don’t necessarily want everything to be interoperable. It would be a problem if, e.g., everyone’s door keys were interoperable. The analogous problem in tech is cybersecurity. More interconnected systems are more vulnerable to cyberattacks and data breaches. Mandating interoperability, such as between messaging services, can inadvertently expose users to greater security risks by creating additional points of access for bad actors.

Static Standards and Dynamic Markets

There are many examples of interoperability resulting from the voluntary adoption of standards. Credit-card companies manage vast, interoperable payment networks; screwdrivers work with screws made by various manufacturers; and U.S. colleges accept credits from other institutions. 

Interoperability also tends to evolve over time and regulators should not imagine the current system will last forever. Bluetooth was initially developed for wireless communication between devices like headsets and phones, but has evolved to also enable seamless connectivity among various speakers, keyboards, smartwatches, and so forth—all from different manufacturers. This standardization has greatly simplified wireless connections and improved user experience.

Calculate Costs in Addition to Benefits

While a literature review on switching costs and network effects by esteemed scholars Joseph Farrell and Paul Klemperer concluded that “firms probably seek incompatibility too often. We therefore favor thoughtfully pro-compatibility public policy,” they also recognize that competition to be the dominant platform “can adequately replace ordinary compatible competition, and can even be fiercer than compatible competition by weakening differentiation.”

Moreover, the theoretical papers they considered mostly ask whether increasing or decreasing switching costs increases consumer welfare. Mandates implemented through public policy tend to be more blunt and, after accounting for factors like increased security risks, are less likely to pass a cost-benefit test. Consumers often come across situations where interoperability might provide some benefits, but where the costs outweigh the gains. Policymakers should take the same approach.

For more on this issue, see “Antitrust Unchained: The EU’s Case Against Self-Preferencing” by Giuseppe Colangelo; “Privacy and Security Implications of Regulation of Digital Services in the EU and in the US” by Mikolaj Barczentewicz; and “Mandatory Interoperability Is Not a ‘Super Tool’ for Platform Competition” by Samuel Bowman.

TL;DR

The Privacy-Antitrust Curse: Insights from GDPR Application in EU Competition Law

Abstract

The integrated approach that many competition and privacy regulators have endorsed for oversight of the major online platforms, whose business models rely on collecting and processing large troves of personal data, has often been justified on grounds that competition and data protection are complementary ends. In this respect, Europe represents a testing ground for evaluating how privacy breaches may inform antitrust investigations. Indeed, the European Union’s General Data Protection Regulation (GDPR) and the recent German antitrust decision concerning Facebook may be considered polestars for this emerging regulatory approach that links market power and data power. This paper tests the degree to which such an approach is viable in concrete terms by analyzing how the European Commission and national competition authorities have applied data-protection rules and principles in antitrust proceedings. Notably, the paper aims to demonstrate the fallacy of characterizing the relationship between privacy and antitrust in terms of synergy and complementarity. Further, the paper maintains that the principles the European Court of Justice recently affirmed in its Meta decision do not appear to address the issue conclusively. The tension between these areas of law is illustrated by allegations raised in the numerous Apple ATT investigations concerning the strategic use of privacy as a business justification to pursue anticompetitive advantages. Rather than strengthening antitrust enforcement against gatekeepers and their data strategies, the inclusion of privacy harms in antitrust proceedings may turn out to be a potential curse for competition authorities, as it allows firms opportunities for regulatory gaming that can serve to undermine antitrust enforcement.

I.       Introduction

A significant share of the past decade’s academic literature on the role of data in digital markets has focused on the intersection of what had been previously thought of as the separate domains of privacy and antitrust. Given that data serves as a significant input for many of the major online platforms’ services and products, digital firms are eager to collect and process as much of it as possible. Such firms also use data-sharing agreements to obtain further data (i.e., information collected and provided by external suppliers) in order to improve their products and services. This is particularly true for those platforms whose business models rely on monetizing consumer information by selling targeted advertising and personalized sponsored content. In a market where platforms’ data-acquisition strategies are driven by the objective of granting sellers preferential access to consumer attention, personal data can represent an especially valuable portion of platforms’ information assets.[1] Moreover, given the social dimension of personal data, one user’s choice to share personal information with an online platform may generate externalities on other non-disclosing users (or non-users) by revealing information about them. Recent advances in machine learning may magnify the extent of these externalities, and raise questions about the effectiveness of data-protection regulations more generally.[2]

These dynamics have moved policymakers to take a greater interest in the degree to which data-accumulation strategies undermine individual privacy and entrench platforms’ market power. Some contend that the peculiar features of digital markets and the potential adverse uses of data in the digital economy require a regulatory approach that integrates privacy into antitrust enforcement and ensures close cooperation between antitrust authorities and data-protection regulators.[3]

According to this account, as network effects strengthen online firms’ market power, it becomes progressively more difficult to structure incentives for firms to compete on offering privacy-friendly products and services.[4] Conversely, these advocates claim, more competition in digital markets would lead to more privacy.[5]

Particular scrutiny is directed toward advertising-funded platforms that offer free services to attract users and thereby feed users’ data to the other side of the platform (i.e., advertisers), whose willingness to pay is strictly dependent on being able to deliver effective marketing through granular targeting or personalization. For their part, however, end users may not be aware of the value of their own data or may be induced to disclose private information. This could happen because users are attracted by zero-price services’ offers or, given the lack of available and comparable alternatives, in order to remain connected to their social, family, or work networks, users may feel compelled to accept take-it-or-leave-it terms that include the unwanted collection and use of their data.[6]

Some suggest that privacy should be included in antitrust assessments because suboptimal privacy offerings may be the result of anti-competitive behavior leading to decreased quality of products and services.[7] In this sense, privacy would represent a particularly significant factor to be taken into account in the merger-review process, as market concentration among companies that hold big data could further expand the merging firms’ tools to profile consumers and potentially invade their privacy.[8]

Finally, some advocates propose commingling antitrust and privacy regulation as part of a broader agenda to realign competition policy away from pure efficiency-oriented antitrust enforcement and instead toward a holistic approach that combines competition law with other fields of law, in order to take account of a broader swath of social interests.[9] In essence, privacy and antitrust would each help to cover the other’s purported Achilles heel.[10] While end users’ privacy interests would become relevant in investigating data-accumulation strategies that antitrust might otherwise fail to tackle, antitrust authorities would be more effective in ensuring data protection.[11]

Against the integrationist perspective, however, some scholars warn of risks that would attend transforming privacy infringements into per se antitrust violations.[12] Indeed, competition law and privacy regulation pursue different aims and deploy different tools. While privacy is not irrelevant to competition law and may constitute an important component of nonprice competition, the goals of competition and privacy are often at odds. Pushing these regulatory regimes to converge threatens to confuse, rather than strengthen, the enforcement of either.[13]

Further, the widely recognized “privacy paradox” illustrates that assessments of privacy are extremely subjective. Different consumers in differing contexts often express starkly different sensitivities about the protection of their personal data, rendering it challenging to provide accurate quality-driven assessments or even to set broadly acceptable baseline rules and policies.[14] More generally, an expansive approach that would treat privacy violations as sources of competitive harm potentially implies the need for antitrust investigations whenever dominant firms potentially violate any law, as they would acquire an advantage by saving costs or raising rivals’ costs.[15] Antitrust authorities would therefore become economy-wide regulators.

While some recent cases brought by U.S. antitrust authorities have also placed privacy concerns in a prominent position,[16] there are two reasons that Europe appears to represent the primary testing ground for an integrated approach for privacy and antitrust. First, European policymakers long have prided themselves as leaders in regulating digital markets, notably for a broad array of heterogeneous legislative initiatives that have in common their strenuous efforts to foster data sharing and their sponsors’ belief that the emergence of large technology platforms requires a bespoke approach.[17] In this sense, the initiative that blazed the path for the emerging integrationist perspective was the EU’s General Data Protection Regulation (GDPR), which assigned control rights over data to individuals and, in light of the emerging regulatory convergence of privacy and antitrust, introduced a general data-portability right for individuals, the rationale of which was inherently pro-competitive.[18]

Second, on the antitrust side of the ledger, the decision handed down by the German competition authority in the Facebook case was the first (and remains the primary) example of the trend toward enforcers asserting that competition law should be informed by data-protection principles and that data protection should enforced outside its usual legal context, with the goal of remedying the shortcomings of privacy law.[19]

Despite the purported synergies underpinning the respective policy goals of competition and data-protection law, however, their interests and objectives are not necessarily aligned.[20] In particular, there are signs that some major digital firms may interpret data-protection requirements in ways that risk distorting competition.[21] Namely, once privacy harms are included among the interests ostensibly protected in antitrust proceedings, platforms may have incentive to adjust their strategies to invoke data protection as a business justification for allegedly anticompetitive conduct.[22]

For example, some platforms justify their decisions to deny rivals access to their facilities on grounds that doing so would risk violating their users’ privacy.[23] App-store providers in particular have described some restrictions that may be interpreted as anticompetitive self-preferencing (e.g., requiring in-app purchases to be routed through their own in-app payment processor, limiting sideloading, and limiting app developers’ ability to communicate with end users about the availability of alternative payment options) as necessary to guarantee users’ security and privacy.[24]

The most debated example illustrating the growing tension between data protection and antitrust is Apple’s adoption of its “app tracking transparency” (ATT) policy, which creates new consent and notification requirements that change the way app developers can collect and use consumer data for mobile advertising on iOS. There very well could be privacy benefits associated with the new Apple framework, as it may enhance users’ privacy and control over their personal data. But ATT also would now differentiate between a user’s consent for Apple’s advertising services and consent for third-party advertising services. The ATT policy might therefore represent a form of discrimination that benefits Apple’s own advertising services and reinforces its position in app distribution to the detriment of rivals. For these reasons, the ATT policy is under investigation by several antitrust authorities.[25]

Given this backdrop, this paper seeks to investigate the intersection of privacy and competition law and to analyze how data-protection rules and principles have been applied in antitrust proceedings by the European Commission and by EU national competition authorities (NCAs). The analysis of the case law will illustrate how data protection has been progressively transformed from a weapon used by antitrust authorities to limit data accumulation to a shield exploited by digital platforms to justify potentially anticompetitive strategies and to game antitrust rules.

As a result, the paper aims to demonstrate the fallacy of the narrative that describes the relationship between privacy and antitrust in terms of synergy and complementarity. Such a paradigm, indeed, does not provide useful insights to solve the growing conflicts between the interests protected and the goals pursued by these different fields of law.

As has already happened with regard to the traditional intersection of intellectual-property protection and competition law, invoking a convergence of aims does not in itself sketch out a pragmatic solution. Notably, competition authorities’ cooperation with data-protection regulators may help to ensure a coherent and uniform interpretation and application of the GDPR, it will not help antitrust authorities to strike the balance between privacy benefits and anticompetitive restrictions. In such a scenario, competition law enforcers risk being forced, like Buridan’s Ass, to make a choice that cannot be made.[26]

The remainder of the paper is structured as follows. Section II examines the European cases in which privacy concerns have been addressed in antitrust proceedings to tackle data-accumulation strategies by large online platforms. Section III deals with the strategic use of privacy as a business justification for potential anticompetitive conduct, which emerges as a byproduct of promoting the integration of privacy and antitrust. Taking stock of the German Facebook case recently addressed by the Court of Justice of the European Union (CJEU),[27] Section IV illustrates how the intrinsic conflict between data-protection and competition law cannot be solved merely by invoking a purported synergy or complementarity. Section V concludes.

II.     Privacy as an Antitrust Sword Against Data-Accumulation Strategies

While data-protection and competition law serve different goals, it is commonly argued that the emergence of business models involving the collection and commercial use of personal data creates inevitable linkages between market power and data protection.[28] Notably, given that the key goal of the GDPR was to enable individuals to have control of their own personal data,[29] applying competition rules to digital markets could, it is asserted, promote precisely that control.[30] As a consequence, “previously separate policy areas become interlinked, and different regulatory authorities are increasingly required to consider a given set of issues from the perspective of contrasting policy aims and objectives.”[31]

From this perspective, combining data-protection and competition law is justified on grounds that a common aim they share is to avoid exploitation of personal data and restrictions on consumers’ privacy.[32] Since end users may experience less privacy and autonomy as a result of excessive data collection and use:

Reductions in privacy could also be a matter of abuse control, if an incumbent collects data by clearly breaching data protection law and if there is a strong interplay between the data collection and the undertaking’s market position.[33]

Indeed, from the standpoint of competition law, the idea has been advanced that the acquisition and exploitation of user information is itself the result of, or evidence of, market failure.[34] In particular, users of dominant advertiser-based platforms are said to suffer both from significant information asymmetries as a result of opaque data policies, and from platform lock-in, with no choice other than to consent to the harvesting and use of their data because of the lack of viable alternatives.[35]

On the data-protection side of the ledger, it is bears noting that, according to the GDPR, consent means any “freely given, specific, informed and unambiguous” indication of a data subject’s wishes—whether by statement or some other clear affirmative action—that signifies agreement to the processing of his or her personal data.[36] Further, the GDPR specifies the conditions for consent, which include that: the request for consent be presented in a manner clearly distinguishable from other matters; that it be in an intelligible and easily accessible form; that it use clear and plain language; that the data subject has the right to withdraw consent at any time; and that, when assessing whether consent is freely given, utmost account shall be taken of whether, inter alia, the performance of a contract—including the provision of a service—is conditional on consent to processing personal data not actually needed for the performance of that contract.[37]

A. Privacy Harm as an Antitrust Abuse

As the French and German competition authorities have argued in a joint paper:

[L]ooking at excessive trading conditions, especially terms and conditions which are imposed on consumers in order to use a service or product, data privacy regulations might be a useful benchmark to assess an exploitative conduct, especially in a context where most consumers do not read the conditions and terms of services and privacy policies of the various providers of the services that they use.[38]

From this perspective, privacy concerns support the use of antitrust intervention to limit data-accumulation strategies by treating the restriction on privacy as a form of exploitative abuse.

Another way that privacy interests can be leveraged by antitrust authorities to address competitive concerns about data accumulation is through the merger-review process. Indeed, “firms that gain a powerful position through a merger may be able to gain further market power through the collection of more consumer data and privacy degradation.”[39] The use of merger review is expected to be more effective to achieve privacy-policy goals given that, while an antitrust abuse investigation may at best neutralize or alleviate exploitation of data gathered by a dominant player, merger proceedings would prevent data accumulation in the first place.

  1. The German Facebook case: Users’ privacy-exploitation claim

The Bundeskartellamt’s decision in Facebook undoubtedly represents the apex, to date, of enforcers’ application of the integrationist perspective.[40] According to the German competition authority, Facebook unlawfully exploited its dominant position in the German market for social networks by making the use of its social-networking service conditional on users granting extensive permission to collect and process their personal data. Notably, Facebook failed to make its users fully aware of the fact that it collected their personal data from sources other than the Facebook platform and then merged those data with personal information gathered through its own platform.[41] Further, Facebook put its users in the difficult position of either accepting this data policy or refraining from use of the social network in its entirety.

Indeed, even well-informed users would have not been able to voluntarily consent to such data collection and combination, as they would fear the alternative of no longer being able to access the social network.[42] Therefore, according to the German competition authority, when the data controller is in a dominant position, its users’ consent is insufficient under the GDPR, because the platform’s market power always puts users in the position of having to either take or leave any offers made.

Considering these findings, the Bundeskartellamt established a link between market power and privacy concerns. In its view, Facebook’s terms and conditions were neither justified under data-protection principles nor appropriate under competition-law standards. To comply with the GDPR, users should have been asked whether they voluntarily consent to the practice of combining data in their Facebook user accounts, which could not consist merely of ticking a box. Indeed, given Facebook’s superior market power, the user’s choice to either accept comprehensive data combination or to refrain from using the social network could not be regarded as voluntary consent.[43] The Bundeskartellamt therefore concluded that Facebook had infringed GDPR rules by depriving its users of the human right to control the processing of their personal data and of the constitutional right of informational self-determination.

This form of coercion is, however, also relevant to competition law, as it was the result of Facebook’s dominant position. Hence, Facebook’s conduct could be considered exploitative within the meaning of the general clause of Section 19(1) of the German Competition Act (GWB), according to which competition law applies in every case where one bargaining party is so powerful that it can dictate the terms of the contract, with the end result being the abolition of the contractual autonomy of the other bargaining party. From the Bundeskartellamt’s standpoint, if a dominant firm collects and analyzes users’ data pursuant to terms and conditions that do not comply with EU data-protection rules, it also violates antitrust law by acquiring an unfair competitive advantage over firms that do adhere to the GDPR.

In summary, while the primary concern in the Facebook case was an antitrust issue (i.e., the excessive quantity of data that Facebook accumulated in its unique dataset),[44] the Bundeskartellamt elaborated a theory of harm based primarily on protecting the constitutional right to informational self-determination. In other words, the competition authority invoked the right under which data-protection law affords individuals the power to decide freely and without coercion how their personal data is processed. Such reasoning is consistent with the case law of Section 19(1) GWB, which allows an antitrust authority to consider the protection of constitutional values and interests in assessing the practices of dominant firms. While the Bundeskartellamt contended that its proceedings against Facebook would also generally be possible under the EU’s antitrust provision on exploitative abuses (Article 102(a) TFEU),[45] Section 19 GWB offered a broader (and, hence, more legally convenient) general clause.[46]

This privacy-focused approach also manifested in the remedy that Meta presented, and which the Bundeskartellamt welcomed. To implement the German antitrust authority’s decision, Meta proposed several changes to the accounts center that would allow customers to decide whether they wanted to use all services separately, each with their own circumscribed functions, or to use additional functions across accounts, which would require sharing more personal data.[47] In the Bundeskartellamt’s view, this solution would allow Meta’s customers to make a largely free and informed decision.

The Bundeskartellamt’s approach in the Facebook case therefore appears quite distinctive and essentially German-specific, as well as particularly controversial with respect to the scope and boundaries of competition and data-protection enforcement.[48] Indeed, in ascertaining a privacy violation previously undetected by any data-protection authority, the Bundeskartellamt acted as a self-appointed enforcer of data-protection rules.

It also interpreted data-protection rules in ways that far exceed the limits of its legal competence, given that there is nothing in the GDPR that makes the quality of a user’s consent agreement contingent on the data controller’s market power. Indeed, the GDPR makes no distinction at all on the basis of a firm’s market power. Size does not matter when it comes to data-protection law; a dominant firm is just as bound by privacy rules as its smaller rivals. At the same time, from the perspective of competition law, following the Bundeskartellamt’s expansive stance, virtually every legal infringement by a dominant firm could amount to an antitrust violation.

Because of the thorny implications for the interface between antitrust and data-protection law, the Facebook decision unsurprisingly sparked a heated debate not only in the literature, but also between German courts.

The Higher Regional Court (Oberlandesgericht, or OLG) of Du?sseldorf suspended the landmark decision, expressing serious doubts about its legal basis and complaining that the Bundeskartellamt was “merely discussing a data protection issue, and not a competition problem.”[49] Pursuant to both European and German antitrust provisions, a charge of abuse of market power by a dominant undertaking requires a finding of anticompetitive conduct and, hence, damage to competition—namely, to the freedom of competition, that is “safeguarding competition and the openness of market access.”[50] Therefore, dominant undertakings carry a special responsibility only in the domain of competition, rather than for compliance with the entire legal system by avoiding any violation of the law.[51] Further, in the appellate court’s view, no influence was exerted on users, as Facebook’s terms of service simply require them to weigh the benefits of using an ad-financed (and, therefore, free) social network against the consequences of Facebook’s use of the additional data that it gathers.

However, the Federal Supreme Court (Bundesgerichtshof, or BGH) overturned the OLG’s judgment and held that Facebook must comply with the Bundeskartellamt’s decision.[52] The BGH’s reasoning did, however, differ from the Bundeskartellamt’s. According to the Federal Supreme Court,  it is inconclusive whether Facebook’s processing and use of personal data complied with the GDPR. The court’s decision turned instead on Facebook’s terms of service, which the BGH found are abusive if they deprive Facebook users of any choice in whether they wish to use the network in a more personalized manner (thus, linking their experience to Facebook’s potentially unlimited access to characteristics that include their off-Facebook use of the internet more generally) or whether they wanted a level of personalization that was based solely on data that they themselves share on Facebook.[53]

Notably, the BGH found that Facebook’s data processing constitutes an “imposed extension of services,” as users receive an indispensable service only in combination with another undesired service.[54] Accordingly, such a practice was evaluated as both an exploitative and an exclusionary abuse. The lack of options available to users affects their personal autonomy and the exercise of their right to informational self-determination, as protected by the GDPR. Given lock-in effects that serve as barriers for network users who would otherwise like to switch providers, the BGH found that this lack of options exploits users in a manner relevant under competition law since, under effective competition, one would expect more diverse market offerings for social networks.[55] Further, the terms of service could also impede competition for online advertising, allowing Facebook to protect its dominant position against rivals, as they would be able to improve their offerings due to privileged access to a considerably larger database.[56]

As a result of this clash among the German courts, the Higher Regional Court of Du?sseldorf decided to refer the case to the CJEU, adding a new twist to the Facebook saga.[57] In particular, the OLG of Du?sseldorf raised seven questions about the interpretation of the GDPR, fundamentally asking the CJEU to untie the knot and clarify the competence of a competition authority to determine and penalize a GDPR breach; the prohibition on processing sensitive personal data and the conditions applicable to consenting to their use; the lawfulness of processing personal data in light of certain justification; and the validity of a user’s consent to processing personal data given to an undertaking in a dominant position.[58]

It is also worth noting the different approaches taken by other authorities concerning the very same Facebook conduct. Notably, the Italian competition authority evaluated such practices as violations of the Consumer Code (instead of the competition law),[59] while in Belgium, the Court of First Instance of Brussels found a violation of privacy rules.[60]

  1. The Digital Markets Act: Rivals’ exclusion and primacy of data-protection interests over competition-policy goals

The Facebook case has already influenced the broader debate about the limits of competition law to address certain features of digital markets effectively. The EU’s Digital Markets Act (DMA)—which was explicitly grounded in the assumption that competition law alone is unfit to tackle certain challenges and systemic problems posed by the platform economy—specifically prohibits combining personal data across a gatekeeper’s services, a provision clearly inspired by the German investigation.[61]

Notably, pursuant to Article 5(2) DMA, a gatekeeper shall not: (a) process—for the purpose of providing online-advertising services—end users’ personal data using third-party services that themselves make use of the gatekeeper’s core platform services; (b) combine personal data from the relevant core platform service with personal data from any further core platform services, or from any other services provided by the gatekeeper, or with personal data from third-party services; (c) cross-use personal data from the relevant core platform service in other services provided separately by the gatekeeper, including other core platform services, and vice versa; and (d) sign end users into the gatekeeper’s other services in order to combine personal data, “unless the end user has been presented with the specific choice and has given consent” within the meaning of the GDPR.

Further, according to Recital 36—given that gatekeepers process personal data from a significantly larger number of third parties than other undertakings—data processing for the purpose of providing online-advertising services gives gatekeeper platforms potential “advantages in terms of accumulation of data,” thereby “raising barriers to entry.” To ensure that gatekeepers do not unfairly undermine the “contestability” of core platform services, gatekeepers should enable end users to “freely choose to opt-in” to such data processing and sign-in practices. This may be accomplished by offering a less-personalized but equivalent alternative, and without making the use of (or certain functions of) the core platform service conditional on the end user’s consent.[62]

Moreover, in light of Recital 37, when a gatekeeper does request consent, it should proactively present a “user-friendly solution” to the end user to provide, modify, or withdraw consent in an explicit, clear, and straightforward manner. In particular, consent should be given by a clear affirmative action or statement establishing a freely given, specific, informed and unambiguous indication of agreement by the end user, as defined in the GDPR.

Lastly, it should be as easy to withdraw consent as to give it. Gatekeepers should not design, organize, or operate their online interfaces in a way that deceives, manipulates, or otherwise materially distorts or impairs end users’ ability to freely give or withdraw consent.[63] In particular, gatekeepers should not be allowed to prompt end users more than once a year to give consent for a data-processing purpose for which the user either did not initially give consent or actively withdrew consent.

The idea that only opt-in mechanisms can produce effective consent within the meaning of the GDPR is confirmed by the obligation under Article 6(10) DMA, which imposes on gatekeepers the duty to provide business users, or third parties authorized by a business user, access to aggregated and non-aggregated data (including personal data) generated in the context of using the relevant core platform services.[64]

The provision under Article 5(2) DMA provides interesting insights into the relationship between data-protection and competition law. By emphasizing that the primary concern is online gatekeepers’ data-accumulation strategies, the DMA’s approach differs from the one the Bundeskartellamt pursued in Facebook. Rather than focusing on potential harms to users’ self-determination and digital identity, the DMA points to a pure antitrust harm related to market contestability. Therefore, even if “[t]he data protection and privacy interests of end users are relevant to any assessment of potential negative effects of the observed practice of gatekeepers to collect and accumulate large amounts of data from end users,”[65] the primary interest protected is a competitive one—namely to avoid foreclosure against rivals.

From this perspective, it may be argued that the DMA adopts an integrated approach that takes data-protection principles into account within a competitive assessment of gatekeepers’ conduct. The very last part of the provision, however, demonstrates the opposite. By subordinating the prohibitions to respect the GDPR, European authorities arguably acknowledge the potential tensions between data-protection interests and competition-policy goals. Moreover, in the event of such a conflict, the DMA affirms the primacy of the former. Indeed, all the forms of conduct listed in Article 5(2) are forbidden “unless” the end user has been presented with a specific choice and given consent within the meaning of the GDPR.

  1. New German platform-specific antitrust rules and the Google case

There is another interesting and ongoing German investigation regarding Google’s data-processing terms. Notably, in January 2023, the Bundeskartellamt issued a statement of objections against Google claiming that, under the company’s current terms, users are not given “sufficient choice” as to how their data are processed across services.[66]

The antitrust authority noted that Google’s business model relies heavily on processing user data and that its current terms allow the company to combine various data from various services and use them, for example, to create very detailed user profiles that the company can exploit for advertising and other purposes, or to train functions provided by Google services. Google may, for various purposes, collect and process data across services, which include both its own widely used services (Google Search, YouTube, Google Play, Google Maps, and Google Assistant), as well as numerous third-party websites and apps. Bundeskartellamt President Andreas Mundt stated that this grants Google a “strategic advantage” over other companies.[67]

According to the Bundeskartellamt’s preliminary assessment, the choices offered to users are too general and insufficiently transparent. The authority contends that sufficient choice would require that users be able to limit data processing to the specific service used. In addition, they also must be able to differentiate between the purposes for which the data are processed. Moreover, the choices must not be devised in a way that would make consenting to data processing across services easier than not consenting to it.

The framing of the Google investigation is similar to that of the Facebook case. The antitrust authority is fundamentally concerned with a data-accumulation strategy that it contends confers to Google a critical competitive advantage. And given that having access to more user data than rivals have cannot in itself be considered anticompetitive, privacy concerns are exploited to limit such a strategy.

There is, however, a significant difference worth highlighting. In the Google case, the Bundeskartellamt’s position benefits from a new provision of Section 19a GWB,[68] which empowers national competition authorities to tackle platform-specific practices that are similar and functionally equivalent to those prohibited under the DMA.[69] Notably, since January 2021, the Bundeskartellamt has had the power to designate undertakings of “paramount significance for competition across markets.” The factors relevant to this designation include a platform’s dominant position in one or more markets; financial strength or access to other resources; vertical integration and activities in otherwise related markets; access to data relevant for competition; and the importance of the activities for third parties’ access to supply and sales markets and related influence on third parties’ business activities. Google has been the first platform to be designated as of paramount significance for competition across markets.[70]

Once the designation is completed, the Bundeskartellamt can prohibit such undertakings from engaging in anticompetitive practices. In particular, the new provision introduces a list of seven types of abusive practices that are prohibited, unless the undertaking is able to demonstrate that the conduct at issue is objectively justified. While the targeted practices are similar to those captured by the DMA, the main differences are that the German list is considered exhaustive and the practices at issue are not prohibited per se. Instead, it introduces a reversal of the burden of proof, allowing firms to provide objective justifications for their conduct, which is not allowed under the DMA.

For the sake of this analysis, pursuant to paragraph 4 of Section 19a GWB, the Bundeskartellamt may prohibit an undertaking of paramount significance for competition across markets from creating or appreciably raising barriers to market entry (or otherwise impeding other undertakings) by processing data relevant for competition that have been collected by the undertaking, or demanding terms and conditions that permit such processing—in particular, making the use of its services conditional on a user agreeing to data processing by the undertaking’s other services or by a third-party provider without “sufficient choice” as to whether, how, and for what purpose such data are processed.

As mentioned, while the Google investigation resembles the background of the Facebook decision, the introduction of Section 19a(4) GWB has relevant implications. The new provision is clearly inspired by the strategy investigated in Facebook and, as already enshrined in the DMA, essentially aims to ease enforcement, avoiding the hurdles and burdens of standard antitrust analysis. Practically speaking, the Bundeskartellamt therefore does not need to struggle to find a proper theory of harm and can easily avoid the odyssey it experienced in Facebook. Moreover, the new provision’s wording changes the legal landscape, distinguishing the Google investigation from both the parallel DMA provision and the Facebook decision. Indeed, by relying on the lack of “sufficient choice” for users, Section 19a(4) GWB does not include any reference to the GDPR, thus allowing the Bundeskartellamt to provide an autonomous interpretation. With regard to the comparison with Facebook, on the other hand, Section 19a(4) GWB—just like the DMA—aims to promote contestability in the market (“creating or appreciably raising barriers to market entry”). Hence, data accumulation is prohibited to the extent that it excludes rivals, rather than whether it exploits users’ privacy.

That the German provision is effective has been confirmed by Google’s decision to end the proceeding by submitting commitments.[71] Under those commitments, Google will give its users the option to grant free, specific, informed, and unambiguous consent to have their data processed across services.[72] Google will also offer corresponding choice options for particular combinations of data and services, and will design selection dialogues to avoid dark patterns, thus not guiding users manipulatively towards cross-service data processing.

It is worth noting that Google’s commitments involve more than 25 services, with only those services that the European Commission has since designated as core platform services under the DMA (i.e., Google Shopping, Google Play, Google Maps, Google Search, YouTube, Google Android, Google Chrome and Google’s online-advertising services) excluded from the list. While this was intended to avoid practical conflicts with application of the DMA, it also represents an acknowledgment that the DMA and German antitrust law pursue the very same goals. Indeed, as stated in the decision, Google’s commitments “are intended to correspond in substance to an extension of Google’s obligations under Article 5(2) DMA” to further services and, therefore, “in case of doubt, the terms used in the Commitments are to be interpreted in accordance with their meaning in the DMA.”[73]

B. Privacy Harm in Merger Analysis: The European Commission’s Case Law

Given this broad consensus regarding synergies between data-protection and competition law in digital markets, it is somewhat surprising how reluctant the European Commission has been to implement this integrated approach in the context of merger analysis.[74] Indeed, while acknowledging privacy’s role as a parameter of competition between online platforms, the Commission has to date not blocked any merger on the grounds of protecting individuals’ control over personal data, and it has nearly always approved unconditionally those mergers that raised privacy concerns.

Notably, in the days before the GDPR, the Commission authorized the Google/DoubleClick merger, in the process affirming that antitrust and data-protection rules had wholly separate scopes.[75] While it could have determined that the combined data-collection activities of two players active in the online-advertising industry raised concentration concerns and a possible unfair advantage in producing targeted advertising, the Commission’s assessment, under pure antitrust criteria, was that it was unlikely that the new entity would obtain a competitive advantage unmatchable by its rivals.[76] Further, the Commission underlined that its decision exclusively concerned an appraisal of the operation under competition rules, without prejudice to other obligations imposed on the parties by data-protection and privacy laws.[77]

This stance of maintaining separate regulatory spheres of inquiry was even more clearcut in the 2014 Facebook/WhatsApp merger.[78] Assessing the potential edge the combined entity might derive from controlling huge amounts of data, the Commission found that, regardless whether the merged entity would start using WhatsApp user data to improve targeted advertising on Facebook, there continued to be large troves of valuable internet user data that were not within Facebook’s exclusive control.[79] More importantly, the Commission stated that:

Any privacy-related concerns flowing from the increased concentration of data within the control of Facebook as a result of the Transaction do not fall within the scope of the EU competition law rules but within the scope of the EU data protection rules.[80]

The outcome and reasoning were the same in Microsoft/LinkedIn.[81] Consistent with the findings in Facebook/WhatsApp, the results of the Commission’s market investigation revealed that privacy is an important parameter of competition and a driver of customer choice.[82] But not only did the transaction not raise serious antitrust concerns in online advertising, given that combining the firms’ respective datasets did not appear to result in raising rivals’ barriers to entry or expansion,[83] but also:

[S]uch data combination could only be implemented by the merged entity to the extent it is allowed by applicable data protection rules. … Microsoft and LinkedIn are subject to relevant national data protection rules with respect to the collection, processing, storage and usage of personal data, which, subject to certain exceptions, limit their ability to process the dataset they maintain.[84]

Moreover, the Commission noted that the GDPR “may further limit Microsoft’s ability to have access to, and process, its users’ personal data in the future since the new rules will strengthen the existing rights and empower individuals with more control over their personal data.”[85]

In a nutshell, the Commission again chose to defer to privacy rules for protecting individuals’ personal data and analyzed the transaction’s antitrust issues while “[a]ssuming such data combination [was] allowed under the applicable data protection legislation.”[86] The Commission did not discuss whether the relevant markets under consideration were sufficiently competitive to provide users with the optimal level of privacy-friendly options. It didn’t establish any link between the merging firms’ market power and the variety of privacy-friendly tools and services they provided. Nor did it find any connection between such market power and the optimal quantity of personal data that the firms under scrutiny should have collected.

In Apple/Shazam, despite some concern that the acquisition would grant Apple access to commercially sensitive information about competitors of its Apple Music service, the Commission regarded it as unclear whether the merged entity would be able to put competing providers of digital-music streaming apps at a competitive disadvantage. And they again stressed that personal-data processing remained subject to the GDPR.[87]

The recent Google/Fitbit merger offered the Commission another opportunity to interrogate overlaps among data protection and antitrust. Ultimately, the Commission’s analysis focused on the data collected via Fitbit’s wearable devices and the interoperability of wearable devices with Google’s Android operating system for smartphones.[88] While some market participants complained that, in combining those databases, Google could obtain a competitive advantage in the digital health-care sector that would leave competitors unable to compete, others (including the European Data Protection Board) raised privacy concerns on grounds that the merger would make it increasingly difficult for users to track the purposes for which their health data would be used.[89]

To address such issues, Google offered (and the Commission accepted) commitments to maintain a technical separation of Fitbit user data by storing them in a data silo separate from any Google data used for advertising; that it will not use the health and wellness data collected from users’ wrist-worn wearable devices and other Fitbit devices for Google Ads; and it will ensure that users have an effective choice to grant or deny the use of health and wellness data stored in their Google Account or Fitbit Account by other Google services.

With regard to privacy concerns, the Commission reminded those involved that the parties are held accountable to implement appropriate technical and organizational measures to ensure that data processing is performed in accordance with the GDPR.[90] More specifically, the Commission noted that the GDPR is designed to enhance transparency over data processing, accountability by data controllers and, ultimately, users’ control over their data.[91] The Commission found no evidence that privacy was an important parameter of competition in wearables and underlined that any privacy or data-protection decision or initiative the parties might adopt would have to comply with the data-protection rules set out by the GDPR.[92]

The Commission addressed similar privacy issues arising from the combination of datasets in Microsoft/Nuance[93] and Meta/Kustomer,[94] each time noting that GDPR served as the appropriate safeguard.

Moreover, the Commission appears to retain this “separatist” stance, as confirmed recently by its unconditional approval of a joint venture among Deutsche Telekom, Orange, Telefo?nica, and Vodafone, which will offer a platform to support brands and publishers’ digital-marketing and advertising activities in France, Germany, Italy, Spain, and the United Kingdom.[95] Subject to a user’s consent (i.e., on an opt-in basis only), the joint venture will generate a unique digital code derived from the user’s mobile or fixed-network subscription that will allow brands and publishers to recognize users on their websites or applications on a pseudonymous basis, group them under various categories, and tailor their content to specific user groups.

Whatever privacy and security benefits or harms might arise from the operation, the Commission was ultimately guided in its decision by the lack of competition concerns. Moreover, the Commission declared that it has been in contact with data-protection authorities during its investigation and that data-protection rules are fully applicable, irrespective of the merger’s clearance.

III.   Privacy as a Shield Against Antitrust Allegations

Amid these limited and somewhat confused attempts to address privacy concerns in digital markets by integrating data-protection rules and competition-law enforcement, a novel and challenging phenomenon has emerged. Taking stock of some authorities’ willingness to grant primacy to data protection in the context of antitrust interventions, some platforms have implemented changes to their ecosystems with the declared aim of ensuring increased privacy to end users. For instance, Apple and Google have developed policies to restrict third parties from sharing user data through apps in the platforms’ respective operating systems and websites in their respective browsers.[96] These policies include Apple’s ATT, Intelligent Tracking Prevention, and iCloud Private Relay, and Google’s Android Privacy Sandbox and Chrome Privacy Sandbox. To a certain extent, the DMA may have even encouraged some of these design choices by apparently endorsing the view that only opt-in systems can ensure effective consent within the meaning of the GDPR.

The suspicion is that such facially noble intentions may actually conceal a goal of achieving anticompetitive advantages at the expense of rivals and business users. Therefore, it appears that a new form of regulatory gaming is on the horizon. Particularly in online-advertising markets, privacy may be weaponized as a business justification for potentially anticompetitive conduct and data-protection requirements may be leveraged to distort competition. The relevance and dangerousness of such hypotheses are confirmed by certain antitrust investigations launched recent years, which the following paragraphs will analyze.

A. Apple’s ATT Policy

As illustrated above, data represents a primary input for platforms whose business models rely on monetizing consumer information by selling targeted advertising and personalized sponsored content. In digital markets, advertisers benefit from access to detailed (and hence, highly valuable) user data, such as browsing behavior, profiles on company websites, demographic information, shopping habits, and past purchase history, especially given the potential to use that data across advertising platforms.[97] Therefore, the effectiveness of targeted advertising and the overall profitability of advertising-based business models rely on data tracking.

To enhance users’ privacy protection, however, regulatory interventions like the GDPR aim to reduce data collection and mitigate platforms’ tracking by requiring explicit consent for users’ individual-behavior data to be used for targeted advertising.[98] In addition, some platforms have adopted (or announced) privacy-centric policies that would limit third parties’ ability to track data, thus affecting the profitability and revenues of their advertising strategies.[99]

Apple’s ATT policy is a paramount example of such product changes. With the iOS 14.5 privacy update, Apple introduced an opt-in mechanism that imposes more restrictive rules on competing app developers than those the company applies to itself. The differential treatment mostly concerns features that prompt users to grant apps permission to track them. Without consumers opting into this prompt, developers cannot access their identifiers for advertisers (IDFA), which are used to monitor users’ activity across apps.

The wording of the prompts ATT offers for user consent may unduly influence users to withhold consent from third-party apps. For apps developed by Apple itself, the consent prompt focuses on the positive aspects of personalized services, rather than the tracking of users’ browsing activity. In contrast, the prompt for third-party app developers places greater emphasis on other companies’ app and website tracking activities (without explaining the term “track”) and does not provide information about the benefits that users could derive from personalized advertising. Moreover, even if the user gives consent to be tracked, third-party app developers remain unable to share the same data that would allow for the personalization of ads, and measure their effectiveness, on another app. Indeed, for third-party app developers, the ATT framework introduces a double opt-in, requiring the user to consent to being tracked for each access to different apps, even if these apps are linked.

This model illustrates an apparent tension between data-protection interests and antitrust goals. While the ATT policy has been framed as a privacy-protecting measure, it is not just the level of privacy chosen by Apple in its digital ecosystem that is at issue, but also the competitive implications that arise from the choice to adopt discriminatory privacy policies. Indeed, the differentiated treatment imposed on third-party app developers appears likely to reduce their advertising revenues, and hence their level of competitiveness vis-à-vis Apple, and could eventually enhance the dominance of the iOS ecosystem.

Notably, the ATT framework may hinder competitors’ ability to sell advertising space, in ways that redound to Apple’s own advantage—in particular, benefiting the company’s own direct sales and advertising-intermediation platforms. Further, limiting third parties’ ability to profile users may reduce business-model differentiation. The advertising-based monetization model used by free and freemium apps may be rendered less sustainable, causing these apps to exit the market or gradually shift to the fee-supported model. This would come at the expense of end consumers, for whom the possibility of choosing free or lower-priced apps could be reduced.[100]

For these reasons, the ATT framework is currently under scrutiny by antitrust authorities in France,[101] Germany,[102] Italy,[103] and Poland,[104] who suspect that Apple is masking an anticompetitive strategy under the guise of privacy protection. Similar doubts have been raised by the UK Competition and Markets Authority in its market study on mobile ecosystems.[105]

Given these kinds of market responses, it is difficult to see how an integrated approach to data-protection and competition law could be implemented in practice. Contrasting the Italian and French investigations may provide useful insights into this conundrum. The Italian competition authority correctly stated that the case does not implicate the level of privacy chosen by Apple, but rather its decision to adopt a differentiated policy at the expense of its rivals.[106] Conversely, in evaluating whether to issue an interim measure against Apple, France’s Autorité de la Concurrence solicited input from the domestic data-protection regulator (the Commission Nationale de L’Informatique et des Liberte?s, or CNIL), which de facto prevented the competition authority from ordering interim measures. Indeed, in the CNIL’s view, the changes proposed by Apple could be of genuine benefit to both users and app publishers.[107] In particular, the ATT prompt would give users more control over their personal data by allowing them to make choices in a simple and informed manner,[108] and would allow app publishers to collect informed consent as required by the applicable regulation.

It is worth noting, however, that while all the other competition authorities are investigating Apple’s policy as a potential form of discriminatory self-preferencing, the French authority has initially evaluated whether the introduction of the ATT prompt would result in imposing unfair trading conditions or a supplementary obligation, in breach of Article 102(a) and (d) TFEU. The complaint’s investigation on the merits of the case will allow the French authority to assess whether ATT does or does not result in a form of discrimination.

B. Google’s Privacy Sandbox

Concerns regarding the potential impact of privacy policies on digital-advertising competition and publishers’ ability to generate revenue have also been against Google’s proposals to remove third-party cookies and other functionalities from its Chrome browser. In particular, Google’s Privacy Sandbox project would disable third-party cookies on the Chrome browser and Chromium browser engine, with the stated goal of better protecting consumer privacy. The project would replace those cookies with a new set of tools for targeting advertising and other functionalities. Therefore, similar to Apple’s ATT policy, Google’s planned privacy changes raise concerns about anticompetitive discrimination against rivals.

Indeed, in 2021, the European Commission initiated antitrust proceedings to investigate the effects of Google’s privacy policies on online display advertising and online display advertising-intermediation markets. The inquiry focused on whether Google had violated EU competition rules by favoring—through a broad range of practices—its own online display advertising-technology services in the ad tech supply chain, to the detriment of competing providers of advertising-technology services, advertisers, and online publishers.[109] Notably, the Commission also examined restrictions on third parties’ ability to access data about user identity or user behavior, which remained available to Google’s own advertising-intermediation services, as well as Google’s announced plans to cease making advertising identifiers available to third parties on Android mobile devices whenever a user opts out of personalized advertising.

The Commission declared that it would “take into account the need to protect user privacy, in accordance with EU laws in this respect,” underscoring that “[c]ompetition law and data protection laws must work hand in hand to ensure that display advertising markets operate on a level playing field in which all market participants protect user privacy in the same manner.”[110]

A similar investigation was launched that same year by the UK Competition and Markets Authority (CMA).[111] The CMA subsequently accepted commitments from Google designed to ensure consistent use of data by both third parties and Google’s own digital-advertising businesses through the use of safeguards to support privacy without self-preferencing.[112] In considering how best to address legitimate privacy concerns without distorting competition, the CMA highlighted the relevance of the close partnership with the UK Information Commissioner’s Office (ICO), the public body tasked with the enforcement of the Data Protection Act 2018, which is the UK’s implementation of the GDPR.[113]

IV.   The Failure of the Integrated Approach

The call for integrating privacy into antitrust enforcement reflects the policy goal of curbing ever-increasing personal-data collection and processing by a few large online platforms, who monetize such data by selling targeted advertising. Toward this aim, competition and data-protection laws are described as synergistic, as the economic features of digital markets generate connections between market power and data power. Against this background, rather than relying on the GDPR, scholars and policymakers ask competition law to step in to address the perceived problem of data-protection authorities lacking capacity to address privacy concerns effectively, as well as the extreme difficulty of forbidding data accumulation under antitrust provisions. Therefore, rather than reflecting a natural connection, data-protection and competition laws are fundamentally obtorto collo complementary, as each are considered weak in isolation.

Four primary theories of harm have been advanced to bring antitrust and privacy issues together.[114]

According to the first theory, there is a close relationship between (the lack of) competition in digital markets and privacy violations. In a competitive market, this theory asserts, firms would compete to offer privacy-friendly products and services, but the economic features of digital markets strengthen gatekeepers’ power, regardless of their willingness to deliver privacy-enhancing solutions.[115]

The second theory centers on risks arising from potential “databases of intentions” and primarily invokes the role of merger control.[116] Under this view, mergers among companies that hold significant data assets require more stringent scrutiny, as such mergers would grant the new entity tools to better profile individuals and invade their privacy.

A further attempt to justify commingling antitrust and privacy relies on assessing the quality of products and services as privacy-friendly.[117] As consumer welfare is not solely dependent on prices and output, products and services viewed as not privacy-friendly or that intrude into users’ privacy may be considered low-quality and therefore harm consumer welfare.

Finally, it has been argued that privacy policies could be applied by antitrust enforcers when they are implemented by dominant players that rely on data as a primary input of their products and services—e.g., by forcing individuals to accept take-it-or-leave-it terms involving the unwanted collection and use of their data.[118]

This overview of EU antitrust proceedings, however, demonstrates that none of these four theories of harm has been successful and that the much-invoked integrated approach is more proclaimed than adopted in practice. Indeed, neither other NCAs nor the European Commission have ever shared the Bundeskartellamt’s stance of considering a GDPR violation as a benchmark for finding a dominant firm’s practice to be abusive. Further, in the context of merger analysis, the Commission has systematically stated that any privacy-related concerns resulting from data collection and processing are within the scope of the GDPR enforcement.

Even in Germany, the Bundeskartellamt’s approach has been sufficiently controversial to spark a clash among courts and a request for clarification from the CJEU. The recent update of the GWB seems to confirm the limits of such an approach, as the new Section 19a provides an antitrust authority with a convenient shortcut to target Facebook-like data-accumulation strategies on grounds of market contestability—namely, prohibiting rivals’ foreclosure rather than users’ privacy exploitation.

In addition, these EU antitrust proceedings demonstrate that twisting competition-law enforcement may be counterproductive. Indeed, the growing phenomenon of digital platforms adopting privacy policies as justification for potentially anticompetitive conduct does not fit the narrative of the complementarity of antitrust and privacy.[119] Emerging as a byproduct of the Facebook investigation, the Apple ATT case illustrates the intrinsic tension between these areas of law, highlighting the urgency of determining how to strike a balance between conflicting interests. From this perspective, the Facebook and Apple ATT cases are two faces of the same coin. Each results from the strategic use of privacy in antitrust proceedings by both competition authorities and digital platforms, respectively.

Moreover, the French episode of Apple ATT shows that proposing cooperation between authorities is just rhetoric unfit to resolve these tensions. It is regularly affirmed that any tension between competition and data protection law “can be reconciled through careful consideration of the issues on a case-by-case basis, with consistent and appropriate application of competition and data protection law, and through continued close cooperation” between the authorities.[120] Nonetheless, in the French Apple ATT case, the data-protection regulator’s intervention actually jeopardized the antitrust investigation, demonstrating how the different goals pursued under antitrust and privacy provisions may be irreconcilable in practice.

Finally, the EU’s solution to alleged failures by antitrust and privacy regulators in addressing data accumulation in digital markets has ultimately been crafted outside the traditional competition-law framework and according to a regulation that resolves any potential conflict between competition and data-protection policy goals once and for all. Even the DMA, however, does not fully square with any of the aforementioned theories of harm, as it introduces a pure privacy exception.[121] Indeed, tackling data collection and processing by digital gatekeepers, Article 5(2) DMA prohibits personal-data accumulation strategies unless they are compliant with the GDPR—namely, unless users have been presented with the specific choice and given consent according to data-protection rules. Therefore, rather than providing criteria to evaluate case by case how to strike a balance among the interests involved, the DMA establishes competition-policy deference to privacy, finding that, where personal-data collection and processing by large online platforms are involved, privacy is the greater good.

A. The CJEU’s Judgment in Meta

Given this background, the CJEU’s July 2023 judgment in Meta was much-awaited, representing the season finale of the German Facebook saga.[122]

The decision is in line with the opinion delivered by the Advocate General (AG) Athanasios Rantos.[123] As Rantos had argued, “conduct relating to data processing may breach competition rules even if it complies with the GDPR; conversely, unlawful conduct under the GDPR does not automatically mean that it breaches competition rules.”[124] Therefore, the lawfulness of conduct under antitrust provisions “is not apparent from its compliance or lack of compliance with the GDPR or other legal rules.”[125] Further, according to well-settled CJEU principles, the antitrust assessment requires demonstrating that a dominant undertaking used means other than those within the scope of competition on the merits and, toward this aim, the court must take account of the circumstances of the case, including the relevant legal and economic context.[126] “In that respect, the compliance or non-compliance of that conduct with the provisions of the GDPR, not taken in isolation but considering all the circumstances of the case, may be a vital clue as to whether that conduct entails resorting to methods prevailing under merit-based competition.”[127] Indeed, “access to personal data and the fact that it is possible to process such data have become a significant parameter of competition between undertakings in the digital economy. Therefore, excluding the rules on the protection of personal data from the legal framework to be taken into consideration by the competition authorities when examining an abuse of a dominant position would disregard the reality of this economic development and would be liable to undermine the effectiveness of competition law.”[128]

It follows that. “in the context of the examination of an abuse of a dominant position by an undertaking on a particular market, it may be necessary for the competition authority of the Member State concerned also to examine whether that undertaking’s conduct complies with rules other than those relating to competition law, such as the rules on the protection of personal data laid down by the GDPR.”[129]

Rantos more explicitly distinguished the hypothesis under which an antitrust authority, when prosecuting a breach of competition provisions, rules “primarily” on an infringement of the GDPR from cases in which such evaluations are merely “incidental”:

[T]he examination of an abuse of a dominant position on the market may justify the interpretation, by a competition authority, of rules other than those relating to competition law, such as those of the GDPR, while specifying that such an examination is carried out in an incidental manner and is without prejudice to the application of that regulation by the competent supervisory authorities.[130]

Given the differing objectives of competition and data-protection law, however, where an antitrust authority identifies an infringement of the GDPR in the context of finding of abuse of a dominant position, it does not replace the data-protection supervisory authorities.[131] Therefore, when examining whether an undertaking’s conduct is consistent with the GDPR, competition authorities are required to consult and cooperate sincerely with the competent data-protection authority in order to ensure consistent application of that regulation.[132] In addition, where the data-protection authority has ruled on the application of certain provisions of the GDPR with respect to the same practice or similar practices, the competition authority cannot deviate from that interpretation, although it remains free to draw its own conclusions from the perspective of applying competition law.[133]

While these principles are compelling, they do not appear conclusive in addressing the issue, for two main reasons.

First, as competition authorities have significant leeway in framing their investigations, it will be extremely difficult in practice to demonstrate that they are primarily—rather than incidentally—tackling a data-protection breach. In this regard, the German Facebook investigation represents an illustrative example. In the press release announcing the launch of the proceedings, the Bundeskartellamt stated that Facebook’s terms and conditions violated data-protection law and may “also” be regarded as abuses of a dominant position.[134] Later in the press release, however, in a section concerning the preliminary assessment, the authority changed that perspective, asserting that Facebook’s contractual terms were unfair, quite apart from any privacy infringement, and that, in assessing the competitive impact of such a strategy, it was “also” applying data-protection principles. Further, the Bundeskartellamt ascertained a privacy violation previously undetected by any data-protection authority. If the Facebook case fulfills both requirements of an incidental assessment of a privacy breach and sincere cooperation with the data-protection authority, it will be difficult to imagine any antitrust investigation not passing the bar.[135]

Second, the judgment only examines a scenario in which a GDPR infringement may occur, while not being useful to unraveling the very different situation in which the adoption of a privacy-enhancing solution is invoked as justification for anticompetitive conduct. In that case, cooperation between competition and data-protection authorities has thus far proven to be a harbinger of new issues and conflicts, rather than a panacea for all of the problems.

Finally, the CJEU also addressed another crucial topic of the integration between antitrust and privacy—that being the meaning of “consent” under the GDPR, and especially the requirement of freedom of consent. Supporters of an integrated approach find the legal basis of the privacy/antitrust marriage in the GDPR to be pivotally centered on the role assigned to freely given consent.[136] Notably, they imagine that the GDPR provides the legal basis for a link between data power and market power by stating that, among other things, there is no freely given consent to personal-data processing where there is a “clear imbalance” between the data subject and the controller.[137] In this respect, if the controller holds a dominant position on the market, it is argued that such market power could lead to a clear imbalance in the sense described in the GDPR.

According to the CJEU, however, while it may create such an imbalance, the existence of a dominant position alone cannot, in principle, render the consent invalid.[138] Notably, the fact that the operator of an online social network holds a dominant position on the social-network market does not, as such, prevent users of that social network from validly giving their consent, within the meaning of the GDPR, to the processing of their personal data by that operator. Consequently, the validity of consent should be examined on a case-by-case basis.

Moreover, as observed by Rantos, this does not imply that for market power to be relevant for GDPR enforcement, it needs to be regarded as a dominant position within the meaning of competition law.[139] Therefore, the relationship between data-protection and competition law is not one of mutual respect. While a competition authority is required to cooperate with a data-protection regulator in the case of a privacy breach, and is bound by the interpretation the latter gives of the GDPR, the converse does not apply with regard to the notion of “clear imbalance” under the GDPR. Data-protection authorities are granted significant leeway to establish market power under the GDPR.[140]

V.     Conclusion

The features of digital markets and the emergence of a few large online gatekeepers whose business models revolve around collecting and processing large amounts of data may suggest a link between market power and data power. Accordingly, scholars and policymakers have supported regulatory measures intended to promote data sharing and to empower individuals with more control over their personal data. From a different perspective, this also has led to the idea that competition and data-protection are intertwined and therefore require an integrated approach where, despite holding different objectives, antitrust enforcement should also protect privacy interests.

The integrationist movement claims that unity makes strength. According to this view, while competition and data-protection laws are, in isolation, considered unfit to safeguard their respective interests, the inclusion of privacy harms into antitrust assessments would allow competition authorities to better tackle data-accumulation strategies, and that the enforcement of antitrust rules would be more effective in ensuring data protection.

The purported complementarity, or even synergy, between competition and data-protection law appears, however, difficult to detect in practice. The only case in which a GDPR breach has been considered a proper legal basis for an antitrust intervention is the rather controversial Bundeskartellamt Facebook decision. Further, recent legislative initiatives that have introduced provisions clearly inspired by Facebook and essentially motivated by the aim of bypassing the traditional antitrust analysis (e.g., Article 5(2)DMA and Section 19a GWB) confirm the failure of the integrationist narrative and awareness that it would be impossible to endorse the Bundeskartellamt’s stance. Moreover, whether or not one would argue that the DMA represents a concrete and advanced attempt at integrating data-protection concerns in competition policy, it is worth pointing out that Article 5(2)DMA actually establishes antitrust deference toward privacy.

As if this were not enough, the idea of commingling antitrust and privacy has generated a significant side effect. As a reaction to Facebook and the DMA, some platforms have, indeed, adopted policy changes to restrict user-data tracking on their ecosystems in ways that undermine the effectiveness of rivals’ targeted advertising. The strategic use of privacy as a business justification to pursue anticompetitive advantages testifies once again to the tension between these fields of law. Further, as shown by the French Apple ATT investigation, the call for close cooperation between the authorities is often just a useless and rhetorical expedient.

The proposal to integrate competition and data-protection law in digital markets has been submitted as a much-needed boost to strengthen antitrust enforcement against gatekeepers and their data strategies. Moving away from pure efficiency-oriented assessments to embrace broader social interests, advocates claim, would help ensure more aggressive and effective antitrust enforcement. Including privacy harms in antitrust proceedings turns out, instead, to be a potential curse for competition authorities, providing the major digital players with an opportunity for regulatory gaming to undermine antitrust enforcement.

This should serve as a cautionary tale about the risks of twisting rules to achieve policy outcomes and the importance of respecting the principles and scope of different areas of law.

 

[1] See Jacques Cre?mer, Yves-Alexander de Montjoye, & Heike Schweitzer, Competition Policy for the Digital Era, (2019) Report for the European Commission, 4, available at https://ec.europa.eu/competition/publications/reports/kd0419345enn.pdf (referring to the possibility that a dominant platform could have incentives to sell “monopoly positions” to sellers by showing buyers alternatives that do not meet their needs).

[2] See Alessandro Bonatti, The Platform Dimension of Digital Privacy, forthcoming in The Economics of Privacy, (Avi Goldfard & Catherine Tucker, eds.), University of Chicago Press; Daron Acemoglu, Ali Makhdoumi, Azarakhsh Malekian, & Asu Ozdaglar, Too Much Data: Prices and Inefficiencies in Data Markets, 14 Am Econ J Microecon 218 (2022); Shota Ichihashi, The Economics of Data Externalities, 196 J. Econ. Theory 105316 (2021); Omri Ben-Shahar, Data Pollution, 11 J. Leg. Anal. 104 (2019); Jay Pil Choi, Doh-Shin Jeon, & Byung-Cheol Kim, Privacy and Personal Data Collection with Information Externalities, 173 J. Public Econ. 113 (2019); see also Jeanine Miklós-Thal, Avi Goldfarb, Avery M. Haviv, & Catherine Tucker, Digital Hermits, NBER Working Paper No. 30920 (2023), (arguing that, as advances in machine learning allow firms to infer more accurately sensitive data from data that appears otherwise innocuous, users’ data-sharing decisions polarize between a group of users choosing to share no data and another group choosing to share all their data (sensitive or not sensitive)).

[3] See, e.g., Competition and Data Protection in Digital Markets: A Joint Statement Between the CMA and the ICO, UK Competition and Markets Authority and Information Commissioner’s Office, (2021) 5, https://www.gov.uk/government/publications/cma-ico-joint-statement-on-competition-and-data-protection-law [hereinafter “CMA-ICO Joint Statement”]; Privacy and Competitiveness in the Age of Big Data: The Interplay Between Data Protection, Competition Law and Consumer Protection in the Digital Economy, European Data Protection Supervisor (2014) https://edps.europa.eu/data-protection/our-work/publications/opinions/privacy-and-competitiveness-age-big-data_en.

[4] See, e.g., Investigation of Competition in Digital Markets’, Majority Staff Reports and Recommendations, U.S. House Energy and Commerce Subcommittee on Antitrust, Commercial, and Administrative Law (2020), 28, available at https://www.govinfo.gov/content/pkg/CPRT-117HPRT47832/pdf/CPRT-117HPRT47832.pdf [hereinafter, “Antitrust Subcommittee Report”]; Frank Pasquale, Privacy, Antitrust, and Power, 20 George Mason Law Rev. 1009 (2013); Pamela J. Harbour & Tara I. Koslov, Section 2 in a Web 2.0 World: An Expanded Vision of Relevant Product Markets, 76 Antitrust Law J. 769 (2010).

[5] See, e.g., Antitrust Subcommittee Report, supra note 4, 39, citing Howard A. Shelanski, Information, Innovation, and Competition Policy for the Internet, 161 U. Pa. L. Rev. 1663 (2013), to argue that “[t]he persistent collection and misuse of consumer data is an indicator of market power in the digital economy”; European Data Protection Supervisor, supra note 3, 35, stating that, where there are a limited number of operators or when one operator is dominant, “the concept of consent becomes more and more illusory;” see also, Online Platforms and Digital Advertising, UK Competition and Markets Authority (2020) para. 6.26, available at https://assets.publishing.service.gov.uk/media/5fa557668fa8f5788db46efc/Final_report_Digital_ALT_TEXT.pdf, stating that “[i]n a more competitive market, we would expect that it would be clear to consumers what data is collected about them and how it is used and, crucially, the consumer would have more control. We would then expect platforms to compete with one another to persuade consumers of the benefits of sharing their data or adopt different business models for more privacy-conscious consumers.” However, see also James C. Cooper & John M. Yun, Antitrust & Privacy: It’s Complicated, J. Law Technol. Policy 343 (2022), finding no systematic relationship between privacy ratings and market concentration.

[6] See, e.g., Report on Social Media Services, Australian Competition & Consumer Commission (2023), 128, https://www.accc.gov.au/media-release/accc-report-on-social-media-reinforces-the-need-for-more-protections-for-consumers-and-small-business; Rebecca Kelly Slaughter, The FTC’s Approach to Consumer Privacy, Federal Trade Commission (2019) 3, available at https://www.ftc.gov/system/files/documents/public_statements/1513009/slaughter_remarks_at_ftc_approach_to_consumer_privacy_hearing_4-10-19.pdf.

[7] Antitrust Subcommittee Report, supra note 4, 28; Maurice E. Stucke & Ariel Ezrachi, When Competition Fails to Optimise Quality: A Look at Search Engines, 18 Yale J. Law Technol. 70 (2016).

[8] Pamela J. Harbour, Dissenting Statement in the Matter of Google/DoubleClick, Federal Trade Commission (2007), 4, available at https://www.ftc.gov/sites/default/files/documents/public_statements/statement-matter-google/doubleclick/071220harbour_0.pdf.

[9] For a critical perspective, see Giuseppe Colangelo, In Fairness We (Should Not) Trust: The Duplicity of the EU Competition Policy Mantra in Digital Markets, Antitrust Bulletin (forthcoming).

[10] See Cristina Caffarra & Johnny Ryan, Why Privacy Experts Need a Place at the Antitrust Table, ProMarket (2021) https://www.promarket.org/2021/07/28/privacy-experts-antitrust-data-harms-digital-platforms, arguing that “[t]here is a market power crisis and a privacy crisis, and they compound each other.”

[11] See, e.g., Wolfgang Kerber & Karsten K. Zolna, The German Facebook Case: The Law and Economics of the Relationship Between Competition and Data Protection Law, 54 Eur. J. Law Econ. 217 (2022), arguing that digital markets exhibit two types of market failure (i.e., competition problems on the one hand, and information and behavioral problems on the other) and suggesting that the effectiveness of enforcement should also be an important criterion for determining which policy should deal with a case if both laws can be applied. Accordingly, if data-protection law is uncapable of dealing effectively with privacy issues and competition law appears better able to overcome this challenge, then the competition authority should step in as the lead enforcer. On the enforcement failure of old and new data-protection regimes, see Filippo Lancieri, Narrowing Data Protection’s Enforcement Gap, 74 Maine Law Rev. 15 (2022).

[12] For an overview of various theories that have emerged in the literature, see Erika M. Douglas, The New Antitrust/Data Privacy Law Interface, Yale L.J. F. 647 (2021); Giuseppe Colangelo & Mariateresa Maggiolino, Data Protection in Attention Markets: Protecting Privacy Through Competition? 8 J. Eur. Compet. Law Pract. 363 (2017). See also, Consumer Data Rights and Competition Background: Note by the Secretariat, OECD (2020), available at https://one.oecd.org/document/DAF/COMP(2020)1/en/pdf, and Geoffrey A. Manne & Ben Sperry, The Problems and Perils of Bootstrapping Privacy and Data into an Antitrust Framework, CPI Antitrust Chronicle 2 (2015), exploring the difficulties associated with incorporating consumer-data considerations into competition policy and enforcement.

[13] See Noah Joshua Phillips, Remarks at the Mentor Group Paris Forum, Federal Trade Commission (2019), 13-15, https://www.ftc.gov/news-events/news/speeches/remarks-commissioner-noah-joshua-phillips-mentor-group-paris-forum; and Maureen K. Ohlhausen & Ben Rossen, Privacy and Competition: Discord or Harmony? 67 Antitrust Bulletin 552 (2022).

[14] See, e.g., Susan Athey, Christian Catalini, & Catherine E. Tucker, The Digital Privacy Paradox: Small Money, Small Costs, Small Talk, NBER Working Paper No. 23488 (2017); Alessandro Acquisti, Curtis Taylor, & Liad Wagman, The Economics of Privacy, 54 J Econ Lit 442 (2016). See also, Avi Goldfarb & Catherine Tucker, Shifts in Privacy Concerns, 102 Am Econ Rev: Papers and Proceedings 349 (2012), noting that individuals’ privacy preferences evolve over time; notably, as people grow older. they get more privacy-conscious. See also Jeffrey T. Prince & Scott Wallsten, How Much Is Privacy Worth Around the World and Across Platforms?, 31 J Econ Manag Strategy. 841 (2022), estimating individuals’ valuation of online privacy across countries (United States, Mexico, Brazil, Colombia, Argentina, and Germany) and data types (personal information on finances, biometrics, location, networks, communications, and web browsing), and finding that Germans value privacy more than people in the United States and Latin American countries do and that, across countries, people most value privacy for financial and biometric information.

[15] Giuseppe Colangelo & Mariateresa Maggiolino, Antitrust Über Alles. Whither Competition Law After Facebook?, 42 World Competition Law and Economics Review 355 (2019).

[16] See, e.g., Federal Trade Commission v. Facebook, Case No. 1:20-cv-03590 (D.D.C. 2021), para. 163, arguing that “[t]he benefits to users of additional competition include some or all of the following: … variety of data protection privacy options for users, including, but not limited to, options regarding data gathering and data usage practices”; and U.S. et al. v. Google, No. 1:20-cv-03010 (D.D.C. 2020), para. 167, arguing that “[b]y restricting competition in general search services, Google’s conduct has harmed consumers by reducing the quality of general search services (including dimensions such as privacy, data protection, and use of consumer data), lessening choice in general search services, and impeding innovation.” See also, Executive Order on Promoting Competition in the American Economy, The White House (2021), https://www.whitehouse.gov/briefing-room/presidential-actions/2021/07/09/executive-order-on-promoting-competition-in-the-american-economy, urging federal agencies to pay closer attention to “unfair data collection and surveillance practices that may damage competition, consumer autonomy, and consumer privacy.”

[17] See Margrethe Vestager, Tearing Down Big Tech’s Walls, Project Syndicate (2023) https://www.project-syndicate.org/commentary/eu-big-tech-legislation-digital-services-markets-by-margrethe-vestager-2023-03, stating that “[w]e are proud that Europe has become the cradle of tech regulation globally.”

[18] Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC, [2016] OJ L 119/1, Article 20. See Bert-Jaap Koops, The Trouble with European Data Protection Law, 4 Int. Data Priv. Law 4, 44 (2014), arguing that “[b]y its nature, data portability would be more at home in the regulation of unfair business practices or electronic commerce, or perhaps competition law—all domains that regulate abuse of power by commercial providers to lock-in consumers.”

[19] Bundeskartellamt, 7 February 2019, Case B6-22/16.

[20] CMA-ICO Joint Statement, supra note 3, 18-19.

[21] Ibid., 23.

[22] Douglas, supra note 12.

[23] See, e.g., hiQ Labs v. LinkedIn, 938 F.3d 985 (9th Cir. 2019), affirmed 31 F.4th 1180 (9th Cir. 2022), allowing hiQ continued access to LinkedIn users’ profile information in the name of competition. Notably, the court pointed out that hiQ’s entire business depends on being able to access public LinkedIn member profiles and that, at the same time, there is little evidence that LinkedIn users who choose to make their profiles public actually maintain an expectation of privacy with respect to the information that they post publicly. Therefore, “even if some users retain some privacy interests in their information notwithstanding their decision to make their profiles public, we cannot, on the record before us, conclude that those interests—or more specifically, LinkedIn’s interest in preventing hiQ from scraping those profiles—are significant enough to outweigh hiQ’s interest in continuing its business, which depends on accessing, analyzing, and communicating information derived from public LinkedIn profiles.”

[24] See, e.g., Epic Games v. Apple, 559 F. Supp. 3d 898, 922–23 (N.D. Cal. 2021), affirmed in part and reversed in part 2023 U.S. App. LEXIS 9775 (9th Cir. 2023), finding that Apple’s restrictions are designed to improve device security and user privacy; and District Court (Rechtbank) of Rotterdam, 24 December 2021, Case No. ROT 21/4781 and ROT 21/4782, dismissing the arguments that Apple’s in-app payment system is needed for security and privacy.

[25] See, e.g., Autorità Garante della Concorrenza e del Mercato, 11 May 2023, Case A561; Press Release, Bundeskartellamt Reviews Apple’s Tracking Rules for Third-Party Apps, Bundeskartellamt (2022), https://www.bundeskartellamt.de/SharedDocs/Meldung/EN/Pressemitteilungen/2022/14_06_2022_Apple.html; Autorité de la Concurrence, 17 March 2021, Decision 21-D-07, Apple, https://www.autoritedelaconcurrence.fr/en/decision/regarding-request-interim-measures-submitted-associations-interactive-advertising-bureau; Apple – The President of UOKiK Initiates an Investigation, Urz?d Ochrony Konkurencji i Konsumentów (2021), https://uokik.gov.pl/news.php?news_id=18092. See also, Mobile Ecosystems: Market Study Final Report, UK Competition and Markets Authority (2022) Chapter 6 and Appendix J, https://www.gov.uk/cma-cases/mobile-ecosystems-market-study.

[26] Phillips, supra note 13, 15.

[27] CJEU (Grand Chamber), 4 July 2023, Case C-252/21, Meta Platforms v. Bundeskartellamt, EU:C:2023:537.

[28] See, e.g., European Data Protection Supervisor, supra note 3, 26, stating that “clearly power is achieved through control over massive volumes of data on service users.”

[29] See GDPR, supra note 18, Recital 7.

[30] European Data Protection Supervisor, supra note 3, 26.

[31] CMA-ICO Joint Statement, supra note 3, 5.

[32] Nicholas Economides & Ioannis Lianos, Restrictions on Privacy and Exploitation in the Digital Economy: A Market Failure Perspective, 17 J. Competition Law Econ. 765 (2021).

[33] Competition Law and Data, Autorité de la Concurrence and Bundeskartellamt (2016), 25, available at https://www.bundeskartellamt.de/SharedDocs/Publikation/DE/Berichte/Big%20Data%20Papier.pdf?__blob=publicationFile&v=2.

[34] Economides & Lianos, supra note 32.

[35] Ibid., 770-771.

[36] GDPR, supra note 18, Article 4(11).

[37] Ibid., Article 7.

[38] Autorité de la Concurrence and Bundeskartellamt, supra note 33, 25. See also Australian Competition & Consumer Commission, supra note 6, 41, arguing that exploitative conduct involves the use of market power to “give less and charge more” and that, for consumers, this may involve lower-quality services or the excessive costs of providing personal data to access services.

[39] Autorité de la Concurrence and Bundeskartellamt, supra note 33, 24.

[40] Facebook, supra note 19. For a comment on the different episodes of the Facebook saga, see, e.g., Kerber and Zolna, supra note 11; Anne C. Witt, Excessive Data Collection as a Form of Anticompetitive Conduct: The German Facebook Case, 66 Antitrust Bulletin 276 (2021); Marco Botta and Klaus Wiedemann, The interaction of EU competition, consumer, and data protection law in the digital economy: the regulatory dilemma in the Facebook odyssey, 64 Antitrust Bulletin 428 (2019); Colangelo and Maggiolino, supra note 15.

[41] Facebook, supra note 19, paras. 778-780 and 792, stating that users could not have expected that the platform would analyse data emanating from other websites and, when they had the opportunity to read Facebook’s terms of service, users could barely understand the reasons why Facebook was processing and combining their data since Facebook’s terms of service were very complex, replete with links to other explanations, and significantly too opaque to allow ordinary users to understand its data policy.

[42] Ibid., section B(II), stating that voluntary consent to users’ information being processed cannot be assumed if their consent is a prerequisite for using the Facebook service in the first place.

[43] Ibid., para. 645, highlighting that GDPR’s Recitals 42 and 43 state that consent is not freely given where consumers have no alternative options, or where there are clear power imbalances. See also Inge Graef & Sean Van Berlo, Towards Smarter Regulation in the Areas of Competition, Data Protection and Consumer Law: Why Greater Power Should Come with Greater Responsibility, 12 Eur. J. Risk Regul. 674 (2021), arguing that, in formulating this two-way interaction between data-protection law and competition law, the Bundeskartellamt has not only incorporated data-protection principles into its competition analysis, but similarly transferred elements of competition law into data protection; and Orla Lynskey, Grappling With ‘Data Power’: Normative Nudges From Data Protection and Privacy, 20 Theor. Inq. Law 189 (2019), supporting the view that the GDPR provides a normative foundation for imposing a special responsibility on controllers holding data power, analogous to the special responsibility that competition law imposes on dominant firms.

[44] See Press Release, Bundeskartellamt Prohibits Facebook From Combining User Data From Different Sources, Bundeskartellamt (2019), https://www.bundeskartellamt.de/SharedDocs/Publikation/EN/Pressemitteilungen/2019/07_02_2019_Facebook.html;jsessionid=8A581062B36687451A3D1E7A5C256390.2_cid378?nn=3600108, arguing that “[t]he combination of data sources substantially contributed to the fact that Facebook was able to build a unique database for each individual user and thus to gain market power.”

[45] Facebook FAQs, Bundeskartellamt (2019), 6, https://www.bundeskartellamt.de/SharedDocs/Publikation/EN/Pressemitteilungen/2019/07_02_2019_Facebook_FAQs.pdf?__blob=publicationFile&v=6.

[46] See Colangelo & Maggiolino, supra note 15.

[47] Press Release, Meta (Facebook) Introduces New Accounts Center – An Important Step in the Implementation of the Bundeskartellamt’s Decision, Bundeskartellamt (2023), https://www.bundeskartellamt.de/SharedDocs/Meldung/EN/Pressemitteilungen/2023/07_06_Meta_Daten.html.

[48] Colangelo & Maggiolino, supra note 15.

[49] OLG Du?sseldorf, 26 August 2019, Case VI-Kart 1/19 (V), 10.

[50] Ibid., 11.

[51] Ibid., 12.

[52] Bundesgerichtshof, 23 June 2020, Case KVR 69/19.

[53] Ibid., para. 58.

[54] Ibid..

[55] Ibid., para. 86.

[56] Ibid., para. 94.

[57] OLG Du?sseldorf, 24 March 2021, Case Kart 2/19 (V).

[58] Meta, supra note 27.

[59] Autorità Garante della Concorrenza e del Mercato, 10 December 2018, Case PS11112, Facebook-Condivisione dati con terzi.

[60] Nederlandstalige Rechtbank van Eerste Aanleg te Brussel, 16 February 2018.

[61] Regulation (EU) 2022/1925 on contestable and fair markets in the digital sector and amending Directives (EU) 2019/1937 and (EU) 2020/1828 (Digital Markets Act) [2022] OJ L 265/1, Article 5(2).

[62] Ibid., Recital 36.

[63] Ibid., Recital 37.

[64] For critical analysis of this issue and more generally on the controversial relationship between the DMA and the GDPR, see Alba Ribera Marti?nez, The Circularity of Consent in the DMA: A Close Look into the Prejudiced Substance of Articles 5(2) and 6(10), Concorrenza e Mercato (forthcoming). See also Marco Botta & Danielle Da Costa Leite Borges, User’s Consent Under Art. 5(2) Digital Markets Act (DMA): Exploring the Complex Relationship Between the DMA and the GDPR, EUI RSC Working Paper (forthcoming), arguing that, while respecting the general criteria indicated by Art. 7 GDPR, the users’ consent under Art. 5(2) DMA should be adjusted to the DMA peculiarity and that the DMA should be considered as a lex specialis, taking precedence over the GDPR in case of conflict. Previously, the revised e-Privacy Directive introduced an opt-in system for website cookies: see Directive 2009/136/EC amending Directive 2002/22/EC on universal service and users’ rights relating to electronic communications networks and services, Directive 2002/58/EC concerning the processing of personal data and the protection of privacy in the electronic communications sector and Regulation (EC) No 2006/2004 on cooperation between national authorities responsible for the enforcement of consumer protection laws, (2009) OJ L 337/11, Article 5(3).

[65] DMA, supra note 61, Recital 72.

[66] Press Release, Statement of Objections Issued Against Google’s Data Processing Terms, Bundeskartellamt (2023), https://www.bundeskartellamt.de/SharedDocs/Meldung/EN/Pressemitteilungen/2023/11_01_2023_Google_Data_Processing_Terms.html.

[67] Ibid.

[68] Entwurf Eines Gesetzes zur A?nderung des Gesetzes Gegen Wettbewerbsbeschra?nkungen fu?r ein Fokussiertes, Proaktives und Digitales Wettbewerbsrecht 4.0 und Anderer Wettbewerbsrechtlicher Bestimmungen, Bundestag (2020), available at https://dserver.bundestag.de/btd/19/234/1923492.pdf.

[69] See Giuseppe Colangelo, The European Digital Markets Act and Antitrust Enforcement: A Liaison Dangereuse, 47 Eur. Law Rev. 597 (2022).

[70] Bundeskartellamt, 30 December 2021, Case B7-61/21, https://www.bundeskartellamt.de/SharedDocs/Entscheidung/EN/Entscheidungen/Missbrauchsaufsicht/2022/B7-61-22.html.

[71] Bundeskartellamt, 5 October 2023, Case B7-70/21.

[72] The Bundeskartellamt identified four main deficiencies to support its prohibition of Google’s data-processing terms (ibid., paras. 50-54). Namely, because of a lack of sufficient granularity in the settings options, users could not opt out of cross-service data processing or limit data processing to the Google service in which the data were generated. End users could only choose between accepting personalization across all services or opting out of personalization altogether. Further, users were not given sufficient choice within the meaning of Section 19a GWB, as in some cases, Google offers users no choice at all as to data-processing options. Furthermore, the settings options that Google offered lacked sufficient transparency—i.e., sufficiently concise and comprehensible indications providing users with sufficient information as to whether, how, and for what purpose Google processes data across services. Finally, when creating a Google account, a user’s options consent or reject consent were not equivalent.

[73] Ibid., para. 78.

[74] See, e.g., Inge Graef, Damian Clifford, & Peggy Valcke, Fairness and Enforcement: Bridging Competition, Data Protection, and Consumer Law, 8 Int. Data Priv. Law 200, 219-220 (2018).

[75] European Commission, 11 March 2008, Case COMP/M.4731. Previously, in a different setting (i.e., discussing an exchange-of-information case), the CJEU (23 November 2006, Case C-238/05, Asnef-Equifax, EU:C:2006:734, para. 63) affirmed that “any possible issues relating to the sensitivity of personal data are not, as such, a matter for competition law, they may be resolved on the basis of the relevant provisions governing data protection.”

[76] Google/DoubleClick, supra note 75, para. 364. See also para. 365, where the Commission noted that “that the combination of data about searches with data about users’ web surfing behaviour [wa]s already available to a number of Google’s competitors.”

[77] Ibid., para. 368.

[78] European Commission, 3 October 2014, Case COMP/M.7217.

[79] Ibid., para. 189.

[80] Ibid., para. 164.

[81] European Commission, 6 December 2016, Case COMP/M.8124.

[82] Ibid., fn 330.

[83] Ibid., para. 180.

[84] Ibid., para. 177.

[85] Ibid., para. 178.

[86] Ibid., para. 179.

[87] European Commission, 6 September 2018, Case COMP/M.8788, paras. 221 and 314.

[88] European Commission, 17 December 2020, Case COMP/M.9660.

[89] See, Statement on Privacy Implications of Mergers, European Data Protection Board (2020), available at https://edpb.europa.eu/sites/default/files/files/file1/edpb_statement_2020_privacyimplicationsofmergers_en.pdf, arguing that “(t)here are concerns that the possible further combination and accumulation of sensitive personal data regarding people in Europe by a major tech company could entail a high level of risk to the fundamental rights to privacy and to the protection of personal data.”

[90] Google/Fitbit, supra note 84, para. 410.

[91] Ibid., fn. 299.

[92] Ibid., fn. 300.

[93] European Commission, 21 December 2021, Case COMP/M.10290.

[94] European Commission, 27 January 2022, Case COMP/M.10262.

[95] Press Release, Commission Clears Creation of a Joint Venture by Deutsche Telekom, Orange, Telefo?nica and Vodafone, European Commission (2023), https://ec.europa.eu/commission/presscorner/detail/en/IP_23_721. Previously, in a similar vein, see European Commission, 4 September 2012, Case COMP/M.6314, Telefo?nica UK/Vodafone UK/ Everything Everywhere/ JV.

[96] UK Competition and Markets Authority, supra note 25, Appendix J.

[97] See, e.g., Nils Wernerfelt, Anna Tuchman, Bradley Shapiro, & Robert Moakler, Estimating the Value of Offsite Data to Advertisers on Meta, SSRN (2022) https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4176208, finding that the costs to acquire new consumers through targeted advertisements increases tremendously without access to offsite data. On the value of external data and on the relevance (especially for small and medium-sized players) of gaining access to external data from large players in the marketplace, see also Xiaoxia Lei, Yixing Chen, & Ananya Sen, The Value of External Data for Digital Platforms: Evidence from a Field Experiment on Search Suggestions, SSRN (2023) https://ssrn.com/abstract=4452804.

[98] For a review of the economic literature on the GDPR and its unintended consequences on firms’ performance, innovation, competition, and market concentration, as well as its impact on personalized marketing channels, see Garrett A. Johnson, Economic Research on Privacy Regulation: Lessons from the GDPR and Beyond, (forthcoming) in The Economics of Privacy, supra note 2.

[99] See Reinhold Kesler, Digital Platforms Implement Privacy-Centric Policies: What Does It Mean for Competition?, CPI Antitrust Chronicle 1 (2022), and Daniel Sokol & Feng Zhu, Harming Competition and Consumers Under the Guise of Protecting Privacy: Review of Empirical Evidence, CPI Antitrust Chronicle 12 (2022), for a review of economic studies showing that advertising revenues decrease with limited tracking abilities and providing empirical evidence of reduced user tracking on Apple as a consequence of the ATT policy. See also Wernerfelt, Tuchman, Shapiro, & Moakler, supra note 97, finding that restrictions on offsite data particularly harms smaller advertisers.

[100] See Sokol & Zhu, supra note 99. See also Kesler, Digital Platforms Implement Privacy-Centric Policies: What Does It Mean For Competition?, supra note 99, suggesting that the ATT brings back paid apps and reinforces the industry trend toward more in-app payments. With regard to the possibility that the ATT framework may affect the developers’ incentives in the Apple ecosystem, see also Cristobal Cheyre, Benjamin T. Leyden, Sagar Baviskar, & Alessandro Acquisti, The Impact of Apple’s App Tracking Transparency Framework on the App Ecosystem, CESifo Working Paper No. 10456 (2023), https://www.cesifo.org/en/publications/2023/working-paper/impact-apples-app-tracking-transparency-framework-app-ecosystem, finding that developers did not withdraw from the market after ATT and instead adapted to operate under the new conditions. Further, see Ding Li & Hsin-Tien Tsai, Mobile Apps and Targeted Advertising: Competitive Effects of Data Exchange, SSRN (2022), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4088166, finding that apps’ inability to use tracking for advertising affects large apps to a greater degree, as they experience larger declines than smaller apps in download numbers and innovation.

[101] Autorité de la Concurrence, supra note 25.

[102] Bundeskartellamt, supra note 25.

[103] Autorità Garante della Concorrenza e del Mercato, supra note 25.

[104] Urz?d Ochrony Konkurencji i Konsumentów, supra note 25.

[105] UK Competition and Markets Authority, supra note 25.

[106] Autorità Garante della Concorrenza e del Mercato, supra note 25, para. 47.

[107] Autorité de la Concurrence, supra note 25. In a similar vein, see Anzo DeGiulio, Hanoom Lee, & Eleanor Birrell, “Ask App not to Track”: The Effect of Opt-In Tracking Authorization on Mobile Privacy, in Emerging Technologies for Authorization and Authentication (Andrea Saracino and Paolo Mori, eds.), Springer Cham (2022), 152, finding that opt-in authorizations are effective at enhancing data privacy. Conversely, see Chongwoo Choe, Noriaki Matsushima, & Shiva Shekhar, The Bright Side of the GDPR: Welfare-Improving Privacy Management, CESifo Working Paper No. 10617 (2023) https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4558426, distinguishing among platforms’ business models and arguing that, if the firm’s revenue is largely usage-based rather than data-based, then both the firm’s profit and consumer surplus increase after the GDPR’s opt-in requirement, while if the firm’s revenue is largely from data monetization, then the opt-in can reduce the firm’s profit and consumer surplus.

[108] See also Catherine Armitage, Nick Botton, Louis Dejeu-Castang, & Laureline Lemoine, Study on the Impact of Recent Developments in Digital Advertising on Privacy, Publishers and Advertisers, AWO Belgium (2023) Report for the European Commission, 227, https://op.europa.eu/en/publication-detail/-/publication/8b950a43-a141-11ed-b508-01aa75ed71a1/language-en, arguing that consent prompts under the ATT policy are user-friendly, easily accessible, comprehensible and actionable; and UK Competition and Markets Authority, supra note 25, para. 6.163, acknowledging the privacy benefits associated with the introduction of ATT, as it enhances users’ control over their personal data and significantly improves developers’ compliance with data-protection law.

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

[110] Ibid.

[111] Press Release, Investigation into Google’s ‘Privacy Sandbox’ Browser Changes, UK Competition and Markets Authority (2021), https://www.gov.uk/cma-cases/investigation-into-googles-privacy-sandbox-browser-changes.

[112] Ibid.

[113] See also UK Competition and Markets Authority, supra note 25, para. 10.19, stating that “[w]orking closely with the ICO, the CMA now has a role in overseeing the development of Google’s proposals for replacements to third-party cookies, so that they protect privacy without unduly restricting competition and harming consumers.”

[114] Colangelo & Maggiolino, supra note 12.

[115] See, e.g., UK Competition and Markets Authority, supra note 5; Antitrust Subcommittee Report, supra note 4; Pasquale, supra note 4; Harbour & Koslov, supra note 4.

[116] Harbour, supra note 8.

[117] Antitrust Subcommittee Report, supra note 4; Stucke & Ezrachi, supra note 7.

[118] See Autorité de la Concurrence and Bundeskartellamt, supra note 33. See also Australian Competition & Consumer Commission, supra note 6; Slaughter, supra note 6.

[119] Douglas, supra note 12, 667.

[120] See, e.g., CMA-ICO Joint Statement, supra note 3, 26.

[121] At best, it may be argued that the DMA, supra note 61, Recitals 36 and 72, supports the theory of harm that, because of network effects and other structural features of digital markets, the strengthening of gatekeepers’ power lowers their incentives to compete through offering high levels of privacy. These Recitals consider that ensuring data protection facilitates contestability of core platform services by avoiding the risks that gatekeepers raise barriers to entry and allow other undertakings to differentiate themselves better through the use of superior privacy guarantees.

[122] Meta, supra note 27.

[123] Opinion of the Advocate General Athanasios Rantos, 20 September 2022, Case C-252/21, EU:C:2022:704.

[124] Ibid., fn 18.

[125] Ibid., para. 23.

[126] See CJEU, 17 February 2011, Case C-52/09, Konkurrensverket v. TeliaSonera Sverige AB, EU:C:2011:83; 27 March 2012, Case C-209/10, Post Danmark A/S v. Konkurrencerådet, EU:C:2012:172; 6 October 2015, Case C-23/14, Post Danmark A/S v. Konkurrencerådet (Post Danmark II) EU:C:2015:651; 6 September 2017, Case C-413/14 P, Intel v. Commission, EU:C:2017:632; 30 January 2020, Case C-307/18, Generics (UK) and Others v. Competition and Markets Authority, EU:C:2020:52; 25 March 2021, Case C-152/19 P, Deutsche Telekom v. Commission (Deutsche Telekom II), EU:C:2021:238; 12 May 2022, Case C-377/20, Servizio Elettrico Nazionale SpA v. Autorità Garante della Concorrenza e del Mercato, EU:C:2022:379.

[127] Meta, supra note 27, para. 47, quoting Rantos, supra note 123, para. 23.

[128] Meta, supra note 27, para. 51.

[129] Ibid., para. 48.

[130] Rantos, supra note 123, para. 24.

[131] Meta, supra note 27, para. 49.

[132] Ibid., paras. 52 and 54.

[133] Ibid., para. 56. See also Rantos, supra note 120, paras. 29-30.

[134] See Giuseppe Colangelo & Mariateresa Maggiolino, Data Accumulation and the Privacy-Antitrust Interface: Insights from the Facebook Case, 8 Int. Data Priv. Law 224 (2018).

[135] See also Peter Georg Picht, CJEU on Facebook: GDPR Processing Justifications and Application Competence, SSRN (2023) 3, https://ssrn.com/abstract=4521320, arguing that it is doubtful whether informal communications, as apparently held by the Bundeskartellamt with one of the competent GDPR authorities, sufficiently protect party rights.

[136] See, e.g., Klaus Wiedemann, Data Protection and Competition Law Enforcement
in the Digital Economy: Why a Coherent and Consistent Approach is Necessary
, 52 IIC 915 (2021), arguing that the regulation of consent to the processing of personal data under the GDPR serves as a dogmatic link between data-protection and competition law, as the freedom to choose granted by the GDPR to users whose personal data are monetized shares significant overlaps with the economic freedom acknowledged in competition-law jurisprudence.

[137] GDPR, supra note 18, para. 74.

[138] Meta, supra note 27, paras. 147 and 149. See also Rantos, supra note 123, para. 75.

[139] Rantos, supra note 123, para. 75.

[140] For an analysis of the critical implications, see Alessia Sophia D’Amico, Market Power and the GDPR: Can Consent Given to Dominant Companies Ever Be Freely Given?, SSRN (2023), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4492347. See also Peter Georg Picht & Ce?dric Akeret, Back to Stage One? – AG Rantos’ Opinion in the Meta (Facebook) Case, SSRN (2023), 4, https://ssrn.com/abstract=4414591, considering the question of whether GDPR market power can be not only less than competition-law dominance but also of a different nature—e.g., based on a set of parameters that would not suffice, as such, to establish market power in the competition-law sense.

Scholarship

Unclear Metrics for Success and Compliance with DCRs

DMA proponents initially touted the regulation as a “self-executing” tool that would save enforcers valuable time and resources. Early experience, however, has shown that it is not always clear whether gatekeepers are doing enough to comply with the DMA’s broad prohibitions and obligations. This is likely connected to the broader lack of clarity surrounding which yardsticks to use to measure the DMA’s success (or failure). That, in turn, is likely downstream of the DMA’s amorphous goals of “fairness and contestability.” Policymaking cannot hope to be rational without a clear lodestar, much less a “self-executing” one.

Emulating Untested Regulation Comes with Significant Risks and Costs

As various jurisdictions around the world seek to emulate and implement digital competition regulations akin to those pioneered by leading entities like the EU, they face a critical consideration: the substantial costs associated with such endeavors. These expenses encompass not only the development and implementation of regulatory frameworks, but also the ongoing monitoring, enforcement, and adaptation to rapidly evolving digital landscapes that such rules necessarily entail.

Developing countries may also increasingly find that these regulations are not fit for local application, as emulating costly, untested regulations could discourage much-needed foreign direct investment into the local economy and innovation. The opportunity costs of diverting scarce resources away from competition-law enforcement (and other areas of public policy) are also particularly acute in developing countries, and should be included in any cost-benefit calculus. 

DMA-Style DCRs Might Not be Right for Everyone

Digital competition regulations nominally seek to protect competition. In reality, however, these regulations primarily serve political and protectionist motives, rather than addressing genuine market-failure concerns.

For example, the DMA’s critics have questioned whether the notion of “gatekeepers” is either technically or economically coherent. They also posit that the DMA reflects a more fundamental shift in the philosophy animating competition regulation—where the new aims include redistributing wealth, promoting EU digital platforms, controlling U.S. tech firms, and ushering in a new era of competition regulation focused on political goals.

While it is debatable whether digital competition regulation is right even for the EU, emerging-market countries should be particularly wary of importing a regulatory tool that might not be appropriate for their specific market realities, regulatory philosophy, and policy priorities.

Should ASEAN Antitrust Laws Emulate European Competition Policy?

Unlike many other trading blocs (most notably the EU), the ASEAN nations are yet to agree upon a common, unified set of competition law provisions. Nevertheless, recent years have seen the ASEAN members embark upon various initiatives that seek to harmonize their competition regimes (though these stop well short of common rules). In 2016, for instance, the member states adopted the ASEAN Competition Action Plan (“ACAP”). Among other things, the plan seeks to ensure that all ASEAN states implement competition regimes that meet a set of minimal standards, and eventually to harmonize competition policy across the ASEAN region.

These ongoing efforts to modernize and harmonize ASEAN competition laws do not arise in a vacuum. Rather, they take place amid a longstanding effort by both the European Union and the United States to export their respective competition laws throughout the world:

The EU and the US . . . want the rest of the world to follow their respective regulatory models. Both jurisdictions have actively promoted their competition laws as “best practices” abroad, urging developed and developing countries alike to adopt domestic competition laws and build institutions to enforce them. They promote their models through a specialized network of competition regulators—the International Competition Network (ICN)—and also more general bodies—notably the Organization for Economic Cooperation and Development (OECD) and the United Nations Conference on Trade and Development (UNCTAD). They also employ bilateral tools in their promotion effort—including offering technical assistance to emerging competition law jurisdictions. In its trade agreements, the EU also explicitly conditions access to its markets on the adoption of a competition law, exporting its own law in the process, while the US relies primarily in its persuasive powers rather than on formal treaties in exporting its laws.

No doubt the EU and US competition regimes are the most developed and dominant exemplars; following the policies of one or both to some extent is virtually inevitable. But this raises a critical question: should the ASEAN countries attempt to mimic the competition regimes of other developed nations, notably those that are in force in the EU and the US? And, if so, which one of these regimes should they draw more inspiration from?

While we certainly do not purport to know what type of regime would best fit the idiosyncratic needs of the ASEAN countries, we seek to dispel the myth that the European model of competition enforcement would necessarily provide a superior blueprint. To the contrary, we show that the evolutionary, common-law-like regime that has emerged in the US has many strengths that are often overlooked by contemporary competition policy scholarship, and which might provide a particularly good fit for the economic and political realities of the ASEAN member states.

Our paper also falls squarely within a much broader debate. Over the past couple of years, there have been renewed calls for policymakers to reform existing competition regimes in order to better address the challenges that are, purportedly, posed by the emergence of the digital economy. This has notably resulted in a series of high-profile reports, papers, and draft legislation, concluding that more interventionist tools are required to effectively deal with competition issues in digital markets. The draft European Digital Markets Act, the US House Judiciary report on competition in digital markets, as well as the draft bill put forward by US Senator Amy Klobuchar all mark the culmination of this antitrust reform movement.

Although the connection is often implicit, these calls for reform ultimately seek to implement (and amplify) features that are currently at the forefront of European competition enforcement. Potential reforms thus include broadening the goals of competition policy, as well as relying more heavily on structural and behavioral presumptions (rather than outcome-oriented reasoning).

At times this desire to move closer to the EU model is more explicit. For example, writing in Vox, Matthew Yglesias ventured that “[o]ne idea [for remedying perceived problems with US antitrust] would be for the US to actually move to something more like the European system and abandon the consumer welfare standard.” In a similar vein, Bloomberg featured an article by economics writer Noah Smith heaping praise on the growing populist antitrust wave and its potential to roll back the consumer welfare standard. And, at least according to EU Commissioner Margrethe Vestager, the US executive branch agencies have expressed a “renewed deeper interest and curiosity as to what we are doing in Europe.”

In parallel to these calls for reform, scholars have also analyzed the evolution of competition legislation around the world (as well as regulation, more generally). These scholars observe that recent initiatives have tended to mimic the rules of the European Union, rather than the more laissez faire approach that is often associated with the US. This trend has been referred to as the “Brussels Effect.” Accordingly, these scholars predict a regulatory “race to the top”, where more stringent rules and regulations will become the norm. While ostensibly agnostic, this implicitly conveys a sense that “resistance is futile,” and that the European approach will inevitably continue to spread more rapidly than its US counterpart.

With these policy debates in mind, our paper argues that ASEAN member states should not be too quick to embrace the European model of competition enforcement – be it by adopting more expansive competition laws or by regulating competition in digital markets. While the above-referenced scholars and advocates tend to assert that a more-expansive, EU-oriented approach would improve economic conditions, economic logic and the apparent reality from Europe strongly suggest otherwise.

Antitrust is an attractive regulatory tool for a number of reasons. The vague, terse language of most antitrust laws (including those in both the US and EU) readily lend themselves to “interpretation” imbuing them with virtually limitless scope. Indeed, the urge to treat antitrust as a legal Swiss Army knife capable of correcting all manner of social and economic ills is apparently difficult to resist. Conflating size with market power, and market power with political power, many recent calls for regulation of the tech industry are framed in antitrust terms, even though they are mostly rooted in nothing recognizable as modern, economically informed antitrust legal claims or analysis.

But that attraction is precisely why everyone—and emerging economies like ASEAN members in particular—should care about the scope, process, and economics of antitrust and the extent of its politicization. Antitrust in the US has largely resisted the relentless effort to politicize it. Despite being rooted in vague and potentially expansive statutory language, US antitrust is economically grounded, evolutionary, and limited to a set of achievable social welfare goals. In the EU, by contrast, these sorts of constraints are far weaker.

This conclusion is in no way altered by the fact that US antitrust law has become the “outlier” of global antitrust enforcement, compared to the EU’s more “consensual” approach. What matters is a policy’s actual results, not whether it is widely adopted; the world is full of debunked beliefs that were once widely shared. And it is far from certain that the widespread adoption of the EU model is in any way indicative of superior results. It is equally (or even more) plausible that this model has proliferated because it naturally accommodates politically useful populist narratives—such as “big is bad,” robin hood fallacies and robber baron myths—that are constrained by the US’s more evidence based and rational antitrust decision-making. America’s isolation might thus be a testament to its success rather than an emblem of its failure.

The EU’s more aggressive pursuit of technology platforms under its antitrust laws demonstrates many of the problems with its approach in general. Endorsing the European approach to antitrust, in a naïve attempt to bring high-profile cases against large internet platforms, would prioritize political expediency over the rule of law. It would open the floodgates of antitrust litigation and facilitate deleterious tendencies, such as non-economic decision-making, rent-seeking, regulatory capture, and politically motivated enforcement.

Bringing international antitrust enforcement in line with that of the EU would thus unlock a veritable Pandora’s box of concerns that might otherwise be kept in check. Chief among them is the use of antitrust laws to evade democratically and judicially established rules and legal precedent. When considering this question, it is important to see beyond any particular set of firms that enforcement officials and politicians may currently be targeting. An antitrust law expanded to consider the full scope of soft concerns that the EU aims at will not be employed against only politically disfavored companies, companies in other jurisdictions, or in order to expediently “solve” otherwise political problems. Once antitrust is expanded beyond its economic constraints and imbued with political content, it ceases to be a uniquely valuable tool for addressing real economic harms to consumers, and becomes a tool for routing around legislative and judicial constraints.

Our paper proceeds as follows. Section II analyzes the high-level differences between the American and European approaches to competition policy. Notably, this Section shows that these regimes pursue different goals, rely to varying degrees on economic insights to inform their decision-making, afford very different degrees of judicial deference to antitrust authorities, and exhibit different degrees of politization. Section III shows that the US and Europe also differ substantially in terms of the conduct that may constitute an infringement of competition law—the EU system being significantly more restrictive. Section IV turns to question of competition in digital platform markets. It argues that European competition enforcement in the digital industry provides a cautionary tale that cuts against both the adoption of ex ante regulation and a relaxation of existing antitrust standards (such as the “consumer welfare standard”). Section V posits that reducing economic concentration—sometimes cited as a byproduct of European-style competition enforcement—should not be a self-standing goal of antitrust policy. Finally, Section VI argues that many of the economic and political characteristics of the ASEAN economy cut in favor of using the US model of competition enforcement as a blueprint for further development and harmonization of ASEAN competition law.

Read the full white paper here.

Scholarship

Dirk Auer on Digital Competition in the EU

ICLE Director of Competition Policy Dirk Auer joined as a panelist in a webinar organized by ECIPE on platform regulation and merger policy in the EU, and the implications for member states’ attractiveness for digital investment. Video of the full panel is embedded below.

Presentations & Interviews

Regulatory Myopia and the Fair Share of Network Costs: Learning from Net Neutrality’s Mistakes

Abstract

Seeking to boost funding for the next generation of telecommunications infrastructure, European Union (EU) policymakers have proposed mandating that some large online platforms pay a special usage fee to network operators. Framed as a way to ensure that the largest users of internet infrastructure contribute their “fair share” to telecommunications networks, the proposal would be another unnecessary and harmful regulatory intervention. These comments paper seek to demonstrate that the fair-share debate itself is, in fact, the byproduct of an earlier intrusive government initiative: net-neutrality regulation. Like net neutrality’s anti-discrimination rules, a “fair share” tax would represent a solution that doesn’t work to a problem that doesn’t exist. Moreover, the debate reflects the EU’s fundamentally misguided inclination toward an industrial-policy approach to the digital transformation, built on the unsound belief that innovation can be delivered via regulation and by subsidizing legacy domestic firms with rents transferred from successful global players. Rather than continuing to interfere in market dynamics and private negotiations without any solid evidence of market failure, the EU should instead learn from its past mistakes and acknowledge the limited scope for regulation in these dynamic markets.

I. Introduction

“[W]e have a vision, and we have a goal,”[1] European Commissioner Thierry Breton said in a February 2023 speech in Helsinki announcing the launch of a public consultation on the future of connectivity and infrastructure in the European Union (EU).[2] The consultation’s stated goal is to keep pace with transformative technological developments and to make Europe a digital leader by boosting deployment of forward-looking telecommunications infrastructure. Toward this end, the European Commission argues, it is essential that the regulatory framework is fit for purpose, with adequate funding to support the required investments.[3]

Given that ambitious goal, these comments investigate the likelihood that this vision can become a reality.

As part of the 2030 Digital Decade policy program,[4] European policymakers are seeking a means to equip Europe with the next generation of connectivity infrastructure. The primary solution offered—one that has the backing of incumbent European telecom operators (telcos)—is to make some large online platforms (so-called “Big Tech”) contribute to the cost of telecom networks. The proposal has been justified on grounds that Big Tech firms use a large share of bandwidth, while the telcos have seen a decline in their returns on investment.[5]

Essentially, the proposal would constitute a direct welfare transfer from online content and application providers (CAPs) or over-the-top service providers (OTTs) to benefit telcos and other internet service providers (ISPs). This would be accomplished by setting a data-transmission threshold and charging CAPs a fee when they transmit data exceeding that threshold. Indeed, the questionnaire the Commission released as part of the public consultation does not ask whether such a levy is needed, but merely seeks input on how it should be structured.[6]

Unsurprisingly, telcos have described the fair-share tax as “a once in a lifetime opportunity to recover digital leadership in Europe.”[7] Telco operators argue that a few Big Tech firms generate a significant portion of all internet traffic, but do not adequately contribute to the development of such networks.[8] These concerns find support in the recent European Declaration on Digital Rights and Principles for the Digital Decade, which calls for a framework through which “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.”[9]

EU policymakers have also explored the need to encourage consolidation in the telecom industry in order to sustain investments that will stanch “Europe’s progressive technological decline.”[10] Under this vision, the path to promote investment and spur innovation in Europe’s digital future would be forged not only through rent transfers from CAPs to telcos, but also by defeating “excessive competition” in the telecom section.[11]

We argue here that the current debate stems, instead, from earlier invasive and unnecessary regulatory initiatives. Notably, the “fair share” proposal is the poison fruit of net-neutrality regulation, which has prevented telcos from monetizing their networks. In an alternative framework, the telecom sector could have instead been permitted to manage the transmission of content and services according to their value for end users, anticipated bandwidth use, or a host of other quality requirements upon which various CAPs depend.

Rather than acknowledging the limits of regulation, the fair-share proposal reflects the Commission’s persistent distrust of market forces and private-ordering mechanisms. Further, the debate represents just the latest instance of a more generalized EU industrial-policy approach to the digital transformation. This approach rests on the unsound belief that innovation can be delivered through regulation and by subsidizing legacy domestic EU firms through the transfer of rents from successful global players.

Having in this section provided an overview of the conflict between telecom operators and CAPs, Section II frames the “fair share” debate within the broader EU industrial-policy approach to the digital transformation, noting similarities with earlier efforts to support the EU’s audiovisual and publishing industries. Section III investigates the controversial relationship between “fair share” duties and net-neutrality rules. Section IV points out the limited role for regulation and the principles that should guide government intervention in fast-moving industries. Section V concludes.

II. A Solution in Search of a Problem

The 2030 Digital Decade policy program highlights the need to foster investment in high-speed telecommunications networks if the EU is to meet the connectivity targets established in the path to the digital transformation.[12]

Data traffic represents the critical determinant of telecom networks’ size and capacity. EU telcos claim, however, that exponential growth of internet traffic has left them unable to earn viable returns on network investments.[13] According to the telcos, traffic growth is disproportionately driven by a small number of OTTs, who provide relatively little direct economic contribution to network rollout.

According to a report for the European Telecommunications Network Operators Association (ETNO), just six firms generated roughly 56% of all network traffic, with Google accounting for 21%; Meta accounting for 15.4%; Netflix accounting for 9.4%; Apple accounting for 4.2%; Amazon accounting for 3.7%; and Microsoft accounting for 3.3%.[14] Further, a study conducted by Frontier Economics on behalf of Deutsche Telekom, Orange, Telefo?nica, and Vodafone estimated that traffic driven by OTTs could generate annual costs for EU telcos of €36 to 40 billion.[15] Such findings are often cited by telcos to make the case that OTTs are free riding on their network investments and need to be made to more equitably share the burden:

Digital platforms are profiting from hyper scaling business models at little cost while network operators shoulder the required investments in connectivity. At the same time our retail markets are in perpetual decline in terms of profitability.[16]

To address the concern of free riding, telcos have proposed a sending-party-network-pays system, which would mandate that the largest online platforms pay usage fees to compensate network operators.[17] In singling out the largest platforms for exceptional treatment, the proposal resembles how EU institutions already approach the regulation of “gatekeepers” under the Digital Markets Act (DMA) and “very large online platforms” under the Digital Services Act (DSA).[18] The proposal would establish a direct compensation mechanism, rather than private negotiations among the relevant parties, because it assumes that network operators are not positioned to negotiate fair terms with leading OTTs due to the latter’s alleged strong market positions, asymmetric bargaining power, and a lack of a level regulatory playing field.

The telcos point to the revenue and market capitalization enjoyed by the largest OTTs as demonstrating that the services Big Tech provides are essential for consumers.[19] But while the growth in traffic volume for the OTTs’ services creates additional costs for network operators, the telcos contend that they cannot respond to that growth in demand with higher retail prices, both because of strong competition in the retail telecommunications market and due to regulatory interventions at the wholesale level.[20] These factors, they contend, have created an uneven regulatory playing field between OTTs and telcos. Moreover, they argue that this uneven playing field has contributed to declining profit margins for telcos’ traditional retail revenue streams and that, consequently, telcos’ costs of capital are now higher than their returns on capital.

For their part, OTTs argue that they contribute to the internet ecosystem with investments in content-delivery networks and infrastructure—such as data centers, undersea cables, and satellites—and by creating content that is attractive to consumers, who in turn buy access from the ISPs to consume that content.[21] Therefore, they argue, it is the end users who generate traffic by consuming content, and they already pay ISPs through their subscriptions.

This debate over how network costs should be allocated is not new, and nor is the idea of a sending-party-network-pays system. The Body of European Regulators for Electronic Communications (BEREC) rejected a similar proposal 10 years ago, arguing that requests for dataflows stem not from content providers, but from retail ISPs’ own customers. BEREC further contended that increased demand for broadband access can be attributed to the success of content providers.[22]

Indeed, broadband networks are two-sided markets that bring together CAPs and end users. ISPs derive revenue from end users, who in turn pay for internet service to gain access to OTTs’ content. Since both sides of the market (content providers and end users) contribute to the cost of internet connectivity, BEREC found that “[t]here is no evidence that operators’ network costs are already not fully covered and paid for in the Internet value chain.”[23]

Further, BEREC acknowledged that the current “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.”[24] Therefore, “the nature of services to be delivered across the network, and the charging mechanisms applied to them, should continue to be left to commercial negotiations among stakeholders.”[25]

While prevailing internet traffic volumes are notably higher today than those observed a decade ago, it does not appear that BEREC regards the recent changes in traffic patterns as sufficient to modify its underlying assumptions regarding the sending-party-network-pays regime.[26] Indeed, in a recent preliminary assessment of a proposed direct compensation mechanism to benefit telcos, BEREC confirmed that it feels “the 2012 conclusions are still valid” and that the sending-party-network-pays model would provide ISPs “the ability to exploit the termination monopoly” and could be of “significant harm to the internet ecosystem.”[27]

BEREC also questioned the assumption that an increase in traffic directly translates into higher costs, noting that the costs of network upgrades necessary to handle increased traffic volumes are small relative to total network costs, and that upgrades come with significant increases in capacity.[28] In other words, BEREC found that rising traffic volumes do not directly lead to significant incremental costs relative to total network costs.[29]

Finally, BEREC once again found no evidence of free riding along the value chain,[30] finding that the IP-interconnection ecosystem remains largely competitive and that costs for internet connectivity are typically covered by ISPs’ customers.

It would be reasonable to assume that if there had been such a significant free-riding, this would have been reflected in ISPs financial statements and also in loss warnings.[31]

BEREC’s preliminary findings and continued skepticism of replacing freely negotiated internet interconnections with mandated network-usage fees are supported by studies that similarly find a lack of evidence of free riding;[32] report significant investments by CAPs to support network infrastructure;[33] and raise concerns about the potential side effects of a sending-party-network-pays model on the proper functioning of internet connectivity.[34]

A study conducted by WIK-Consult for the Federal Network Agency Germany (Bundesnetzagentur) confirmed that the IP-interconnection ecosystem is largely competitive and warned against the kinds of potential unintended consequences already seen in South Korea, the only country thus far that has mandated sending-party-network-pays billing.[35] South Korea provides a cautionary tale about the adverse effects that stem from interference in voluntary negotiations. Indeed, there is evidence that the competitive distortions between CAPs and ISPs generated by the Korean initiative had negative effects for consumers in terms of costs and the degradation of quality.[36]

Some EU member states have also been skeptical of telcos’ pleas and of the idea more generally that charging a toll on the internet is an appropriate strategy to promote network investments.[37] According to these members, the proposed “fair share” toll would pose considerable risks to the internet ecosystem and is likely to cause considerable harm to businesses and consumers. Indeed, as the envisaged data-transmission tax will affect the most popular services and content, a huge percentage of consumers are expected to bear the relative cost, as targeted OTTs eventually pass the new fees paid to ISPs downstream.[38] These concerns were expressed in a letter from Austria, Estonia, Finland, Germany, Ireland, and the Netherlands that urged the Commission to publish the Broadband Cost Reduction Directive (BCRD) review without discussion of the “fair share” debate.[39] In their view, while the revised BCRD should aim to accelerate the deployment of very high-capacity networks, the fair-share proposal is a distinct topic that requires a proper evidence-based assessment of its own merits.

A. Blaming and Taxing Digital Platforms

From a broader perspective, the “fair share” debate reflects the EU’s recent industrial-policy approach to the digital transformation.

The internet has deeply transformed traditional industries by favoring the emergence of new business models and creating opportunities for new players to enter those markets. Because of these challenges, some legacy incumbents struggle to keep pace with innovation and new forms of competition, disrupting entire industries. It is no secret that Europe has lagged behind in the digital economy and that established European companies have suffered most from the emergence of digital markets, as they have thus far been unable to develop competitive platform-based ecosystems.

Against this backdrop, European institutions have looked to subsidies as the solution to rescue some legacy players. Such interventions have been justified by policymakers on grounds of alleged market failures or the importance of public interests at stake. Such claims are not new, and public deliberation would ordinarily turn to evaluating whether the claimed market failures are real and whether the measures identified to promote future competition and innovation are effective. But EU policymakers have managed to evade such questions by insisting that the rescues they obviously seek not rely directly on subsidies from the European public.[40] Instead, the proposed subsidies would come from private, largely U.S.-based firms.

In sum, the manifesto for the new protectionist EU industrial policy is to “blame and tax Big Tech.” This narrative holds that the success of a few large online platforms is the cause of the purported market failures, and that it is therefore fair to tax their success and force them to share their profits.[41] The approach is shortsighted but, from the perspective of EU policymakers, certainly convenient.

The internet’s impact on business models is seen as particularly threatening to the media industry. In light of new technologies to transmit audiovisual-media services, European institutions argued for a regulatory framework that would ensure “optimal conditions of competitiveness” for European media and safeguard certain “public interests, such as cultural diversity.”[42]

The policy solutions identified by the revised Audiovisual Media Services (AVMS) Directive are twofold.[43] First, European works are required to represent at least 30% of on-demand audiovisual-media services’ catalogs, and the services are require to ensure the prominence of those works.[44] Second, to ensure adequate levels of investment in European works, EU member states are permitted to impose financial obligations (including requiring direct investments in content and mandated contributions to the national fund) on media-service providers established within their territory, or on the basis of revenues the providers generate from services that are provided in and targeted toward the member state’s territory.[45]

In other words, to counter U.S. platforms’ dominance in the European video-on-demand (VOD) market,[46] the new AVMS Directive targets large foreign companies by imposing content quotas and financial obligations under a regime that has been termed the “Netflix tax.”[47] While this protectionist intervention to rescue the European audiovisual market is ostensibly made in the name of the public interest, both of the envisaged measures more accurately reflect resentment of the global players’ success than they do concern for Europe’s noble cultural diversity.[48]

Shortly after the AVMS Directive’s enactment, taxing Big Tech also became the preferred solution to rescue the European publishing industry.[49] Seeking to address a purported gap in value between digital platforms and news publishers, the Directive on Copyright in the Digital Single Market granted the latter a right to control and receive compensation for the reproduction and availability of online summaries of their news articles.[50] Indeed, publishers claim that the sustainability of their entire industry has been jeopardized by the emergence of digital gatekeepers, which capture most of the advertising revenue without bearing the cost of the investments needed to produce news content. It is alleged that this unfair split of revenues is the result of asymmetric bargaining power, which makes it difficult for press publishers to negotiate with Big Tech on an equal footing.[51]

In sum, the news publishers’ case that free riding and asymmetry of bargaining power justify their request for revenue sharing are the same arguments used by telcos to support their own “fair share” proposal. The publishing industry’s struggles, however, started swell before the emergence of digital platforms. Newspapers’ business models were first hit by the advent of the internet, which changed consumption habits and enabled the growth of new forms of journalism.[52] Moreover, digital platforms arguably play a complementary role to news sites, as legacy publishers benefit from inbound links that drive audience traffic. Indeed, empirical evidence does not support the free-riding narrative.[53] It may be sound policy to support publishers in their digital transformation but, as argued some years ago, “[t]axing new digital players will not save press publishing industry and legacy business models.”[54]

Such findings also apply to the telcos. Indeed, as is evident from this brief analysis, there are strong similarities between the audiovisual market and the publishing industry when it comes to the fair share of network costs. All of these policy initiatives stem from European industries’ inability to keep the pace with the digital transformation that has been enhanced by the spread of high-speed internet. While the internet revolution has enabled the emergence of new global players, legacy European companies are struggling to adapt their business models and strategies in order to compete.

In this context, policymakers frequently invoke the need to protect public interests as justification for regulatory interventions they claim would correct purported market failures, but that instead merely alter the prevailing market dynamics. Indeed, protectionist interventions that impose financial obligations on successful players will not address the problems in question, and will therefore be ineffective at achieving the goal of closing the competition gap between European firms and the global players. Moreover, as discussed in the next section, taxing online providers in the telecommunications sector, specifically, would appear to be clearly at odds with the rationale that underlies European efforts to enforce the net-neutrality regulation.[55]

III. The Net-Neutrality Problem

The European Commission’s “fair share” proposal is of dubious compatibility with net neutrality, which was the flagship initiative delivered by the Commission in the previous political term. Indeed, the Commission has appeared anxious to reassure the public that there is no going back on net neutrality and that it remains “strongly committed” to protecting a neutral and open internet.[56] But there are manifest concerns that direct compensation from large OTTs to ISPs would endanger the principle of net neutrality.[57] Indeed, the fair-share proposal appears at odds with both the legal obligations of net neutrality and its underlying economic rationale.

Net neutrality has always been a particularly contentious topic, as confirmed by the transatlantic divergence on the topic. While the EU regulation remains in force, the U.S. Federal Communications Commission’s (FCC) 2015 Open Internet Order was repealed in 2018 by the superseding Restoring Internet Freedom Order.[58] The FCC reverted to its pre-2015 position, concluding that the benefits of a market-based, light-touch regime for internet governance outweigh those of utility-style, common-carrier regulation. Quoting then-FCC Chairman Ajit Pai, “there was no problem to solve. The Internet was not broken in 2015. We were not living in a digital dystopia.”[59]

Given the assumption that broadband providers enjoy endemic market power, a common feature of net-neutrality regulations is the imposition of non-discrimination rules that ensure all internet traffic is treated equally. As terminating-access monopolists, ISPs are deemed gatekeepers for edge providers that seek to reach their end-user subscribers—hence, they may discriminate against the former and impose restrictions on the latter. Toward this end, the 2015 Open Internet Order imposed three ex ante bright-line rules preventing U.S. ISPs from blocking content, throttling traffic, or discriminating against specific content for a fee (so-called “paid prioritization”).[60] These rules were predicated on the belief that there was a need to protect and promote openness, since “the Internet’s openness promotes innovation, investment, competition, free expression, and other national broadband goals.”[61]

In a similar vein, by establishing common rules to safeguard equal and non-discriminatory treatment of internet traffic, the EU Regulation pointed to the need to protect end-users and guarantee the continued functioning of the internet ecosystem as an engine of innovation:[62]

The internet has developed over the past decades as an open platform for innovation with low access barriers for end-users, providers of content, applications and services and providers of internet access services. … However, a significant number of end-users are affected by traffic management practices which block or slow down specific applications or services.[63]

Indeed, proponents of net neutrality typically claim that allowing ISPs to treat different CAPs differently through, e.g., paid prioritization would stifle innovation by hindering the entrance of new content providers. This, in turn, would negatively affect the welfare of end-users through rising subscription fees, less variety of content, and reduced quality of connections.[64] Opponents, on the other hand, question the very economic logic of net-neutrality regulation, maintaining that it would increase regulatory costs, dampen ISPs’ incentives to invest in broadband capacity, and harm both consumers and content providers.[65]

Moreover, these types of regulations explicitly prevent ISPs from bargaining with CAPs in ways that would allow ISPs to seek payment for excessive network usage. Thus, some substantial portion of the “problem” that “fair share” seeks to correct directly arises from telcos being constrained from arm’s-length negotiations with CAPs.

Net-neutrality opponents also contest the claim that ISPs have and use market power in ways that lead to market foreclosure, arguing that this is not supported by empirical evidence.[66] A related concern is that vertically integrated ISPs with market power could potentially self-preference their own content.[67] But even if a vertically integrated ISP had market power, it is not obvious that compromising the quality of content requested by end users would be profit maximizing.[68] That is, even in this extreme hypothetical, the threat of user defection because of degraded quality mutes or answers the concern.

More generally, the economic literature has stressed that the consequences of net-neutrality regulation depend on precise policy choices, how they are implemented, and how long-run economic trade-offs play out.[69] Strict net neutrality may lead to socially inefficient allocations of traffic, as well as traffic inflation. It would thereby harm efficiency by distorting both ISPs and content providers’ investments and service-quality choices.[70]

Given the ambiguous effects of net neutrality’s anti-discrimination rules, the most controversial issue concerns whether any value is added value by enforcing a net-neutrality regime through an ex ante regulatory ban, rather than traditional ex post case-by-case antitrust enforcement.[71] Indeed, net neutrality introduces a blanket ban of practices that would not be per se antitrust violations.[72] Notably, net neutrality de facto prevents broadband providers from introducing vertical contractual restraints, which have typically proven to be welfare enhancing more often than anticompetitive.[73] Therefore, there is a risk that, in the name of leveling the playing field, net neutrality focuses on competitor welfare rather than consumer welfare.[74] In sum, given the ambiguous welfare effects of discrimination, it is impossible to establish in advance whether the purported exclusionary effects outweigh their potential procompetitive benefits. Hence, there is no economic support for an ex ante absolute prohibition.

The “fair share” solution of taxing Big Tech to fund broadband-network improvements also appears to violate both the economic rationale for and legal obligation of equal treatment under net neutrality. By only imposing fees on OTTs that transmit data exceeding a certain threshold, the “fair share” proposal clearly discriminates against some online services and content—that is, the largest ones. With regard to the economic rationale, net neutrality has been justified on the grounds that broadband providers enjoy endemic market power as terminating-access monopolies. It would therefore be strange to impose an intervention 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. Indeed, under EU net-neutrality rules, ISPs are assumed to have insurmountable bargaining power, even though the “fair share” proposal presumes them to be powerless before Big Tech.

Indeed, as noted above, net neutrality is a primary driver of the current “fair share” debate. Allowing paid prioritization between ISPs and CAPs likely would have prevented the emergence of these claims. Indeed, it could be argued that, on the one hand, net neutrality has tilted the balance in favor of large OTTs[75] and, on the other hand, paid prioritization would be the efficient market answer to different content offerings.

Notably, conventional economic principles justify vertical restraints and discriminatory practice, as online content varies in terms of value for consumers, bandwidth use, and quality requirements.[76] Indeed, as was raised years ago during the U.S. net-neutrality debate, a ban on paid prioritization is inconsistent with a well-developed body of literature showing that it is impossible to determine ex ante whether any specific instance of paid prioritization will have positive or negative effects for consumers.[77] Moreover, restraints on prioritization are likely to thwart a range of welfare-increasing business models on the internet and to chill further pricing innovations.[78]

Therefore, the fair-share proposal struggles to address the same fundamental question already raised in the case of net neutrality: whether a regulatory intervention is justified in the first place.

IV. Regulatory Humility and Lessons Unlearned

According to the economic literature, regulatory intervention is only justified under limited circumstances. The case for regulation is best substantiated where it can correct market failures, such as when free and unrestricted competition is unable to allocate resources efficiently.[79] Even under the romantic assumption that regulation serves consumers’ interests and policymakers have sufficient information and enforcement powers to both promote the public interest and maximize social welfare, the primary focus of regulation will still be to tackle market failures.[80]

Outside those examples of market failure, effective competition is commonly accepted to be the best regulator, as it has been empirically demonstrated to lead to lower prices, better quality, and greater innovation.[81] Without a proper justification, regulation negatively interferes in market dynamics by generating inefficiencies, introducing artificial barriers to entry, and deterring technological innovation.

Calibrating regulation is extremely difficult. Although regulation is expected to be forward-looking, it may lack flexibility, and the imposition of rigid sets of rules can risk enshrining a static view of the market at the expense of its dynamic evolution. Moreover, consistent with both private-interest and public-choice theory, government intervention is often prone to capture by special interests, rather than promoting general social welfare.

Although these are limits of regulation generally, they are particularly critical in fast-moving industries, where it is challenging to design a future-proof framework.[82] Therefore, especially when dealing with digital transformations, it is appropriate to embrace regulatory humility, acknowledge the inherent limits of regulation, and refrain either from picking winners and losers in the marketplace or from preemptively intervening in the absence of solid evidence of market failure and consumer harm.[83] Notably, the market-failure approach assumes that government activity should be limited to the minimal amount of intervention sufficient to correct for specific failures.[84]

Further, interventions to correct market failures should neither require nor assume a particular technology. This would ensure much-needed flexibility to adapt the rules to rapidly changing realities, thus avoiding early obsolescence. It would also avoid the weaponization of regulation to protect incumbents’ market position by freezing investments and hindering the development of new technologies. In sum, the principles of minimal and technologically neutral intervention reflect a light-touch approach of regulatory self-restraint, with awareness that the market is generally better suited to promote innovation and that regulation scores poorly on dealing with the unexpected.

The EU’s net-neutrality rules departed from the principles of self-restraint and technological neutrality.[85] Despite the fact that there was no discernible evidence of a market failure, EU policymakers chose to interfere with the management of internet traffic. Moreover, they did so by imposing an outright ban on common marketplace practices whose effects are at least ambiguous, and hence deserving of case-by-case assessment. As a result, net neutrality picked winners (OTTs) and losers (ISPs). At the time, academics and other experts warned against the adoption of rigid regulation, which by definition cannot aspire to be future-proof and is apt to capture the dynamics of industries characterized by rapid innovation.[86]

Indeed, net neutrality did not anticipate the rise of OTT services. A fascinating slogan has apparently proven to be more influential than economic principles and reality. And now, “fair share” advocates want the EU to step into the breach created by net-neutrality regulation and impose further (likely inefficient) levies on Big Tech. The more rational course would be to reconsider the nature of net neutrality’s non-discrimination principles in the first place. Alas, the “fair share” proposal in fact shares several features with net-neutrality regulation, demonstrating that, rather than learn from previous mistakes, European institutions are ready to repeat them. In particular, the proposal at issue does not square with economics.

Indeed, the economic justification for the regulatory intervention is missing, as there is no evidence of a market failure to address. Quite the opposite, according to BEREC.[87] The current model has fostered innovation, growth in internet connectivity, and the development of a vast array of content and applications. In other words, it has generated significant benefits for end users. The increase in traffic volume has not altered this fundamental reality and the IP-interconnection ecosystem largely remains highly competitive. At the same time, there is no evidence of free riding by CAPs along the value chain. As a result, the adoption of a sending-party-network-pays model would represent an unwarranted threat to the internet ecosystem that would generate costs with little or no countervailing benefits.

It is even questionable whether increases in internet traffic have resulted in higher costs for the telcos, who also benefit from the demand for broadband access that has been driven by the success of OTTs’ content and services.[88] More generally, it is not clear how punishing the success of some OTTs would promote investment and innovation in the broadband market.

Further, rather than abiding by the principle of minimal intervention, the proposal would interfere with market dynamics by substituting a direct-compensation mechanism for private negotiations. The justification advanced for such an invasive intervention is the alleged asymmetry of the telcos’ bargaining position vis-à-vis large OTTs. The assertion is that OTTs enjoy this disproportionate bargaining position because of their market power and an uneven regulatory playing field. Leaving aside the inherent knowledge problem in a central regulator deciding how dynamic data flows should be valued, this explanation is at odds with the primary assumption of net neutrality—that the telcos play a gatekeeper role because of their control of access to the internet. In reality, both Big Tech and the ISPs are sufficiently competent parties that they should be able to negotiate mutually beneficial business terms among themselves.

If telcos face an uneven regulatory playing field, it is precisely because of net neutrality, which limits their ability to monetize their networks by discriminating among content and applications. Rather than acknowledge that interfering with market forces was the original mistake and that it is therefore time to restore private parties’ ability to freely negotiate the terms for content delivery, EU policymakers once again choose to blame the market.

If we acknowledge that internet traffic is generated by consumers (rather than by OTTs), payments into a fund managed by the European Commission would have the same welfare implications as direct payments.[89] Given that everyone benefits from the internet, if there is a policy issue regarding financing the next generation of telecommunications infrastructure, it makes more sense for that to be financed out of a fund born through general taxation.

The proposed tax on Big Tech has been framed as ensuring that they pay their “fair share” of network costs. But fairness is in the eye of the beholder. The term is so vague that it inherently grants policymakers greater discretion and room for intervention, all in the name of a purportedly noble cause.[90] Unfortunately, regulations that aren’t supported by market-failure framework are doomed to be captured by private interests. From this perspective, the “fair share” proposal is, indeed, consistent with public-choice theories of regulation that regard it as a rent-seeking device to benefit a small group of incumbents at the expense of rivals and consumers.

V. Conclusion

According to an old saying, history tends to repeat itself. This result is avoidable only if we learn from our mistakes.[91] Looking at the “fair share” debate, European institutions appear condemned to repeat the past.

When it comes to technology and innovation, Europe systematically lags behind the United States and China. In the best-case scenario, it is catching up, but there is a significant gap to close. This picture is captured by various proxies of technological progress, such as the number of patents, the amount of R&D expenditure, the amount of private investment in artificial intelligence, the location of so-called “unicorn” firms, and the number of leading research institutions in high-tech fields.[92]

There is another digital-economy scoreboard, however, on which Europe is the clear frontrunner. Namely, Europe celebrates its position as the leading regulator of digital markets.[93] Indeed, in less than a decade, Europe has delivered the GDPR, the DMA, the DSA, and countless data-sharing initiatives. Indeed, it would appear that regulation is at least a partial cause of the EU’s poor results in the digital economy. After all, EU policymakers’ primary concern should be to ensure that the regulatory framework is fit for purpose. But over the past decade, when the expected results didn’t arise or when there were unintended consequences, rather than question the treatment, EU policymakers routinely have suggested increasing the dosage.

Against this background, the idea of introducing a tax on CAPs to boost investments in the next generation of telecommunications infrastructure could be just considered another piece of the jigsaw.

However, it is worth remembering that the diminished bargaining position that telcos have vis-à-vis online platforms is the result of another EU regulation. Indeed, without the net-neutrality ban on paid prioritization, telcos would have been free to negotiate differentiated terms for the delivery of OTTs’ content and services. OTTs could have been charged according to bandwidth usage, through side payments for setting up optimized network nodes, or through any number of other mutually beneficial business arrangements.

Further, the proposal contradicts the central premise of net neutrality, which was that broadband providers’ position as internet gatekeepers threatens OTTs and end users. But rather than acknowledge the mistakes of that earlier unnecessary and myopic intervention, the EU is supporting another shortsighted initiative that would be at odds with the economic rationale and the legal provisions of current internet regulation.

Again, as BEREC stated in 2012, the internet “has developed well without regulatory intervention, through stakeholders’ coordination in the free market. Its ability to evolve over time and self-adapt has been key to its growth and success.”[94] More recently, this message has been reiterated, emphasizing that “[t]he internet’s ability to self-adapt has been and still is essential for its success and its innovative capability.”[95]

There was no evidence of market failure to justify net neutrality, and there isn’t a market failure to justify imposing a “fair share” tax for network costs. Therefore, like net-neutrality anti-discrimination rules, mandating some large online platforms to compensate network operators with a usage fee would be a solution that wouldn’t work to a problem that doesn’t exist.[96]

The “fair share” proposal also reflects another pattern of recent EU industrial policy already seen in the audiovisual and publishing industries. As the digital revolution challenges existing business models, thus requiring a radical transformation of entire economic sectors, some incumbents suffer in adapting to the new environment, which requires facing new rivals but also taking advantages of new opportunities. This is part of the natural evolution of the market, where the disruptive force of innovation is generally welcome.

The EU is, instead, apparently concerned about the welfare of some legacy incumbents, especially if they are EU-born companies. As a result, market dynamics are once again threatened by regulatory interventions that impose financial obligations on successful online (and largely foreign) players. Such protectionist initiatives are at odds with the fundamental principle of competitive neutrality, according to which governments actions should ensure that all enterprises face a level playing field, irrespective of factors such as their ownership, location, or legal form.[97] Moreover, they have already proven to be an ineffective means to help companies in reinventing themselves and filling their competitive gap.

In sum, the EU not only assumes that it could lead and deliver innovation through regulation, but also that an industry’s digital transformation could be achieved by subsidizing legacy homegrown companies with welfare transfers from successful foreign players.

Such a vision does not live up to the ambitious goals of the 2030 Digital Decade. Insofar as Europe will be a place where innovation is regulated, rather than invented, there will be no chance to reverse its technological decline and recover digital leadership. Taxing Big Tech will not make Europe great again.

[1] Thierry Breton, Getting Europe Ready for the Next Generation of Connectivity Infrastructure, European Commission (Feb. 6, 2023), https://ec.europa.eu/commission/presscorner/detail/en/SPEECH_23_623.

[2] See Press release, Commission Presents New Initiatives, Laying the Ground for the Transformation of the Connectivity Sector in the EU, European Commission (Feb. 23, 2023), https://ec.europa.eu/commission/presscorner/detail/en/ip_23_985.

[3] Exploratory Consultation – The Future of the Electronic Communications Sector and Its Infrastructure, European Commission (Feb. 23, 2023), https://digital-strategy.ec.europa.eu/en/consultations/future-electronic-communications-sector-and-its-infrastructure (paras. 2.1 and 2.3, quantifying investment needs until 2030 of about 174 billion euros).

[4] Decision (EU) 2022/2481 of the European Parliament and of the Council Establishing the Digital Decade Policy Programme 2030 (Dec. 14, 2022), OJ L 323/4; see also, 2030 Digital Compass: The European Way for the Digital Decade, European Commission (Jan. 26, 2023), COM/2021/118 final.

[5] Breton, supra note 1; see European Commission, supra note 3, para 2.3, reporting that “some European providers of electronic communication networks and services, especially incumbents, claim that they suffer from a decreasing market valuation and lower return on investment, especially when compared to companies in the US.” The European Commission also mentioned that telcos’ claims regarding declining margins and rising costs are stem from current uncertainties (including high inflation, rising interest rates, and geopolitical tensions) that have led capital markets to focus on assets with better short-term returns and profitability and to prefer solutions that protect them from demand risk.

[6] This was also the opinion expressed by the German secretary at the Ministry for Digital Affairs and Transport (BMDV); see Christian Zentner, Kritik an Geplanter „Zwangsabgabe“ für Netflix und Co, Bundestag (March 2, 2023), https://www.bundestag.de/presse/hib/kurzmeldungen-936322 (finding the questionnaire to be “slightly tendentious”).

[7] Carlos Rodri?guez Cocina, You Have Not Seen This Movie Before: Fair Share Is Not a Remake, Telefónica (March 10, 2023), https://www.telefonica.com/en/communication-room/blog/you-have-not-seen-this-movie-before-fair-share-is-not-a-remake.

[8] Europe’s Internet Ecosystem: Socio-Economic Benefits of a Fairer Balance Between Tech Giants and Telecom Operators, Axon Partners Group Consulting (May 11, 2022), https://axonpartnersgroup.com/europes-internet-ecosystem-socio-economic-benefits-of-a-fairer-balance-between-tech-giants-and-telecom-operators (report prepared for the European Telecommunications Network Operators’ Association); Estimating OTT Traffic-Related Costs on European Telecommunications Networks, Frontier Economics (April 7, 2022), available at https://www.telekom.com/resource/blob/1003588/384180d6e69de08dd368cb0a9febf646/dl-frontier- g4-ott-report-stc-data.pdf (report for Deutsche Telekom, Orange, Telefonica, and Vodafone); see also, European Commission, supra note 3, Section 4 (describing the phenomenon as a “paradox” between increasing volumes of data on the infrastructures and alleged decreasing returns and appetite to invest in network infrastructure).

[9] European Declaration on Digital Rights and Principles for the Digital Decade, European Commission (2022), 28 final, 3.

[10] Alan Burkitt-Gray, Vestager Calls for EU to Centralise and Consolidate Telecoms, Capacity (Jan. 31, 2023) https://www.capacitymedia.com/article/2b7xs7payiktkefkh1hj4/news/vestager-calls-for-eu-to-centralise-and-consolidate-telecoms; see also, Breton, supra note 1.

[11] Id.

[12] Supra note 4.

[13] See, CEO Statement on the Role of Connectivity in Addressing Current EU Challenges (Sep. 26, 2022), available at https://etno.eu//downloads/news/ceo%20statement_sept.2022_26.9.pdf; see also, United Appeal of the Four Major European Telecommunications Companies (Feb. 14, 2022),  https://www.telekom.com/en/company/details/united-appeal-of-the-four-major-european-telecommunications-companies-646166.

[14] Axon, supra note 8; see also, 2023 Global Internet Phenomena Report, Sandvine (Jan. 2023) https://www.sandvine.com/global-internet-phenomena-report-2023-download?submissionGuid=7b66978f-d664-4f10-b50b-28a48700788f.

[15] Frontier Economics, supra note 8.

[16] United Appeal, supra note 13.

[17] Axon, supra note 8.

[18] 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; Regulation (EU) 2022/2065 on a Single Market for Digital Services and Amending Directive 2000/31/EC (Digital Services Act), (2022) OJ L 277/1.

[19] Axon, supra note 8, 18.

[20] Id.

[21] See, e.g., Doing Our Part: How Google’s Network Helps Internet Content Reach Users, Google (Apr. 20, 2022) https://cloud.google.com/blog/products/infrastructure/google-network-infrastructure-investments; Network Fee Proposals Are Based on a False Premise, Meta (Mar. 23, 2023), https://about.fb.com/news/2023/03/network-fee-proposals-are-based-on-a-false-premise.

[22] BEREC’s Comments on the ETNO Proposal For ITU/WCIT Or Similar Initiatives Along These Lines, BoR(12) 120, Body of European Regulators for Electronic Communications (2012), 3; Report on IP-Interconnection Practices in the Context of Net Neutrality, BoR (17) 184, Body of European Regulators for Electronic Communications (2017), (finding the internet-protocol-interconnection market to be competitive); Neelie Kroes, Adapt or Die: What I Would Do If I Ran a Telecom Company (Oct. 1, 2014), https://ec.europa.eu/commission/presscorner/detail/de/SPEECH_14_647 (arguing that OTTs are 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?”); see also, Proposals for a Levy on Online Content Application Providers to Fund Network Operators. An Economic Assessment Prepared for the Dutch Ministry of Economic Affairs and Climate, Oxera (Feb. 27, 2023), 19, available at https://open.overheid.nl/documenten/ronl-8a56ac18a98a337315377fe38ac0041eb0dbe906/pdf, (noting that the cause of the traffic is the consumer’s initial request rather than the CAP’s fulfilment of that request).

[23] BEREC 2012, supra note 22, 4; see also, Oxera, supra note 22, 14 (arguing that there is no clear evidence that the absence of charging CAPs means that telcos are unable to raise revenues and cover their costs).

[24] BEREC 2012, supra note 22, 4.

[25] Id., 1.

[26] BEREC Preliminary Assessment of the Underlying Assumptions of Payments from Large CAPs to ISPs, BoR (22) 137, Body of European Regulators for Electronic Communications (2022), 4.

[27] Id., 4-5.

[28] Id., 7-8 (“BEREC considers in this regard the incremental costs necessary for the upgrade in capacity on a given network to handle more incoming traffic. These costs can incorporate to some extent technological upgrades as far as they are relevant for solving capacity issues. These costs have to be differentiated from the total network costs, which are mostly coverage costs.”).

[29] Id., 9

[30] Id., 11-14.

[31] Id., 13; see also, Plans for Charging Internet Toll by Large Telecom Companies Feared to Have Major Impact on European Consumers and Businesses, Government of the Netherlands (Feb. 27, 2023), https://www.rijksoverheid.nl/documenten/publicaties/2023/02/27/plans-for-charging-internet-toll-by-large-telecom-companies-feared-to-have-major-impact-on-european-consumers-and-businesses (arguing that “the large telecom operators seem to forget that consumers already pay for their Internet traffic, through their Internet subscription. The plea for an Internet toll actually implies that large telecom operators want to get paid twice.”).

[32] David Abecassis, Michael Kende, & Guniz Kama, IP Interconnection on the Internet: A European Perspective for 2022, Analysys Mason (Sep. 26, 2022), https://www.analysysmason.com/consulting-redirect/reports/ip-interconnection-european-perspective-2022; Volker Stocker & William Lehr, Regulatory Policy for Broadband: A Response to the “ETNO Report’s” Proposal for Intervention in Europe’s Internet Ecosystem, SSRN (Oct. 16, 2022), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4263096; Brian Williamson, An Internet Traffic Tax Would Harm Europe’s Digital Transformation, Communications Chambers (Jul. 2022), available at https://lisboncouncil.net/wp-content/uploads/2022/07/COMMUNICATIONS-CHAMBERS-Internet-Traffic-Tax-2.pdf.

[33] David Abecassis, Michael Kende, & Shahan Osman, The Impact of Tech Companies’ Network Investment on the Economics of Broadband ISPs, Analysys Mason (Oct. 12, 2022), https://www.analysysmason.com/consulting-redirect/reports/internet-content-application-providers-infrastructure-investment-2022.

[34] See, e.g., Connectivity Infrastructure and the Open Internet, BEUC: The European Consumer Organisation (Sep. 16, 2022), available at https://www.beuc.eu/sites/default/files/2022-09/BEUC-X-2022-096_Connectivity_Infrastructure-and-the_open_internet.pdf; Bijal Sanghani, Fair Share Debate and Potential Impact of SPNP on European IXPs and Internet Ecosystem, European Internet Exchange Association (Jan. 3, 2023), available at https://www.euro-ix.net/media/filer_public/1a/e4/1ae40d86-95ea-460a-920d-3b335c2439d4/spnp_impact_on_ixps_-_final.pdf.

[35] Karl-Heinz Neumann, et al., Competitive Conditions on Transit and Peering Markets, WIK-Consult (Feb. 28, 2022), available at https://www.bundesnetzagentur.de/EN/Areas/Telecommunications/Companies/Digitisation/Peering/download.pdf?__blob=publicationFile&v=1.

[36] Id., 36-38; see also Oxera, supra note 22, 28—33 (arguing that implementation of such a scheme would entail significant transaction and regulatory costs, as the regulator would be required to fulfil such recurring tasks as traffic analysis and verification, dispute settlement, and coordination with companies and other authorities).

[37] Government of the Netherlands, supra note 31; see also, Zentner, supra note 6 (stating that the telecommunications companies’ argument that such a levy would provide them with more money for network expansion does not hold water).

[38] Government of the Netherlands, supra note 31; Oxera, supra note 22 (predicting that only a limited portion of the additional revenue stream to telecom operators would be passed on to the internet subscribers in the form of slightly lower subscription fees, and that this would be offset by price increases from online services for subscriptions to, e.g., Spotify or Netflix more expensive).

[39] Call for Release of BCRD Revision – Refusal of Merge with Fair Share Debate, Austria, Estonia, Finland, Germany, Ireland, and the Netherlands (May 12, 2022), available at https://www.permanentrepresentations.nl/binaries/nlatio/documenten/publications/2022/12/05/call-for-release-of-bcrd-revision—refusal-of-merge-with-fair-share-debate/Call+for+release+of+BCRD+revision+-+Refusal+of+merge+with+fair+share+debate_def.pdf.

[40] See Breton, supra note 1 (arguing that the burden of financing connectivity infrastructure should not rest solely on the shoulders of member states or the EU budget).

[41] See Tobias Kretschmer, In Pursuit of Fairness? Infrastructure Investment in Digital Markets, SSRN (Sep. 20, 2022), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4230863 (arguing that a transfer from large OTTs to telcos would be equivalent to a tax on success and that this would appear to arbitrarily target 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).

[42] Directive 2010/13/EU on the coordination of certain provisions laid down by law, regulation or administrative action in Member States concerning the provision of audiovisual media services (Audiovisual Media Services Directive), [2010] OJ L 95/1, Recitals 4 and 12.

[43] Directive (EU) 2018/1808 amending Directive 2010/13/EU on the coordination of certain provisions laid down by law, regulation or administrative action in Member States concerning the provision of audiovisual media services (Audiovisual Media Services Directive) in view of changing market realities, [2018] OJ L 303/69.

[44] Id., Recital 35 and Article 13(1).

[45] Id., Recital 36 and Article 13 (2).

[46] For analysis of the EU market, see David Graham, et al., Study on the Promotion of European Works in Audiovisual Media Services, Attentional, KEA European Affairs, and Valdani Vicari & Associati (Aug. 28, 2020), https://digital-strategy.ec.europa.eu/en/library/study-promotion-european-works.

[47] See Sally Broughton Micova, The Audiovisual Media Services Directive: Balancing Liberalisation and Protection, E. Brogi & P.L. Parcu (eds.), Research Handbook on EU Media Law and Policy, Edward Elgar Publishing (2020), 264 (arguing that the AVMS Directive is a unique blend of the liberal-market approach typical of the EU’s single market and classic protectionism, stemming from a history of concern that American content and media services would dominate European screens, threatening its cultures and industries).

[48] Id.; see also Joe?lle Farchy, Gre?goire Bideau, & Steven Tallec, Content Quotas and Prominence on VOD Services: New Challenges for European Audiovisual Regulators, 28 Int. J. Cult. Policy 419 (2022), (noting that the objective of cultural diversity contains a great ambiguity and that “[b]eyond the incantatory discourse on the expected benefits of cultural diversity, the notion is in fact complex, and refers to multiple, sometimes contradictory aspects.”).

[49] On the dispute between news publishers and digital platforms, see Giuseppe Colangelo, Enforcing Copyright Through Antitrust? The Strange Case of News Publishers Against Digital Platforms, 10 J. Antitrust Enforc. 133 (May 10, 2021); Giuseppe Colangelo & Valerio Torti, Copyright, Online News Publishing and Aggregators: A Law and Economics Analysis of the EU Reform, 27 Int. J. Law Inf. Technol. 75 (Jan. 11, 2019).

[50] 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, Article 15.

[51] Id., Recitals 54 and 55.

[52] See, e.g., The Evolution of News and the Internet, Organisation for Economic Co-operation and Development (Jun. 11, 2010), available at https://www.oecd.org/sti/ieconomy/45559596.pdf; Potential Policy Recommendations to Support the Reinvention of Journalism, U.S. Federal Trade Commission (Jun. 2010), available at https://www.ftc.gov/sites/default/files/documents/public_events/how-will-journalism-survive-internet-age/new-staff-discussion.pdf; Bertin Martens, et al., The Digital Transformation of News Media and the Rise of Disinformation and Fake News – An Economic Perspective, Joint Research Center (Apr. 25, 2018), available at https://joint-research-centre.ec.europa.eu/system/files/2018-04/jrc111529.pdf; Martin Senftleben, et al., New Rights or New Business Models? An Inquiry into the Future of Publishing in the Digital Era, 48 IIC 538 (2017).

[53] Colangelo-Torti, supra note 49.

[54] Id., 90.

[55] 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.

[56] European Commission, supra note 2.

[57] Government of the Netherlands, supra note 31; BEREC, supra note 26, 5.

[58] Restoring Internet Freedom Order, Federal Communications Commission (2018) 33 FCC Rcd 311.

[59] Ajit Pai, FCC Releases Restoring Internet Freedom Order, Federal Communications Commission (Jan. 4, 2018) 1, https://www.fcc.gov/document/fcc-releases-restoring-internet-freedom-order/pai-statement.

[60] Open Internet Order, Federal Communications Commission (2015), 30 FCC Rcd 5601.

[61] Id., 5625-26.

[62] Regulation (EU) 2015/2120, supra note 55, Recital 1.

[63] Id., Recital 3.

[64] See, e.g., Barbara van Schewick, Towards an Economic Framework for Network Neutrality Regulation, 5 JTHTL 329, (2006)

[65] See, e.g., Michael L. Katz, Wither U.S. Net Neutrality Regulation?, 50 Rev. Ind. Organ. 441 (2017), (finding substantial tension between the regulation and the objective of promoting consumer choice and sovereignty, and noting that the internet has never been, and is not designed to be, neutral); Christopher S. Yoo, Beyond Network Neutrality, 19 JOLT 1 (2005), (considering network neutrality a misnomer that may reinforce sources of market failure in the last mile and dampen incentives to invest in alternative network capacity) Wolfgang Briglauer, et al., Net neutrality and High?Speed Broadband Networks: Evidence from OECD Countries, Eur. J. Law Econ. (forthcoming), (finding empirical evidence that net-neutrality regulations exert a significant and strong negative impact on fiber investments); Marc Bourreau, Frago Kourandi, & Tommaso Valletti, Net Neutrality with Competing Internet Platforms, 63 J Ind Econ 30 (2015), (noting that, in a model with competing ISPs—rather than a monopolistic market structure—a switch from the net-neutrality regime to the alternative discriminatory regime would be bene?cial in terms of investments, innovation, and total welfare).

[66] See, e.g., Katz, supra note 65, 450;

Thomas W. Hazlett & Joshua D. Wright, The Effect of Regulation on Broadband Markets: Evaluating the Empirical Evidence in the FCC’s 2015 “Open Internet” Order, 50 Rev. Ind. Organ. 487 (2017); Maureen K. Ohlhausen, Antitrust Over Net Neutrality: Why We Should Take Competition in Broadband Seriously, 15 Colorado Technology Law Journal 119 (2016); Timothy J. Tardiff, Net Neutrality: Economic Evaluation of Market Developments, 11 J. Competition Law Econ. 701 (2015); Gerald R. Faulhaber, The Economics of Network Neutrality, Regulation 18 (2011-12).

[67] Pietro Crocioni, Net Neutrality in Europe: Desperately Seeking a Market Failure, 35 Telecomm Policy 1, (2011) 6-7; see also, Zero-Rating Practices in Broadband Markets, DotEcon, Aetha Consulting, and Oswell and Vahida, (Feb. 2017), available at https://ec.europa.eu/competition/publications/reports/kd0217687enn.pdf.

[68] See Crocioni, supra note 67 (arguing that even a monopolist ISP may benefit from valuable complements and be better off charging a higher price for internet access, instead of trying to force customers onto its own services); see also Ohlhausen, supra note 66; Faulhaber, supra note 66.

[69] Shane Greenstein, Martin Peitz, & Tommaso Valletti, Net Neutrality: A Fast Lane to Understanding the Trade-offs, 30 JEP 127 (2016); see also Sébastien Broos & Axel Gautier, The Exclusion of Competing One-Way Essential Complements: Implications for Net Neutrality, 52 Int. J. Ind. Organ. 358 (2017), (showing that, even in monopoly and duopoly, imposing net neutrality does not always improve welfare).

[70] Joshua Gans & Michael L. Katz, Weak Versus Strong Net Neutrality: Corrections and Extensions, 50 J. Regul. Econ. 99 (2016); Martin Peitz & F. Schuett, Net Neutrality and Inflation of Traffic, 46 Int. J. Ind. Organ. 16 (2016).

[71] See, e.g., A. Douglas Melamed & Andrew W. Chang, What Thinking About Antitrust Law Can Tell Us About Net Neutrality, 15 Colorado Technology Law Journal 93 (2016); Ohlhausen, supra note 66.

[72] A good example is provided by the treatment of zero-rating offers. For an analysis, see Giuseppe Colangelo & Valerio Torti, Offering Zero-Rated Content in the Shadow of Net Neutrality, 5 Market and Competition Law Review 141 (2021); see also Pablo Iba?n?ez Colomo, Future-Proof Regulation Against the Test of Time: The Evolution of European Telecommunications Regulation, 42 Oxf. J. Leg. Stud. 1170 (2022), 1187-188 (noting that the very practices that are problematic from a net-neutrality perspective are healthy expressions of competitive markets; hence, absent a finding of significant market power, there is no support for a preemptive ban of vertical integration, exclusivity agreements, and other practices that have an equivalent object and/or effect: these practices are routinely examined by competition authorities and careful case-by-case evaluation has long been deemed appropriate for them).

[73] See, e.g., Katz, supra note 65; Ohlhausen, supra note 66; Joshua D. Wright, Net Neutrality: Is Antitrust Law More Effective than Regulation in Protecting Consumers and Innovation?, U.S. House Judiciary Subcommittee on Regulatory Reform, Commercial and Antitrust Law (Jun. 20, 2014), https://www.ftc.gov/legal-library/browse/prepared-statement-commissioner-joshua-d-wright-net-neutrality-antitrust-law-more-effective; Christopher S. Yoo, What Can Antitrust Contribute to the Network Neutrality Debate?, 1 Int. J. Commun. 493 (2007).

[74] Katz, supra note 65, 454.

[75] Irene Comeig, Klaudijo Klaser, & Luci?a D. Pinar, The Paradox of (Inter)net Neutrality: An Experiment on Ex-Ante Antitrust Regulation, 175 Technol Forecast Soc Change 121405. (2022).

[76] Ohlhausen, supra note 66, 137.

[77] See Justin (Gus) Hurwitz, et al., Amicus Curiae Brief in U.S. Telecom Association et al. v. FTC, International Center for Law & Economics (Aug. 6, 2015), available at  http://laweconcenter.org/images/articles/icle_oio_amicus_filed.pdf.

[78] Geoffrey Manne, et al., Policy Comments in the Matter of Protecting and Promoting the Open Internet, International Center for Law & Economics and TechFreedom (Jul. 17, 2014), available at https://laweconcenter.org/wp-content/uploads/2017/08/icle-tf_nn_policy_comments.pdf.

[79] Richard Baldwin, Martin Cave, & Martin Lodge, Understanding Regulation, Oxford University Press (2012).

[80] William J. Baumol, Welfare Economics and the Theory of the State, Harvard University Press (1952).

[81] Regulation and Competition. A Review of the Evidence, UK Competition and Markets Authority (2020), https://www.gov.uk/government/publications/regulation-and-competition-a-review-of-the-evidence, paras. 1.3 and 2.4,.

[82] Colomo, supra note 72.

[83] See Ajit Pai, Remarks at the 18th Global Symposium for Regulators, Federal Communications Commission (Jul. 10, 2018), https://www.fcc.gov/document/chairman-pai-remarks-global-symposium-regulators-geneva; Maureen K. Ohlhausen, Regulatory Humility in Practice, Federal Trade Commission (Apr. 1, 2015), available at https://www.ftc.gov/system/files/documents/public_statements/635811/150401aeihumilitypractice.pdf.

[84] Baldwin, Cave, & Lodge, supra note 79.

[85] See also Colomo, supra note 72.

[86] See, e.g., Melamed & Chang, supra note 71; Ohlhausen, supra note 66; Bruce M. Owen, Net Neutrality: Is Antitrust Law More Effective than Regulation in Protecting Consumers and Innovation?, U.S. House Judiciary Subcommittee on Regulatory Reform, Commercial and Antitrust Law (Jul. 8, 2014), https://ssrn.com/abstract=2463823.

[87] BEREC, supra note 26.

[88] Id.

[89] See also Oxera, supra note 22, 34 (arguing that the fund would still lead to a transfer of money from one group to another and would not lead to substantially lower transaction costs).

[90] Giuseppe Colangelo, In Fairness We (Should Not) Trust. The Duplicity of the EU Competition Policy Mantra in Digital Markets, The Antitrust Bulletin (forthcoming).

[91] Paul Crampton, Striking the Right Balance Between Competition and Regulation: The Key Is Learning from Our Mistakes, APEC-OECD Co-operative Initiative on Regulatory Reform (Oct. 2002), available at https://www.oecd.org/regreform/2503205.pdf.

[92] For useful information about several key innovation indicators, such as the value of venture-capital deals, the number of science and technology clusters, and government budget allocations for research and development, see, Global Innovation Index 2022, World Intellectual Property Organization, https://www.wipo.int/global_innovation_index/en/2022; see also Riccardo Righi, et al., AI Watch Index 2021, Joint Research Centre (Mar. 20, 2022), https://publications.jrc.ec.europa.eu/repository/handle/JRC128744.

[93] See Margrethe Vestager, Tearing Down Big Tech’s Walls, Project Syndicate (Mar. 9, 2023), https://www.project-syndicate.org/commentary/eu-big-tech-legislation-digital-services-markets-by-margrethe-vestager-2023-03 (“We are proud that Europe has become the cradle of tech regulation globally.”).

[94] BEREC, supra note 22, 1.

[95] BEREC, supra note 26, 3.

[96] Ajit Pai, The FCC and Internet Regulation: A First-year Report Card, Federal Communications Commission (Feb. 26, 2016) https://www.fcc.gov/document/commissioner-pai-remarks-internet-regulation-first-year-report-card.

[97] See, Recommendation of the Council on Competitive Neutrality, Organisation for Economic Co-operation and Development (May 30, 2021), https://legalinstruments.oecd.org/en/instruments/OECD-LEGAL-0462.

Written Testimonies & Filings

Country-Specific Digital Competition Regulations

Countries differ and, despite many commonalities, so do their digital competition regulations. ICLE scholars have produced extensive analysis of the complexity of digital competition regulation within country-specific contexts to reflect unique market realities.

Australia

ICLE Response to the Australian Competition Taskforce’s Merger Reform Consultation

I. About the International Center for Law & Economics

The International Center for Law & Economics (“ICLE”) is a nonprofit, non-partisan global research and policy center founded with the goal of building the intellectual foundations for sensible, economically grounded policy. ICLE promotes the use of law & economics methodologies to inform public-policy debates and has longstanding expertise in the evaluation of antitrust law and policy.

ICLE’s interest is to ensure that antitrust law remains grounded in clear rules, established precedent, a record of evidence, and sound economic analysis. Some of the proposals in the Competition Taskforce’s Reform Consultation (“Consultation”) threaten to erode such foundations by, among other things, shifting toward merger analysis that focuses on the number of competitors, rather than the impact on competition, as well as reversing the burden of proof; curtailing rights of defense; and adopting an unduly strict approach to mergers in particular sectors. Our overriding concern is that intellectually coherent antitrust policy must focus on safeguarding competition and the interests of consumers.

In its ongoing efforts to contribute to ensuring that antitrust law in general, and merger control in particular, remain tethered to sound principles of economics, law, and due process, ICLE has submitted responses to consultations and published papers, articles, and reports in a number of jurisdictions, including the European Union, the United States, Brazil, the Republic of Korea, the United Kingdom, and India. These and other publications are available on ICLE’s website.[1]

II. Summary of Key Points

We appreciate the opportunity to comment on the Competition Taskforce’s Consultation. Our comments below mirror the structure of the main body of the Consultation. Section by section, we suggest improvements to the Consultation’s approach, as well as citing background law and economics that we believe the Treasury should keep in mind as it considers whether to move forward with merger reform in Australia.

  • Question 6 — Australia should not skew its merger regime toward blocking mergers under conditions of uncertainty. Uncertainty is endemic in merger control. Since the vast majority of mergers are procompetitive—including mergers in what is commonly called the “digital sector”—an error-cost-analysis approach would suggest that false negatives are preferable to false positives. Concrete evidence of a likely substantial lessening of competition post-merger should continue to be the decisive factor in decisions to block a merger, not uncertainty about its effects.
  • Question 8 — While potential competition and so-called “killer acquisitions” are important theories for the Australian Competition and Consumer Commission (“ACCC”) to consider when engaging in merger review, neither suggest that the burden of proof needed to reject a merger should be changed, nor do they warrant an overhaul of the existing merger regime. Furthermore, given the paucity of evidence finding “killer acquisitions” in the real world, it is highly unlikely that any economic woes that Australia currently faces can be blamed on an epidemic of killer acquisitions or acquisitions of potential/nascent competitors. If the Treasury is going to adopt any rules to address these theories of harm, it should do so in a manner consistent with the error-cost framework (see reply to Question 6) and should not undercut the benefits and incentives that startup firms derive from the prospect of being acquired by a larger player.
  • Question 9 — Merger control should remain tethered to the analysis of competitive effects within the framework of the significant lessening of competition test (“SLC test”), rather than seeking to foster any particular market structure. Market structure is, at best, an imperfect proxy for competitive effects and, at worst, a deeply misleading one. As such, it should remain just one tool among many in merger analysis, rather than an end in itself.
  • Question 13 — In deciding whether to impose a mandatory-notification regime, Australia should be guided by error-cost considerations, and not merely seek to replicate international trends. While there are sound reasons to prefer a system of mandatory-merger notifications, the Treasury cannot ignore the costs of filing mergers or of reviewing them. It should be noted that some studies suggest that voluntary merger notification may achieve objectives similar to those achieved by compulsory systems at lower cost to the merging parties, as well as to the regulator. If the Treasury nonetheless decides to impose mandatory notification, it should seek to contain unnecessary costs by setting a reasonable turnover threshold, thereby filtering out transactions with little-to-no potential for anticompetitive harm.
  • Question 17 —Australian merger control should require that a decisionmaker be satisfied that a merger would likely and substantially lessen competition before blocking it, rather than effectively reversing the burden of proof by requiring that merging parties demonstrate that it would not. In a misguided attempt to shift the costs of erroneous decisions from the public to the merging parties, the ACCC’s proposal forgets that false positives also impose costs on the public, most notably in the form of foregone consumer benefits. In addition, since the vast majority of mergers are procompetitive, including mergers in the digital sector, there is no objective empirical basis for reversing the burden of proof along the proposed lines.
  • Question 18 — The SLC test should not be amended to include acquisitions that “entrench, materially increase or materially extend a position of substantial market power.” First, the Consultation seems to conflate instances of anticompetitive leveraging with cases where an incumbent in one market enters an adjacent one. The latter is a powerful source of competition and, as such, should not be curtailed. The former is already covered by the SLC test, which equips authorities with sufficient tools to curb the misuse of market power post-merger. Third, it is unclear what the term “materially” would mean in the proposed context, or what it would add to the SLC test. Australian merger control already interprets “substantial” lessening of competition to mean “material in a relative sense and meaningful.” Thus, the term “materially” risks injecting unnecessary uncertainty and indeterminacy into the system.
  • Question 19 — As follows from our response to Question 9, Section 50(3) should not be amended to yield an increased focus on changes to market structure as a result of a merger. It is also unclear what is gained from removing the factors in Section 50(3). More than a “modernization” (as the Consultation calls it), this appears to be a redundancy, as the listed factors already significantly overlap with those commonly used under the SLC test. To the extent that these factors place a “straitjacket” on courts (though in principle they are sufficiently broad and flexible), they could be removed, however, so long as merger analysis remained tethered to the SLC test and respects its overarching logic.
  • Question 20 — Non-competition public benefits should play a limited role in merger control. Competition authorities are, in principle, ill-suited to rank, weigh, and prioritize complex and incommensurable goals and values. The injection of public-benefits analysis into merger review magnifies the risk of discretionary and arbitrary decision making.

III. Consultation Responses

A.   Question 6

Is Australia’s merger regime ‘skewed towards clearance’? Would it be more appropriate for the framework to skew towards blocking mergers where there is sufficient uncertainty about competition impacts?

In order for a merger to be blocked in Australia, it must be demonstrated that the merger is likely to substantially lessen competition. In the context of Section 50, “likely” means a “real commercial likelihood.”[2] Furthermore, a “substantial” lessening of competition need not be “large or weighty… but one that is ‘real or of substance… and thereby meaningful and relevant to the competitive process.’”[3] This does not set an inordinately high bar for authorities to clear.

In a sense, however, the ACCC is right when it says that Australian merger control is “skewed towards clearance.”[4] This is because all merger regimes are “skewed” toward clearance. Even in jurisdictions that require mandatory notifications, only a fraction of mergers—typically, those above a certain turnover threshold—are examined by competition authorities. Only a small percentage of these transactions are subject to conditional approval, and an even smaller percentage still are blocked or abandoned.[5] This means that the vast majority of mergers are allowed to proceed as intended by the parties, and for good reason. As the ACCC itself and the Consultation note, most mergers do not raise competition concerns.[6]

But while partially accurate, this statement is only half true. Most mergers are, in fact, either benign or procompetitive. Indeed, mergers are often an effective way to reduce transaction costs and generate economies of scale in production,[7] which can enable companies to bolster innovation post-merger. According to Robert Kulick and Andrew Card, mergers are responsible for increasing research and development expenditure by as much as $13.5 billion annually.[8] And as Francine Lafontaine and Margaret Slade point out in the context of vertical mergers:

In spite of the lack of unified theory, over all a fairly clear empirical picture emerges. The data appear to be telling us that efficiency considerations overwhelm anticompetitive motives in most contexts. Furthermore, even when we limit attention to natural monopolies or tight oligopolies, the evidence of anticompetitive harm is not strong. [9]

While vertical mergers are generally thought to be less likely to harm competition, this does not cast horizontal mergers in a negative light. It is true that the effects of horizontal mergers are empirically less well-documented. But while there is some evidence that horizontal mergers can reduce consumer welfare, at least in the short run, the long-run effects appear to be strongly positive. Dario Focarelli and Fabio Panetta find:

…strong evidence that, although consolidation does generate adverse price changes, these are temporary. In the long run, efficiency gains dominate over the market power effect, leading to more favorable prices for consumers.[10]

Furthermore, and in line with the above, some studies have found that horizontal merger enforcement has even harmed consumers.[11]

It is therefore only natural that merger regimes should be “skewed” toward clearance. But this is no more a flaw of the system than is the presumption that cartels are harmful. Instead, it reflects the well-documented and empirically grounded insight that most mergers do not raise competition concerns and that there are myriad legitimate, procompetitive reasons for firms to merge.[12]

It also reflects the principle that, since errors are inevitable, merger control should prefer Type II over Type I errors. Indeed, legal decision making and enforcement under uncertainty are always difficult and always potentially costly.[13] Given the limits of knowledge, there is always a looming risk of error.[14] Where enforcers or judges are trying to ascertain the likely effects of a business practice, such as a merger, their forward-looking analysis will seek to infer anticompetitive conduct from limited information.[15] To mitigate risks, antitrust law, generally, and merger control, specifically, must rely on certain heuristics to reduce the direct and indirect costs of the error-cost framework,[16] whose objective is to ensure that regulatory rules, enforcement decisions, and judicial outcomes minimize the expected cost of (1) erroneous condemnation and deterrence of beneficial conduct (“false positives,” or “Type I errors”); (2) erroneous allowance and under-deterrence of harmful conduct (“false negatives,” or “Type II errors”); and (3) the costs of administering the system.

Accordingly, “skewing” the merger-analysis framework toward blocking mergers could, in theory, be appropriate where the enforcer or the courts knew that mergers are always or almost always harmful (as in the case of, e.g., cartels). But we have already established that the opposite is, in fact, true: most mergers are either benign or procompetitive. The Consultation’s caveat that this would apply only in cases where “there is sufficient uncertainty about competition impacts” does not carve out a convincing exception to this principle. This is particularly true given that, in a forward-looking exercise, there is, by definition, always some degree of uncertainty about future outcomes. Given that most mergers are procompetitive or benign, any lingering uncertainty should, in any case, be resolved in favor of allowing a merger, not blocking it.

Concrete evidence of a likely substantial lessening of competition post-merger should therefore continue to be the decisive factor in decisions to block a merger, not uncertainty about its effects (see also the response to Question 17). Under uncertainty, the error-cost framework when applied to antitrust leads in most cases to a preference of Type II over Type I errors, and mergers are no exception.[17] The three main reasons can be summarized as follows. First, “mistaken inferences and the resulting false condemnations are especially costly, because they often chill the very conduct the antitrust laws are designed to protect.”[18] The aforementioned procompetitive benefits of mergers, coupled with the general principle that parties should have the latitude in a free-market economy to buy and sell to and from whomever they choose, are cases in point. Second, false positives may be more difficult to correct, especially in light of the weight of judicial precedent.[19] Third, the costs of a wrongly permitted monopoly are small compared to the costs of competition wrongly condemned.[20] As Lionel Robbins once said: monopoly tends to break, tariffs tend to stick.[21] The same is applicable to prohibited mergers.

In sum, Australia should not skew its merger regime toward blocking mergers under uncertainty.

B.   Question 8

Is there evidence of acquisitions by large firms (such as serial or creeping acquisitions, acquisitions of nascent competitors, ‘killer acquisitions’, and acquisitions by digital platforms) having anti-competitive effects in Australia?

We do not know whether there have been any such cases in Australia. We would, however, like to offer more general commentary on the relevance of nascent competition and killer acquisitions in the context of merger control, especially as concerns digital platforms.

One of the most important concerns about acquisitions by the major incumbent tech platforms is that they can be used to eliminate potential competitors that currently do not compete, but could leverage their existing network to compete in the future—a potential that incumbents can better identify than can competition enforcers.[22]

As the Furman Review states:

In mergers involving digital companies, the harms will often centre around the loss of potential competition, which the target company in an adjacent market may provide in the future, once their services develop.[23]

Similar concerns have been raised in the Stigler Report,[24] the expert report commissioned by Commissioner Margrethe Vestager for the European Commission,[25] and in the ACCC’s own Fifth Interim Report of the Digital Platform Services Inquiry.[26] Facebook’s acquisition of Instagram is frequently cited as a paradigmatic example of this phenomenon.

There are, however, a range of issues with using this concern as the basis for a more restrictive merger regime. First, while doubtless this kind of behavior is a risk, and competition enforcers should weigh potential competition as part of the range of considerations in any merger review, potential-competition theories often prove too much. If one firm with a similar but fundamentally different product poses a potential threat to a purchaser, there may be many other firms with similar, but fundamentally different, products that do, too.

If Instagram, with its photo feed and social features, posed a potential or nascent competitive threat to Facebook when Facebook acquired it, then so must other services with products that are clearly distinct from Facebook but have social features. In that case, Facebook faces potential competition from other services like TikTok, Twitch, YouTube, Twitter (X), and Snapchat, all of which have services that are at least as similar to Facebook’s as Instagram’s. In this case, the loss of a single, relatively small potential competitor out of many cannot be counted as a significant loss for competition, since so many other potential and actual competitors remain.

The most compelling version of the potential and nascent competition argument is that offered by Steven Salop, who argues that since a monopolist’s profits will tend to exceed duopolists’ combined profits, a monopolist will normally be willing and able to buy a would-be competitor for more than the competitor would be able to earn if it entered the market and competed directly, earning only duopoly profits.[27]

While theoretically elegant, this model has limited use in understanding real-world scenarios. First, it assumes that entry is only possible once—i.e., that after a monopolist purchases a would-be competitor, it can breathe easy. But if repeat entry is possible, such that another firm can enter the market at some point after an acquisition has taken place, the monopolist will be engaged in a potentially endless series of acquisitions, sharing its monopoly profits with a succession of would-be duopolists until there is no monopoly profit left.

Second, the model does not predict what share of monopoly profits would go to the entrant, as compared to the monopolist. The entrant could hold out for nearly all of the monopolist’s profit share, adjusted for the entrant’s expected success in becoming a duopolist.

Third, apart from being a poor strategy for preserving monopoly profits—since these may largely accrue to the entrants, under this model—this could lead to stronger incentives for entry than in a scenario where the duopolists were left to compete with one another, leading to more startup formation and entry overall.

Finally, acquisitions of potential competitors, far from harming competition, often benefit consumers. The acquisition of Instagram by Facebook, for example, brought the photo-editing technology that Instagram had developed to a much larger market of Facebook users, and provided those services with a powerful monetization mechanism that was otherwise unavailable to Instagram.[28] As Ben Sperry has written:

Facebook has helped to build Instagram into the product it is today, a position that was far from guaranteed, and that most of the commentators who mocked the merger did not even imagine was possible. Instagram’s integration into the Facebook platform in fact did benefit users, as evidenced by the rise of Instagram and other third-party photo apps on Facebook’s platform.[29]

In other words, many supposedly anticompetitive acquisitions appear that way only because of improvements made to the acquired business by the acquiring platform.[30]

As for “killer acquisitions,” this refers to scenarios in which incumbents acquire a firm just to shut down pipelines of products that compete closely with their own. By eliminating these products and research lines, it is feared that “killer acquisitions” could harm consumers by eliminating would-be competitors and their products from the market, and thereby eliminating an innovative rival. A recent study by Marc Ivaldi, Nicolas Petit, and Selçukhan Ünekbas, however, recommends caution surrounding the killer acquisition “hype.” First, despite the disproportionate attention they have been paid in policy circles, “killer acquisitions” are an exceedingly rare phenomenon. In pharmaceuticals, where the risk is arguably the highest, it is they account for between 5.3% and 7.4% of all acquisitions, while in digital markets, the rate is closer to 1 in 175.[31] The authors ultimately find that:

Examining acquisitions by large technology firms in ICT industries screened by the European Commission, [we find] that acquired products are often not killed but scaled, post-merger industry output demonstrably increases, and the relevant markets remain dynamic post-transaction. These findings cast doubt on contemporary calls for tightening of merger control policies.[32]

Thus, acquisitions of potential competitors and smaller rivals more often than not lead to valuable synergies, efficiencies, and the successful scaling of products and integration of technologies.

But there is an arguably even more important reason why the ACCC should not preventively restrict companies’ ability to acquire smaller rivals (or potential rivals). To safeguard incentives to invest and innovate, it is essential that buyouts remain a viable “way out” for startups and small players. As ICLE has argued previously:

Venture capitalists invest on the understanding that many of the businesses in their portfolio will likely fail, but that the returns from a single successful exit could be large enough to offset any failures. Unsurprisingly, this means that exit considerations are the most important factor for VCs when valuing a company. A US survey of VCs found 89% considered exits important and 48% considered it the most important factor. This is particularly important for later-stage VCs.”[33] (emphasis added)

Indeed, the “killer” label obfuscates the fact that acquisitions are frequently a desired exit strategy for founders, especially founders of startups and small companies. Investors and entrepreneurs hope to make money from the products into which they are putting their time and money. While that may come from the product becoming wildly successful and potentially displacing an incumbent, this outcome can be exceedingly difficult to achieve. The prospect of acquisition increases the possibility that these entrepreneurs can earn a return, and thus magnifies their incentives to build and innovate.[34]

In sum, while potential competition and so-called killer acquisitions are important theories for the ACCC to consider when engaging in merger review, neither theory suggests that the burden of proof needed to reject a merger should be changed, much less warranting an overhaul of the existing merger regime. Furthermore, given the paucity of “killer acquisitions” in the real world, it is highly unlikely that any economic woes that Australia currently faces are due to an epidemic of killer acquisitions or acquisitions of potential/nascent competitors. Indeed, a recent paper by Jonathan Barnett finds the concerns around startup acquisitions to have been vastly exaggerated, while their benefits have been underappreciated:

A review of the relevant body of evidence finds that these widely-held views concerning incumbent/startup acquisitions rest on meager support, confined to ambiguous evidence drawn from a small portion of the total universe of acquisitions in the pharmaceutical market and theoretical models of acquisition transactions in information technology markets. Moreover, the emergent regulatory and scholarly consensus fails to take into account the rich body of evidence showing the critical function played by incumbent/startup acquisitions in supplying a monetization mechanism that induces venture-capital investment and promotes startup entry in technology markets.

In addition:

Proposed changes to merger review standards would disrupt these efficient transactional mechanisms and are likely to have counterproductive effects on competitive conditions in innovation markets.[35]

Accordingly, if the Treasury is going to adopt any rules to address these theories of harm, it should do so in a way consistent with the error-cost framework (see reply to Question 6); that does not undercut the benefits and incentives that derive from the prospect of acquisition by a larger player; and that accurately reflects the real (modest) anticompetitive threat posed by killer acquisitions, rather than one animated by dystopic hyperbole.[36]

C.   Question 9

Should Australia’s merger regime focus more on acquisitions by firms with market power, and/or the effect of the acquisitions on the overall structure of the market?

Merger control should remain tethered to analysis of competitive effects within the framework of the SLC test, rather than on fostering any particular market structure. Market structure is, at best, an imperfect proxy for competitive effects and, at worst, a misleading one. As such, it should be considered just one tool among many for scrutinizing mergers, not an end in itself.

To start, the assumption that “too much” concentration is harmful presumes both that the structure of a market is what determines economic outcomes, and that anyone knows what the “right” amount of concentration is.[37] But as economists have understood since at least the 1970s, (despite an extremely vigorous, but ultimately futile, effort to show otherwise), market structure is not outcome determinative.[38] As Harold Demsetz has written:

Once perfect knowledge of technology and price is abandoned, [competitive intensity] may increase, decrease, or remain unchanged as the number of firms in the market is increased.… [I]t is presumptuous to conclude… that markets populated by fewer firms perform less well or offer competition that is less intense.[39]

This view is well-supported, and held by scholars across the political spectrum.[40] To take one prominent recent example, professors Fiona Scott Morton (deputy assistant attorney general for economics in the U.S. Justice Department Antitrust Division under President Barack Obama), Martin Gaynor (former director of the Federal Trade Commission Bureau of Economics under President Obama), and Steven Berry surveyed the industrial-organization literature and found that presumptions based on measures of concentration are unlikely to provide sound guidance for public policy:

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.[41]

The absence of correlation between increased concentration and both anticompetitive causes and deleterious economic effects is also demonstrated by a recent, influential empirical paper by Shanat Ganapati. Ganapati finds that the increase in industry concentration in U.S. non-manufacturing sectors between 1972 and 2012 was “related to an offsetting and positive force—these oligopolies are likely due to technical innovation or scale economies. [The] data suggests that national oligopolies are strongly correlated with innovations in productivity.”[42] In the end, Ganapati found, increased concentration resulted from a beneficial growth in firm size in productive industries that “expand[s] real output and hold[s] down prices, raising consumer welfare, while maintaining or reducing [these firms’] workforces.”[43] Sam Peltzman’s research on increasing concentration in manufacturing finds that it has, on average, been associated with both increased productivity growth and widening margins of price over input costs. These two effects offset each other, leading to “trivial” net price effects.[44]

Further, the presence of harmful effects in industries with increased concentration cannot readily be extrapolated to other industries. Thus, while some studies have plausibly shown that an increase in concentration in a particular case led to higher prices (although this is true in only a minority of the relevant literature), assuming the same result from an increase in concentration in other industries or other contexts is simply not justified:

The most plausible competitive or efficiency theory of any particular industry’s structure and business practices is as likely to be idiosyncratic to that industry as the most plausible strategic theory with market power.[45]

As Chad Syverson recently summarized:

Perhaps the deepest conceptual problem with concentration as a measure of market power is that it is an outcome, not an immutable core determinant of how competitive an industry or market is… As a result, concentration is worse than just a noisy barometer of market power. Instead, we cannot even generally know which way the barometer is oriented.[46]

In other words, depending on the nature and dynamics of the market, competition may well be protected under conditions that preserve a certain number of competitors in the relevant market. But competition may also be protected under conditions in which a single winner takes all on the merits of their business.[47] It is reductive, and bad policy, to presume that a certain number of competitors is always and everywhere conducive to better economic outcomes, or indicative of anticompetitive harm.

This does not mean that concentration measures have no use in merger enforcement. Instead, it demonstrates that market concentration is often unrelated to antitrust enforcement because it is driven by factors that are endogenous to each industry. In revamping its merger-control rules, Australia should be careful not to rely too heavily on structural presumptions based on concentration measures, as these may be poor indicators of those cases where antitrust enforcement would be most beneficial to consumers.

In sum, market structure should remain only a proxy for determining whether a transaction significantly lessens competition. It should not be at the forefront of merger review. And it should certainly not be the determining factor in deciding whether to block a merger.

D.   Question 13

Should Australia introduce a mandatory notification regime, and what would be the key considerations for designing notification thresholds?

The ACCC has argued that Australia is an “international outlier” in not requiring mandatory notification of mergers.[48] While it is true that most countries with merger-control rules also require mandatory notification of mergers when these exceed a certain threshold, there are also notable examples where this is not the case. For example, the United Kingdom, one of the leading competition jurisdictions in the world, does not require mandatory notification of mergers.

In deciding whether to impose a mandatory-notification regime and accompanying notification thresholds, Australia should not—as a matter of principle—be guided by international trends. International trends may be a useful indicator, but they can also be misleading. Instead, Australia’s decision should be informed by close analysis of error costs. In particular, Australia should seek to understand how a notification regime would affect the balance between Type I and Type II errors in this context. A notification regime would presumably reduce false negatives without necessarily increasing false positives, which is a good outcome.

In its calculation, however, the Treasury cannot ignore the costs of filing mergers and of reviewing them. If designed poorly, mandatory notifications can be a burden for the merging firms, for third parties, and for the reviewing authorities, siphoning resources that could be better deployed elsewhere. It is here where a voluntary-notification regime could have an edge over the alternative. For instance, a study by Chongwoo Choe comparing systems of compulsory pre-merger notification with the Australian system of voluntary pre-merger notification found that:

Thanks to the signaling opportunity that arises when notification is voluntary, voluntary notification leads to lower enforcement costs for the regulator and lower notification costs for the merging parties. Some of the theoretical predictions are supported by exploratory empirical tests using merger data from Australia. Overall, our results suggest that voluntary merger notification may achieve objectives similar to those achieved by compulsory systems at lower costs to the merging parties as well as to the regulator.[49] (emphasis added).

If the Treasury nonetheless decides to mandate merger notification, the next step would be to establish a notification threshold, as it is evident that not all mergers can, or should, be notified to the Australian authorities. Indeed, many mergers may be patently uninteresting from a competition perspective (e.g., one small supermarket in Perth buying another), while others might not have a significant nexus with Australia (e.g., where an international company that does modest business in Australia buys a shop in Spain).[50] Too many merger notifications strain the public’s limited resources and disproportionately affect smaller companies, as these companies are less capable of covering administrative costs and filing fees. To mitigate such unnecessary costs, the Treasury should establish reasonable thresholds that help filter out transactions where the merging parties are unlikely to have significant market power post-merger.

But what constitutes a reasonable threshold? Our view is that there is no need to reinvent the wheel here. Turnover has typically been used as a proxy for a merger’s competitive impact because it offers a first indicator of the parties’ relative position on the market. Despite the Consultation’s claim that “mergers of all sizes are potentially capable of raising competition concerns,”[51] where the parties (and especially the target company) have either no or only negligible turnover in Australia, it is highly unlikely that the merger will significantly lessen competition. If the Treasury decides to impose mandatory notification for mergers, it should therefore consider using a turnover-based threshold.

E.    Question 17

Should Australia’s merger control regime require the decision-maker to be satisfied that a proposed merger:

  • would be likely to substantially lessen competition before blocking it; or

  • would not be likely to substantially lessen competition before clearing it?

The second option would essentially reverse the burden of proof in merger control. Instead of requiring the authority to prove that a merger would substantially lessen competition, it would fall on the merging parties to prove a negative—i.e., that the merger would not be likely to substantially lessen competition.

The ACCC has made this proposal because it:

Means that the risk of error is borne by the merger parties rather than the public. In the cases where this difference matters (for example where there is uncertainty or a number of possible future outcomes), the default position should be to leave the risk with the merger parties, not to put at risk the public interest in maintaining the state of competition into the future.[52]

The Consultation sympathizes. It recognizes that “there are trade-offs between the risks of false positives and false negatives in designing a merger test,” but contends that, while both lead to lower output, higher prices, lower quality, and less innovation, “allowing anti-competitive mergers means that merging parties benefit at the expense of consumers.”[53]

But this argument is based on a flawed premise. The risk of error—whether Type I or Type II error—is always borne by the public. The public is harmed by false positives in at least two ways. First, and most directly, it suffers harm through the foregone benefits that could have accrued from a procompetitive merger. As we have shown in our responses to Questions 6, 8, and 9, these benefits are common and can be economically substantial. Second, but no less important, false positives chill merger activity and discourage future mergers. This also negatively affects the public.

The extent to which chilling merger activity harms the public has, however, been obfuscated by a contrived dichotomy between “the public” and the merging parties, which taints the ACCC’s argumentation and skews the Conclusion. The merging parties are also part of society and, therefore, also part of “the public.” An unduly restrictive merger regime that prioritizes avoiding false negatives over false positives harms consumers. But it also harms the “public” more broadly, insofar as anyone could, potentially, have a direct interest in a merger, either as a stakeholder or a party to that merger.

In addition, a regime that requires companies to prove that a deal is not harmful (with the usual caveats about the difficulty of proving a negative) before being allowed to proceed unduly restricts economic freedom and the rights of defense—both of which are very “public” benefits, as everyone, in principle, benefits from them. These elements should also be taken into consideration when weighing the costs and benefits of Type I and Type II errors. That balancing test should, in our view, generally favor false negatives, as argued in our response to Question 6.

Finally, there is no objective, material justification for “[shifting] the default position from allowing mergers to proceed where there is uncertainty [which is, by definition, always in a merger review process that is forward-looking] to a position where, if there is sufficient uncertainty about the effects of a merger, it would not be cleared.” As discussed in our answer to Question 6, the vast majority of mergers are procompetitive, including mergers in the digital sector, or mergers that involve digital platforms. This presumption is reflected in the requirement, common across antitrust jurisdictions, that enforcers must make a prima facie case that a merger will be anticompetitive before the merging parties have a duty to respond. There has been no major empirical finding or theoretical revelation in recent years that would justify reversing this burden of proof. Indeed, any change along these lines would be guided by ephemeral political and industrial-policy exigencies, rather than by robust principles of law and economics. In our view, these are not sound reasons for flipping merger review on its head.

In sum, Australian merger control should require that a decisionmaker be satisfied that a merger would be likely to substantially lessen competition before blocking it.

F.    Question 18

Should Australia’s substantial lessening of competition test be amended to include acquisitions that ‘entrench, materially increase or materially extend a position of substantial market power’?

According to the ACCC:

Under the current substantial lessening of competition test, it may be difficult to stop acquisitions that lead to a dominant firm extending their market power into related or adjacent markets.[54]

The ACCC imagines this is a problem, particularly in digital markets. Preventing dominant firms from leveraging their market power in one market to restrict competition in an adjacent one is a legitimate concern. We should, however, be clear about what is meant by “materially increase or materially extend a position of substantial market power.”

Merger control should not, as a matter of principle, seek to prevent incumbents from entering adjacent markets. Large firms moving into the core business of competitors from adjacent markets often represents the biggest source of competition for incumbents, as it is often precisely these firms who have the capacity to contest competitors’ dominance in their core businesses effectively. This scenario is prevalent in digital markets, where incumbents must enter multiple adjacent markets, most often by supplying highly differentiated products, complements, or “new combinations” of existing offerings.[55]

Moreover, it is unclear why the SLC test in its current state is insufficient to curb the misuse of market power. The SLC test is a standard used by regulatory authorities to assess the legality of proposed mergers and acquisitions. Simply put, it examines whether a prospective merger is likely to substantially lessen competition in a given market, with the purpose of preventing mergers that increase prices, reduce output, limit consumer choice, or stifle innovation as a result of a decrease in competition.

The SLC test is one of the two major tests deployed by competition authorities to determine whether a merger is anticompetitive, the other being the dominance test. Most merger-control regimes today use the SLC test, and for two good reasons. The first is that, under the dominance test, it is difficult to assess coordinated effects and non-horizontal mergers.[56] The other, mentioned in the Consultation, is that the SLC test allows for more robust effects-based economic analysis.[57]

The SLC test examines likely coordinated and non-coordinated effects in all three types of mergers: horizontal, vertical, and conglomerate. Horizontal mergers may substantially lessen competition by eliminating a significant competitive constraint on one or more firms, or by changing the nature of competition such that firms that had not previously coordinating their behavior will be more likely to do so. Vertical and conglomerate mergers tend to pose less of a risk to competition.[58] Still, there are facts and circumstances under which they can substantially lessen competition by, for example, foreclosing rivals from necessary inputs, supplies, or markets. These outcomes will often be associated with an increase in market power. As the OECD has written:

The focus of the SLC test lies predominantly on the impact of the merger on existing competitive constraints and on measuring market power post-merger.[59]

In other words, the SLC test already accounts for increases in market power that are capable and likely of harming competition. As to whether the “entrenchment” of market power—in line with the 2022 amendments to Canadian competition law—should be added to the SLC test, there is no reason to believe that this is either necessary or appropriate in the Australian context. The 2022 amendments to the Canadian competition law mentioned in the Consultation[60] largely align Canada’s merger control with its abuse-of-dominance provision, which prohibits anti-competitive activities that damage or eliminate competitors and that “preserve, entrench or enhance their market power.”[61] But in Australia, Section 46 (the equivalent of the Canadian abuse-of-dominance provision) prohibits conduct “that has the purpose, or has or is likely to have the effect, of substantially lessening competition.” The proposed amendment would thus create a discrepancy between merger control and Section 46, where the latter would remain tethered to an SLC test, and the former would shift to a new standard. Additionally, since it remains unclear what the results of Canada’s 2022 merger-control amendments have been or will be, it would be wiser for Australia to adopt a “wait and see” approach before rushing to replicate them.

Lastly, there is the question of defining “materiality” in the context of an increase or entrenchment of market power. Currently, Section 50 prohibits mergers that “substantially lessen competition,” with no mention of materiality.[62] The Merger Guidelines do, however, state that:

The term “substantial” has been variously interpreted as meaning real or of substance, not merely discernible but material in a relative sense and meaningful.[63] (emphasis added)

The proposed amendment follows suit, referring to the concepts of “material increase” and “material extension” of market power. What does this mean? How does a “material increase” in market power differ from a non-material one? In its comments to the American Innovation and Choice Online Act (“AICOA”), the American Bar Association’s Antitrust Law Section criticized the bill for using amorphous terms such as “fairness,” “preferencing,” and “materiality,” or the “intrinsic” value of a product. Because these concepts were not defined either in the legislation or in existing case law, the ABA argued that they injected variability and indeterminacy into how the legislation would be administered.[64] The same argument applies here.

Accordingly, the SLC test should not be amended to include acquisitions that “entrench, materially increase or materially extend a position of substantial market power.”

G.   Question 19

Should the merger factors in section 50(3) be amended to increase the focus on changes to market structure as a result of a merger? Or should the merger factors be removed entirely?

On market structure, see our responses to Question 9 and Question 18.

The merger factors under Section 50(3) already overlap with the factors typically used under the SLC test. These include the structure of related markets; the merger’s underlying economic rationale; market accessibility for potential entrants; the market shares of involved undertakings; whether the market is capacity constrained; the presence of competitors (existing and potential); consumer behavior (the willingness and ability of consumers to switch to alternative products); the likely effect on consumers; the financial investment required for market entry; and the market share necessary for a buyer or seller to achieve profitability or economies of scale.

Similarly, Section 50(3) contains a list of the factors to be considered under the SLC test, including barriers to entry, the intensity of competition on the market, the likely effects on price and profit margins, and the extent of vertical integration, among others. Structural questions, such as the degree of concentration on the market, are also one of the listed factors under Section 50(3).

As a result, it is unclear how eliminating the merger factors would transform the SLC test, or why there should be more emphasis on market structure (on the proper role of market structure in merger-control analysis, see our answers to Question 9 and Question 18).

In sum, Section 50(3) should not be amended to increase the focus on changes to market structure as a result of a merger. It is also not clear what is gained from removing the factors in Section 50(3). More than a “modernization” (as the Consultation calls it),[65] the change appears redundant. To the extent that these factors place a “straitjacket” on courts (though, in principle, they are broad enough to be sufficiently flexible), however, they could be removed, so long as merger analysis remains tethered to the SLC test.

H.  Question 20

 Should a public benefit test be retained if a new merger control regime was introduced?

Antitrust law, including merger control, is not a “Swiss Army knife.”[66] Public-interest considerations should generally have limited to no weight in merger analysis, except in extremely specific cases proscribed by the law (e.g., public security and defense considerations). Expanding merger analysis to encompass non-competition concerns risks undermining the rule of law, diminishing legal certainty, and harming consumers.

In Australia, the Competition Act currently does not expressly limit the range of public benefits (or detriments) that may be taken into account by the ACCC when deciding whether to block or allow a merger (this includes not limiting them to those that address market failure or improve economic efficiency).[67] Thus, “anything of value to the community generally, any contribution to the aims pursued by the society” could, in theory, be considered a public benefit for the purpose of the public-benefit test.[68] The authorization regime also does not require the ACCC to quantify the level of public benefits and detriments.

Competition authorities are, in principle, ill-suited to rank, weigh, and prioritize complex, incommensurable goals and values against one other. They lack the expertise to meaningfully evaluate political, social, environmental, and other goals. They are independent agencies with a strict, narrow mandate, not political decision makers tasked with redistributing wealth or guiding society forward. Requiring them to consider broad public considerations when deciding on mergers magnifies the risk of discretionary and arbitrary decision making and undercuts legal certainty. This is as true for blocking mergers on the basis of public detriments as it is for allowing them on the basis of public benefits. By contrast, the consumer-welfare standard, which forms the basis of the SLC, is properly understood as:

Offer[ing] a tractable test that is broad enough to contemplate a variety of evidence related to consumer welfare but also sufficiently objective and clear to cabin discretion and honor the principle of the rule of law. Perhaps most significantly, it is inherently an economic approach to antitrust that benefits from new economic learning and is capable of evaluating an evolving set of commercial practices and business models.[69]

Consequently, we recommend that the public-interest test be jettisoned from merger analysis, or at least very narrowly circumscribed, if a new merger-control regime is introduced in Australia.

I.      Question 24

What is the preferred option or combination of elements outlined above? What implementation considerations would need to be taken into account?

In our opinion, and based on the arguments espoused in this submission, the best options would be as follows:

[1] International Center for Law & Economics, https://laweconcenter.org.

[2] Australian Competition and Consumer Commission v Pacific National Pty Limited [2020] FCAFC 77, [246].

[3] Australian Competition and Consumer Commission v Pacific National Pty Limited [2020] FCAFC 77, [104].

[4] Outline to Treasury: ACCC’s Proposals for Merger Reform, Australian Competition and Consumer Commission (2023), 5, 8, available at https://www.accc.gov.au/system/files/accc-submission-on-preliminary-views-on-options-for-merger-control-process.pdf.

[5] For example, in the EU, 94% of mergers are cleared without commitments, whereas only about 6% are allowed with remedies, and less than 0.5% of mergers are blocked or withdrawn by the parties. See Joanna Piechucka, Tomaso Duso, Klaus Gugler, & Pauline Affeldt, Using Compensating Efficiencies to Assess EU Merger Policy, VoxEU (10 Jan. 2022), https://cepr.org/voxeu/columns/using-compensating-efficiencies-assess-eu-merger-policy.

[6] Consultation, 4; ACCC 2023: 2, point 8e.

[7] Ronald Coase, The Nature of the Firm, 4(16) Economica 386-405 (Nov. 1937).

[8] Robert Kulick & Andre Card, Mergers, Industries, and Innovation: Evidence from R&D Expenditure and Patent Applications, NERA Economic Consulting (Feb. 2023), available at https://www.uschamber.com/assets/documents/NERA-Mergers-and-Innovation-Feb-2023.pdf.

[9] Francine Lafontaine & Margaret Slade, Vertical Integration and Firm Boundaries: The Evidence, 45(3) Journal of Economic Literature 677 (Sep. 2007).

[10] Dario Focarelli & Fabio Panetta, Are Mergers Beneficial to Consumers? Evidence from the Market for Bank Deposits, 93(4) American Economic Review 1152 (Sep. 2003).

[11] B. Espen Eckbo & Peggy Wier, Antimerger Policy Under the Hart-Scott-Rodino Act: A Reexamination of the Market Power Hypothesis, 28(1) Journal of Law & Economics 121 (Apr. 1985).

[12] See, e.g., in the context of tech mergers: Sam Bowman & Sam Dumitriu, Better Together: The Procompetitive Effects of Mergers in Tech, The Entrepreneurs Network & International Center for Law & Economics (Oct. 2021), available at https://laweconcenter.org/wp-content/uploads/2021/10/BetterTogether.pdf.

[13] Geoffrey A. Manne, Error Costs in Digital Markets, in Joshua D. Wright & Douglas H. Ginsburg (eds.), The Global Antitrust Institute Report on the Digital Economy, 33-108 (2020).

[14] Robert H. Mnookin & Lewis Kornhauser, Bargaining in the Shadow of the Law: The Case of Divorce, 88(5) Yale Law Journal 950-97, 968 (Apr. 1979).

[15] See, e.g., in the context of predatory pricing, Paul L. Joskow & Alvin K. Klevorick, A Framework for Analyzing Predatory Pricing Policy, 89(2) Yale Law Journal 213-70 (Dec. 1979).

[16] Manne, supra note 13, at 34, 41.

[17] Id.

[18] Verizon Comm’ns Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 414 (2004) (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 594 (1986)).

[19] Frank H. Easterbrook, The Limits of Antitrust, 63(1) Texas Law Review 1-40, 2-3, 15-16 (Aug. 1984).

[20] Id., (“Other things equal, we should prefer the error of tolerating questionable conduct, which imposes losses over a part of the range of output, to the error of condemning beneficial conduct, which imposes losses over the whole range of output.”)

[21] Lionel Robbins, Economic Planning and International Order, 116, (1937).

[22] This section is adapted, in part, from Bowman & Dumitriu, supra note 12.

[23] Jason Furman, et al., Unlocking Digital Competition: Report of the Digital Competition Expert Panel (Mar. 2019), 98, available at https://assets.publishing.service.gov.uk/media/5c88150ee5274a230219c35f/unlocking_digital_competition_furman_review_web.pdf (“Furman Review”).

[24] Committee for the Study of Digital Platforms Market Structure and Antitrust Subcommittee Report, Stigler Center for the Study of the Economy and the State (2019), 75, 88, available at https://research.chicagobooth.edu/-/media/research/stigler/pdfs/market-structure—report-as-of-15-may-2019.pdf (“Stigler Report”).

[25] Yves-Alexandre de Motjoye, Heike Schweitzer, & Jacques Crémer, Competition Policy for the Digital Era, European Commission Directorate-General for Competition (2019), 110-112, https://op.europa.eu/en/publication-detail/-/publication/21dc175c-7b76-11e9-9f05-01aa75ed71a1/language-en.

[26] See Sections 3.2., 6.2.2. of the Digital Services Platform Inquiry of September 2022, which finds a “high risk of anticompetitive acquisitions by digital platforms,” available at https://www.accc.gov.au/system/files/Digital%20platform%20services%20inquiry.pdf.

[27] Steven Salop, Potential Competition and Antitrust Analysis: Monopoly Profits Exceed Duopoly Profits, Georgetown Law Faculty Publications and Other Works 2380 (Apr. 2021), available at https://scholarship.law.georgetown.edu/facpub/2380.

[28] Geoffrey A. Manne, et al., Comments of the International Center for Law & Economics on the FTC & DOJ Draft Merger Guidelines, International Center for Law & Economics (18 Sep. 2023), 38, available at https://laweconcenter.org/wp-content/uploads/2023/09/ICLE-Draft-Merger-Guidelines-Comments-1.pdf.

[29] Ben Sperry, Killer Acquisition of Successful Integration: The Case of the Facebook/Instagram Merger, The Hill (8 Oct. 2020), https://thehill.com/blogs/congress-blog/politics/520211-killer-acquisition-or-successful-integration-the-case-of-the.

[30] Sam Bowman & Geoffrey A. Manne, Killer Acquisitions: An Exit Strategy for Founders, International Center for Law & Economics (Jul. 2020), available at https://laweconcenter.org/wp-content/uploads/2020/07/ICLE-tldr-Killer-acquisitions_-an-exit-strategy-for-founders-FINAL.pdf.

[31] See Colleen Cunningham, Florida Ederer, & Song Ma, Killer Acquisitions, 129(3) Journal of Political Economy 649-702 (Mar. 2021); see also Axel Gautier & Joe Lamesch, Mergers in the Digital Economy 54 Information Economics and Policy 100890 (2 Sep. 2020).

[32] Marc Ivaldi, Nicolas Petit, & Selçukhan Ünekbas, Killer Acquisitions in Digital Markets May be More Hype than Reality, VoxEU (15 Sep. 2023), https://cepr.org/voxeu/columns/killer-acquisitions-digital-markets-may-be-more-hype-reality (“The majority of transactions triggered increasing levels of competition in their respective markets.”)

[33] Bowman & Dumitriu, supra note 12.

[34] Bowman & Manne, supra note 30.

[35] Jonathan Barnett, “Killer Acquisitions” Reexamined: Economic Hyperbole in the Age of Populist Antitrust, USC Class Research Paper 23-1 (28 Aug. 2023), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4408546.

[36] On the current wave of dystopian thinking in antitrust law, especially surrounding anything “digital,” see Dirk Auer & Geoffrey A. Manne, Antitrust Dystopia and Antitrust Nostalgia: Alarmist Theories of Harm in Digital Markets and their Origins, 28(4) George Mason Law Review 1281 (9 Sep. 2021).

[37] The response to this question is adapted from Manne, et al., supra note 28.

[38] See, e.g., Harold Demsetz, Industry Structure, Market Rivalry, and Public Policy, 16(1) Journal of Law & Economics 1-9 (Apr. 1973).

[39] See Harold Demsetz, The Intensity and Dimensionality of Competition, in Harold Demsetz, The Economics of the Business Firm: Seven Critical Commentaries 137, 140-41 (1995).

[40] Nathan Miller, et al., On the Misuse of Regressions of Price on the HHI in Merger Review, 10(2) Journal of Antitrust Enforcement 248-259 (28 May 2022).

[41] Steven Berry, Martin Gaynor, & Fiona Scott Morton, Do Increasing Markups Matter? Lessons from Empirical Industrial Organization, 33(3) Journal of Economic Perspectives 44-68, 48 (2019).

[42] Shanat Ganapati, Growing Oligopolies, Prices, Output, and Productivity, 13(3) American Economic Journal: Microeconomics 309-327, 324 (Aug. 2021).

[43] Id., 309.

[44] Sam Peltzman, Productivity, Prices and Productivity in Manufacturing: a Demsetzian Perspective, Coase-Sandor Working Paper Series in Law and Economics 917, (19 Jul. 2021).

[45] Timothy F. Bresnahan, Empirical Studies of Industries with Market Power, in Richard Schmalensee & Robert Willig (eds.), Handbook of Industrial Organization, 1011, 1053-54 (1989).

[46] Chad Syverson, Macroeconomics and Market Power: Context, Implications, and Open Questions, 33(3) Journal of Economic Perspectives 23-43, 26 (2019).

[47] Nicolas Petit & Lazar Radic, The Necessity of the Consumer Welfare Standard in Antitrust Analysis, ProMarket (18 Dec. 2023), https://www.promarket.org/2023/12/18/the-necessity-of-a-consumer-welfare-standard-in-antitrust-analysis.

[48] ACCC, 2023: 5.

[49] Chongwoo Choe, Compulsory or Voluntary Pre-Merger Notification? Theory and Some Evidence, 28(1) International Journal of Industrial Organization 10-20 (Jan. 2010).

[50] For an overview of the impact of unnecessary transaction costs in merger notification in the context of Ireland, see  Paul K. Gorecki, Merger Control in Ireland: Too Many Unnecessary Notifications?, ESRI Working Paper No. 383 (2011), https://www.econstor.eu/handle/10419/50090.

[51] Consultation, 24.

[52] ACCC, 2023, 9.

[53] Consultation, 29.

[54] Consultation, 19; ACCC, 2023: 6-7.

[55] Nicolas Petit, Big Tech and the Digital Economy: The Moligopoly Scenario (2020); see also Walid Chaiehoudj, On “Big Tech and the Digital Economy”: Interview with Professor Nicolas Petit, Competition Forum (11 Jan. 2021), https://competition-forum.com/on-big-tech-and-the-digital-economy-interview-with-professor-nicolas-petit.

[56] Standard for Merger Review, Organisation for Economic Co-operation and Development (11 May 2010), 6, available at https://www.oecd.org/daf/competition/45247537.pdf.

[57] Id.; see also Consultation, 31, indicating that “[SLC test] would enable mergers to be assessed on competition criteria but not prescriptively identify which competition criteria should be taken into account. It may permit more flexible application of the law and a greater degree of economic analysis in merger decision-making” (emphasis added).

[58] See, e.g., European Commission, Guidelines on the Assessment of Non-Horizontal Mergers Under the Council Regulation on the Control of Concentrations Between Undertakings (2008/C 265/07), paras. 11-13.

[59] OECD, supra note 56, at 16; see also European Commission, Guidelines on the Assessment of Horizontal Mergers Under the Council Regulation on the Control of Concentrations between Undertakings (2004/C 31/03).

[60] Consultation, 30-31.

[61] Canadian Competition Act, Sections 78 and 79.

[62] Section 44G, however, does mention a “material increase in competition.” (emphasis added).

[63] ACCC, Merger Guidelines (2008), available at https://www.accc.gov.au/system/files/Merger%20guidelines%20-%20Final.PDF ; see also Australia, Senate 1992, Debates, vol. S157, p. 4776, as cited in the Merger Guidelines (2008).

[64] Geoffrey A. Manne & Lazar Radic, The ABA’s Antitrust Law Section Sounds the Alarm on Klobuchar-Grassley, Truth on the Market (12 May 2022), https://truthonthemarket.com/2022/05/12/the-abas-antitrust-law-section-sounds-the-alarm-on-klobuchar-grassley.

[65] Consultation, 39.

[66] Geoffrey A. Manne, Hearing on “Reviving Competition, Part 5: Addressing the Effects of Economic Concentration on America’s Food Supply,” U.S. House Judiciary Subcommittee on Antitrust, Commercial, and Administrative Law (19 Jan. 2021), available at https://laweconcenter.org/wp-content/uploads/2022/01/Manne-Supply-Chain-Testimony-2021-01-19.pdf.

[67] Out-of-Market Efficiencies in Competition Enforcement – Note by Australia, Organisation for Economic Co-operation and Development (6 Dec. 2023), available at https://one.oecd.org/document/DAF/COMP/WD(2023)102/en/pdf.

[68] Re Queensland Co-Op Milling Association Limited and Defiance Holdings Limited (QCMA) (1976) ATPR 40-012.

[69] Elyse Dorsey, et al., Consumer Welfare & The Rule of Law: The Case Against the New Populist Antitrust Movement, 47 Pepperdine Law Review 861 (1 Jun. 2020).

Regulatory Comments

Submission on the final report of the Australian Competition and Consumer Commission’s Digital Platforms Inquiry

In a submission to the Australian Treasury on 12 September 2019, a group of esteemed international scholars critiqued the recently published Final Report of the Australian Competition and Consumer Commission (ACCC) Digital Platforms Inquiry. 

In its report, the ACCC claims that competition in the media, communications, advertising and other markets it investigated is “not working,”  and that substantial regulatory and legislative changes are necessary to solve—and would solve—the  problems caused by ineffective competition.  

But the premise that competition is not working is not well supported by evidence presented in the report. Meanwhile, the report’s conclusion misses the bigger picture: Government intervention is appropriate only if it produces net social benefits. Yet the ACCC almost entirely omits consideration of the adverse effects of its proposed interventions, which in many cases are likely worse than the alleged problems. As such, the report’s proposals should be treated with great caution.

The submission tackles three “significant oversights”: 

  1. The ACCC’s recommendations on “platform neutrality” and the proposed creation of a “digital platforms branch” underestimate the limits of regulators’ ability to identify market failure and the major difficulties that regulators face when attempting to design markets. For instance, the ACCC recommends that Google be forced to introduce browser and search engine choice screens. Yet it is not clear that the introduction of such screens will either accelerate the entry of competitors or improve users’ experience. 
  2. The ACCC’s attempts to prop up local media firms (through subsidies and other means) appears to be driven by nostalgia for a bygone, pre-modern era, rather than a rigorous assessment of the costs and benefits of media regulation. The ACCC is quick to assume that its recommendations would produce tangible benefits for consumers, but it overlooks the potential market distortions—and impediments to ongoing innovation—that might be generated in the process.
  3. The report’s recommended extension of Australia’s privacy legislation completely ignores the tremendous compliance costs that doing so would impose on firms and, indirectly, on consumers. The recent introduction of privacy legislation in the EU and California suggests that these compliance costs might well outstrip the benefits to users.

The submission notes in conclusion that “The ACCC’s lackadaisical assessment of regulatory costs is all-the-more troubling given that its report focuses on an extremely dynamic industry. What is only a small regulatory cost today could severely hamper competition in the future.”

 

Click here to read the full submission.

Regulatory Comments

Brazil

Playing the Imitation Game in Digital Market Regulation – A Cautionary Analysis for Brazil

Introduction

On 11 October 2022, João Maia (Federal Deputy, Partido Liberal) proposed Bill 2768/22 (“Bill 2768” or “Bill”) on digital market regulation.[1] Bill 2768 is Brazil’s response to global trends toward the ex-ante regulation of digital platforms, and was at least partially inspired by the EU’s Digital Markets Act (“DMA”).[2] In our contribution to the public consultation on Bill 2768 (“Consultation”),[3] however, we argue that Brazil should be wary of importing untested regulation into its own, unique context. Rather than impulsively replicating the EU’s latest regulatory whim, Brazil should adopt a more methodical, evidence-based approach. Sound regulation requires that new rules be underpinned by a clear vision of the specific market failures they aim to address, as well as an understanding of the costs and potential unintended consequences. Unfortunately, Bill 2768 fails to meet these prerequisites. As we show in our response to the Consultation, it is far from clear that competition law in Brazil has failed to address issues in digital markets to the extent that would make sui generis digital regulation necessary. Indeed, it is unlikely that there are any truly “essential facilities” in the Brazilian digital market that would make access regulation necessary, or that “data” represents an unsurmountable barrier to entry. Other aspects of the Bill—such as the designation of Anatel as the relevant enforcer, the extremely low turnover thresholds used to ascertain gatekeeper status, and the lack of consideration given to consumer welfare as a relevant parameter in establishing harm or claiming an exemption—are also misguided. As it stands, therefore, Bill 2768 not only risks straining Brazil’s limited public resources, but also harming innovation, consumer prices, and the country’s thriving startup ecosystem.

Question 1

Identification of “essential facilities” in the universe of digital markets. Give examples of platform assets in the digital market operating in Brazil where at the same time: a) there are no digital platforms with substitute assets close to these assets b) these assets are difficult to duplicate efficiently at least close to the owning company c) without access to this asset, it would not be possible to operate in one or more markets, as it constitutes a fundamental input. Justify each of the examples given.

For the reasons we discuss below, it is unlikely that there are any examples of true “essential facilities” in digital markets in Brazil.

It important to define the meaning of “essential facility” precisely. The concept of essential facility is a state-of-the-art term used in competition law, which has been defined differently across jurisdictions. Still, the overarching idea of the essential facilities doctrines is that there are instances in which denial of access to a facility by an incumbent can distort competition. To demarcate between cases where denial of access constitutes a legitimate expression of competition on the merits from instances in which it indicates anticompetitive conduct, however, courts and competition authorities have devised a series of tests.

Thus, in the EU, the seminal Bronner case established that the essential facilities doctrine applies in Art. 102 TFEU cases when:

  1. The refusal is likely to eliminate all competition in the market on the part of the person requesting the service;
  2. The refusal is incapable of being objectively justified; and
  3. The service in itself is indispensable to carrying out that person’s business, i.e., there is no actual or potential substitute for the requested input.[4]

In addition, the facility must be genuinely “essential” to compete, not merely convenient.

Similarly, CADE has incorporated the essential facilities doctrine into Brazilian competition policy by imposing a duty to deal with competitors.[5]

The definition of “essential facilities” and, consequently, the breadth and limits of the essential facilities doctrine under Bill 2768/2022 (“Bill 2768”) should reflect tried and tested principles from competition law. There is no reason why essential facilities should be treated differently in “digital” markets, i.e., markets involving digital platforms, than in other markets. In this sense, we are concerned that the framing of Question 1 reveals an inconsistency that should be addressed before moving forward; namely, when a company’s assets are “difficult” to replicate efficiently, it is justified to force a competitor to grant access to those assets. This is misguided and could even produce the opposite of what Bill 2768 presumably aims to achieve.

As indicated above, the fundamental concept underpinning the essential facilities doctrine is that it applies to a product or service that is uneconomic or impossible to duplicate. Typically, this has applied to infrastructure, such as telecommunications or railways. For instance, expecting competitors to duplicate transport routes, such as railways, would be unrealistic — and economically wasteful. Instead, governments have often chosen to regulate these sectors as natural monopoly public utilities. Predominantly, this includes mandating access to all comers to such essential facilities under regulated prices and non-discriminatory conditions that make the activity of other companies viable and competitive—thus facilitating competition on a secondary market in situations in which competition might otherwise be impossible.

The government should ask itself to what extent this logic applies to so-called digital platforms, however.

Online search engines, for example, are not impossible or excessively difficult to replicate—nor is access to any one of them indispensable. Today, many search engines are on the market: Bing, Yandex, Ecosia, DuckDuckGo, Yahoo!, Google, Baidu, Ask.com, and Swisscows, among others.

More to the point, mere access to search engines isn’t really a problem. Rather, in most cases, those complaining about a search engine’s activity typically complain about access to the very first results, or they complain about the search engine prioritizing its own secondary-market services over those of the competitor. But this space is vanishingly scarce; there is no way for it to be allocated to all comers. Nor can it be allocated on neutral terms; by definition, a search engine must prioritize results.

Treating a search engine as an essential facility would generate problematic outcomes. For example, mandating non-discriminatory access to a search engine’s top results would be like requiring that a railroad offer service to all shippers at whatever time the shipper liked, regardless of railroad congestion, other shippers’ timetables, and the railroad’s optimization of its schedule. Not only would this be impossible, but it isn’t even required of traditional essential facilities.

Notably, while ranking high on a search engine results page is undoubtedly a boon for business, there are other ways of reaching customers. Indeed, as CADE ruled in a case concerning Google Shopping, even if the first page of Google’s result is relevant and important to ranked websites, it is not irreplaceable to the extent that there are other ways for consumers to find websites online. Google is not a mandatory intermediary for website access.[6] Moreover, as noted, search results pages must, by definition, discriminate in order to function correctly. Deeming them essential facilities would entail endless wrangling (and technically complicated determinations) to decide if the search engine’s prioritization decisions were “proper” or not.

Similarly, online retail platforms like Amazon and Mercado Livre are very successful and convenient, but sellers can use other methods to reach customers. For example, they can sell from brick-and-mortar stores or easily set up their own retail websites using myriad software-as-a-service (“SaaS”) providers to facilitate processing and fulfilling orders. Furthermore, the concurrent presence and success of Mercado Livre, B2W (Submarino.com, Americanas.com, Shoptime, Soubarato), Cnova (Extra.com.br, Casasbahia.com.br, Pontofrio.com), Magazine Louiza, and Amazon on the Brazilian market belies the claim that any one of these platforms is indispensable or irreplicable.[7]

Similar arguments can be made about the other digital platforms covered by Art. 6, paragraph II of Bill 2768. For example, WhatsApp may be by far the most popular interpersonal communication service in the country. Still, there are plenty of alternatives within easy (and mostly free) reach for Brazilian consumers, such as Messenger (62 million users), Telegram (30 million), Instagram (64 million), Viber (3 million), Hangouts (2 million), WeChat (1 million), Kik (500,000 users), and Line (1 million users). The sheer number of users of every app suggests that multi-homing is widespread.

In sum, while access to a particular digital platform may be convenient, especially if it is currently the most popular among users, it is highly questionable whether such access is essential. And, as Advocate General Jacobs noted in his opinion in Bronner, mere convenience does not create a right of access under the essential facilities doctrine.[8]

Recommendation: Bill 2768 should make it clear that the principles and requirements of “essential facilities” within the meaning of competition law apply in full to the duties and obligations contemplated in Art. 10 — and that the finding of an “essential facility” is a prerequisite to the imposition of any such duties or obligations.

Question 2

Is regulation necessary to guarantee access to the asset(s) of the example(s) from Question 1? What should such regulation guarantee so that access to the asset enables third parties to enter those digital markets?

Before considering whether regulation is necessary to guarantee access to assets of certain companies, the government should first consider whether guaranteeing any such access is necessary and legitimate. In our response to Question 1, we have argued that it is unlikely to be. If the government nevertheless decides to the contrary, the next logical question should be whether competition law, including the essential facilities doctrine itself, are sufficient to address any such alleged problems as are identified in Question 2.

Arguably, the best way to answer this question would be through the natural experiment of letting CADE bring cases against digital platforms — assuming it can construct a prima facie case in each instance — and seeing whether or not traditional competition law tools provide a viable solution and, if not, whether these tools can be sharpened by reforming Brazil’s competition law or whether new, comprehensive ex-ante regulation is needed.

By comparison, the EU experimented with EU competition law before passing the DMA. In fact, most if not all the prohibitions and obligations of the DMA stem from competition law cases.[9] The EU eventually decided that it preferred to pass blanket ex-ante rules against certain practices rather than having to litigate through competition law. Whether or not this was the right decision is up for debate, but one thing is certain: The EU tried its competition toolkit extensively against digital platforms before learning from the outcomes and deciding it needed to be complemented with a new set of broader, enforcer-friendly, bright-line rules.

By contrast, Brazil has initiated only a handful of antitrust cases against digital platforms. According to numbers published by CADE,[10] CADE has reviewed 233 merger cases related to digital platform markets between 1995 and 2023 and, regarding unilateral conduct (monopolization cases)—those most relevant for the discussion on Bill 2768—opened 23 conduct cases. Regarding those 23 cases, 9 are still being investigated, 11 were dismissed, and only 3 were settled by the signature of a Cease-and-Desist Agreement (TCC). In this sense, only 3 cases (TCCs) out of 23 could be said to have been, to some extent, “condemned”. It is questionable whether these cases provide the sort of evidence of the existence of intrinsic competition problems in the eight service markets identified in Art. 6, paragraph II of Bill 2768 that would justify new, “sector-specific” access rules.[11]

In fact, the recent entry of companies into many of those markets suggests that the opposite is closer to the truth. There are numerous examples of entry in a variety of digital services, including the likes of TikTok, Shein, Shopee, and Daki, to name just a few.

Serious problems can arise when products that are not essential facilities are treated as such, of which we name two.

First, over-extending the essential facilities doctrine can encourage free riding.[12] This is not what the essential facilities doctrine, properly understood, aims to achieve, nor what it should be used for:

Consequently, the [European Court of Justice] implies that the [essential facilities doctrine] is not designed for the convenience of undertakings to free ride dominant undertakings, but only for the necessity of survival on the secondary market in situations where there are no effective substitutes.[13]

Why develop a competing online retail platform when access to Mercado Livre or Amazon is guaranteed by law? Free riding can discourage investments from third companies and targeted “gatekeepers,” especially in the development and improvement of competing business platforms (or alternative business models that are not exact replicas of existing platforms). Contrary to the stated goals of Bill 2768, this could further entrench incumbents, as the ability to free ride on others’ investments incentivizes companies to pivot away from contesting incumbents’ core markets to acting as complementors in those markets.

Indeed, a serious—and underappreciated—concern is the cost of excessive risk-taking by companies that can rely on regulatory protections to ensure continued viability even when it is not warranted.

Businesses must develop their business models and operate their businesses in recognition of the risk involved. A complementor that makes itself dependent upon a platform for distribution of its content does take a risk. Although it may benefit from greater access to users, it places itself at the mercy of the other — or at least faces great difficulty (and great cost) adapting to unanticipated platform changes over which it has no control. This is a species of the “asset specificity” problem that animates much of the Transaction Cost Economics literature.[14]

But the risk may be a calculated one. Firms occupy specialized positions in supply chains throughout the economy, and they make risky, asset-specific investments all the time. In most circumstances, firms use contracts to allocate both risk and responsibility in a way that makes the relationship viable. When it is too difficult to manage risk by contract, firms may vertically integrate (thus aligning their incentives) or simply go their separate ways.

The fact that a platform creates an opportunity for complementors to rely upon it does not mean that a firm’s decision to do so — and to do so without a viable contingency plan — makes good business sense. In the case of the comparison-shopping sites at issue in the EU’s Google Shopping decision,[15] for example, it was entirely predictable that Google’s algorithm would evolve. It was also entirely predictable that it would evolve in ways that could diminish or even eviscerate their traffic. As one online marketing expert put it, “counting on search engine traffic as your primary traffic source is a bit foolish, to say the least.”[16]

Providing guarantees (which is what a “gatekeeper” access rule accomplishes) in this situation creates a significant problem: Protecting complementors from the inherent risk in a business model in which they are entirely dependent upon another company with which they have no contractual relationship is at least as likely to encourage excessive risk taking and inefficient over-investment as it is to ensure that investment and innovation are not too low.[17]

Second, granting companies and competitors access to goods or services except in the very few and narrow cases[18] in which access to such goods and services is truly essential to sustain competition on the market sends platforms the wrong message. The message is that, after being encouraged to compete, successful companies will be punished for thriving. This is contrary to the spirit of competition law and the principle of free competition, which Bill 2768 should be careful not to eviscerate. As the great U.S. jurist Learned Hand observed in U.S. v. Aluminum Co. of America: “The successful competitor, having been urged to compete, must not be turned upon when he wins.”[19]

Furthermore, forcing companies to do business with third parties is at odds with the principle that, unless a violation of antitrust law can be ascertained, companies should be free to do business with whomever they choose.[20] Indeed, it is a cornerstone of the free market economy that “the antitrust laws [do] not impose a duty on [firms] . . . to assist [competitors] . . . to ‘survive or expand.’”[21]

Question 3

Describe cases in digital markets where there is at least one other company with substitute assets close to these assets of the main company, but none of the digital platforms that hold the asset provide access to it. In other words, even if there is more than one asset in the market, there is still a problem of accessing the asset. How could Bill 2768/2022, especially its article 10, be improved to improve access to essential supplies?

We are aware of no such cases.

Question 4

Describe cases in which the ownership of data in digital markets creates a barrier to entry that makes it very difficult or even impossible for incumbent digital platforms to enter the market. How could Bill 2768/2022 mitigate this problem, reducing the barrier to entry represented by access to data?

The extent to which data represents a barrier to entry is, in our opinion, vastly overstated. Bill 2768 should not assume that data is a barrier to entry and should assess claims to the contrary critically — especially if it intends to build a new, comprehensive regulatory regime on that assumption.[22]

In a nutshell, theories of “data as a barrier to entry” make the assertion that online data can amount to a barrier to entry, insulating incumbent services from competition and ensuring that only the largest providers thrive. This data barrier to entry, it is alleged, can then allow firms with monopoly power to harm consumers, either directly through “bad acts” like price discrimination, or indirectly by raising the costs of advertising, which then get passed on to consumers.[23]

However, the notion of data as an antitrust-relevant barrier to entry is more supposition than reality.

First, despite the rush to embrace “digital platform exceptionalism,” data is useful to all industries. “Data” is not some new phenomenon particular to online companies. It bears repeating that offline retailers also receive substantial benefit from, and greatly benefit consumers by, knowing more about what consumers want and when they want it. Through devices like coupons, membership discounts and loyalty cards (to say nothing of targeted mailing lists and the age-old practice of data mining check-out receipts), brick-and-mortar retailers can track purchase data and better serve consumers. Not only do consumers receive better deals for using them, but retailers know what products to stock and advertise and when and on what products to run sales.[24]

Of course, there are a host of other uses for data, as well, including security, fraud prevention, product optimization, risk reduction to the insured, knowing what content is most interesting to readers, etc. The importance of data stretches far beyond the online world, and far beyond mere retail uses more generally. To describe any one company as having a monopoly on data is therefore mistaken.

Second, it is not the amount of data that leads to success, but how that data is used to craft attractive products or services for users. In other words: information is important to companies because of the value that can be drawn from it, not for the inherent value of the data itself. Thus, many companies that accumulated vast amounts of data were subsequently unable to turn that data into a competitive advantage to succeed on the market. For instance, Orkut, AOL, Friendster, Myspace, Yahoo! and Flicker — to name a few — all gained immense popularity and access to significant amounts of data, but failed to retain their users because their products were ultimately lackluster.

Data is not only less important than what can be drawn from it, but data is also less important than the underlying product it informs. For instance, Snapchat created a challenger to Facebook so successfully (and in such a short time) that Facebook attempted to buy it for $3 billion (Google offered $4 billion). But Facebook’s interest in Snapchat was not about its data. Instead, Snapchat was valuable — and a competitive challenge to Facebook — because it cleverly incorporated the (apparently novel) insight that many people wanted to share information in a more private way.

Relatedly, Twitter, Instagram, LinkedIn, Yelp, TikTok (and Facebook itself) all started with little (or no) data but nevertheless found success. Meanwhile, despite its supposed data advantages, Google’s attempt at social networking, Google+, never caught up to Facebook in terms of popularity to users (and thus not to advertisers either) and shut down in 2019.

At the same, it is not the case that the alleged data giants — the ones supposedly insulating themselves behind data barriers to entry — actually have the type of data most relevant to startups anyway. As Andres Lerner has argued, if you wanted to start a travel business, the data from Kayak or Priceline (or local Decolar.com) would be far more relevant.[25] Or if you wanted to start a ride-sharing business, data from cab companies would be more useful than the broad, market-cross-cutting profiles Google and Facebook have. Consider companies like Uber and 99 that had no customer data when they began to challenge established cab companies that did possess such data. If data were really so significant, they could never have competed successfully. But Uber and 99 have been able to effectively compete because they built products that users wanted to use — they came up with an idea for a better mousetrap. The data they have accrued came after they innovated, entered the market, and mounted their successful challenges — not before.

Complaints about data facilitating unassailable competitive advantages thus have it exactly backwards. Companies need to innovate to attract consumer data, otherwise consumers will switch to competitors (including both new entrants and established incumbents). As a result, the desire to make use of more and better data drives competitive innovation, with manifestly impressive results: The continued explosion of new products, services and other apps is evidence that data is not a bottleneck to competition but a spur to drive it.

Third, competition online is (metaphorically—but not by much) one click or thumb swipe away. That is, barriers to entry and switching costs are low. Indeed, despite the alleged prevalence of data barriers to entry, competition online continues to soar, with newcomers constantly emerging and triumphing. The entry of online retailers and other digital platforms in Brazil is a case in point (See Questions 1 and 2). This suggests that the barriers to entry are not so high as to prevent robust competition.

Again, despite the supposed data-based monopolies of Facebook, Google, Amazon, Apple, and others, there exist powerful competitors in the markets they compete in:

  • If consumers want to make a purchase, they are more likely to do their research on Mercado Livre or Amazon than Google or Facebook, even with Facebook’s launch of Facebook Marketplace.
  • Google flight search has failed to seriously challenge — let alone displace — its competitors, as critics feared. Decolar.com, Kayak, Expedia, and the like remain the most prominent travel search sites — despite Google having literally purchased ITA’s trove of flight data and data-processing acumen.
  • ChatGPT, one of the most highly valued startups today, is now a serious challenger to traditional search engines.
  • TikTok has rapidly risen to challenge popular social media apps like Instagram and Facebook.

Even assuming for the sake of argument that data creates a barrier to entry, there is little evidence that consumers cannot easily switch to a competitor. While there are sometimes network effects online, like with social networking, history still shows that people will switch. Myspace was considered a dominant network until it made a series of bad business decisions, and users ended up on Facebook instead; Orkut had a similar fate. Similarly, Internet users can and do use Bing, DuckDuckGo, Yahoo!, and a plethora of more specialized search engines on top of and instead of Google, and increasingly also turn to other ways to find information online (such as searching for a brand or restaurant directly on Instagram or TikTok, or asking ChatGPT a question). In fact, Google itself was once an upstart new entrant that replaced once-household names like Yahoo! and AltaVista.

Fourth, access to data is not exclusive. Data is not like oil. If, for example, Petrobras drills and extracts oil from the ground, that oil is no longer available to other companies. Data is not finite in the same way. Google knowing someone’s birthday doesn’t limit the ability of Facebook to know the same person’s birthday, as well. While databases may be proprietary, the underlying data is not. And what matters more than the data itself is how well it is analyzed (see first point). Because data is not exclusive like oil, any attempt to force the sharing of data in an attempt to help competitors creates a free-riding problem. Why go through the work of collecting valuable data on customers to learn what they want so you can better serve them when regulation mandates that Apple effectively give you the data?

In conclusion, the problem with granting competitors access to data is that data is a consequence of competition, not a prerequisite for it. Thus, rather than enhancing their ability to compete, “gifting” competitors the fruits of others’ successful attempts at competition risks destroying both groups’ incentives to design attractive products to accrue such data in the first place. By reversing the competition-data causality, Bill 2768 ultimately risks inadvertently stifling the same competition that it purportedly seeks to bolster.

Question 5

Cite cases in which a company in the digital market in Brazil used third-party data because of its characteristic as an essential input provider, harming the third party competitively?

We are not aware of any such cases.

However, the framing of this question should be clear about what is meant by “harming a third party competitively.” The use of third-party data is a key driver of competition. Even if competitors are “harmed” as a result, they are harmed only insofar as they do not match the price or quality offered by the platform.

Competition is, to a large extent, driven by the use of knowledge of rivals’ products — including their price, quality, quantity, and how they are sold and presented to consumers. In fact, the model of perfect competition largely assumes that all the products on the market are homogeneous (even if this is rarely borne out in practice). The use of third-party data to match and beat competitor’s offerings can be seen as a modern expression of this dynamic. Indeed, as we have written before:

We cannot assume that something is bad for competition just because it is bad for certain competitors. A lot of unambiguously procompetitive behavior, like cutting prices, also tends to make life difficult for competitors. The same is true when a digital platform provides a service that is better than alternatives provided by the site’s third-party sellers. […].

There’s no doubt this is unpleasant for merchants that have to compete with these offerings. But it is also no different from having to compete with more efficient rivals who have lower costs or better insight into consumer demand. Copying products and seeking ways to offer them with better features or at a lower price, which critics of self-preferencing highlight as a particular concern, has always been a fundamental part of market competition—indeed, it is the primary way competition occurs in most markets.[26]

Any per se prohibition of the use of third-party data would preclude digital platforms from using data to improve their product offering in ways that could benefit consumers.

Recommendation: Assuming that competition law and IP law are not up to the task of curbing abuses of third-party data, Bill 2768 should ensure that such prohibitions are tailor-made to cover conduct that has no other rational explanation other than seeking to exclude a competitor. It should not capture uses of third-party data that drives competition and benefit consumers, even if this results in the exit of a competitor from the market.

Question 6

Describe cases in which a difficulty in interoperability with a company’s systems makes it very difficult or impossible to enter one or more digital markets. How could Bill 2768/2022 mitigate this problem, reducing the barrier to entry represented by lack of interoperability?

We are not aware of any such cases.

However, when considering potential interoperability mandates, the government should be aware of the risks and trade-offs that come with such measures, especially in terms of safety, security, and privacy (see Question 8 for a more detailed discussion).

Question 7

The European Digital Market Act (DMA) chose to implement absolute prohibitions (per se) on some conduct in digital markets, such as self-preferencing, among others. Bill 2768/2022, on the other hand, chose not to do any prohibited conduct ex ante. Should there be one or more conducts with absolute prohibitions (per se) in Bill 2768/2022? Why? Please propose wording, explaining where in the bill it would be located?

No, there should not be absolute prohibitions on these sorts of conduct, especially without substantive experience suggesting that such conduct is always or almost always harmful and largely irredeemable (in this item, we answer the question in general terms; please see Question 8 for a discussion of why particular conduct (e.g., self-preferencing) should not be prohibited).

Regardless of the harm to the business of the targeted companies, overly broad prohibitions (or mandates) can harm consumers by chilling procompetitive conduct and discouraging innovation and investment, especially when no showing of harm is required and the law is not amenable to efficiencies arguments (like in the case of the DMA). The fact that such prohibitions apply to vastly different markets (for example, cloud services have little to do with search engines) regardless of context is also a sure sign that they are overly broad and poorly designed.

In fact, there are indications that where the DMA has been introduced, it has delayed the advance of technology. For example, Google’s “Bard” AI was rolled out later in Europe due to the EU’s uncertain and strict AI And privacy regulations.[27] Similarly, Meta’s “Threads” is not available in the EU precisely due to the constraints imposed by the DMA and the EU’s data privacy regulation (GDPR).[28] Elon Musk, X’s (formerly Twitter) CEO, has indicated that the cost of complying with EU digital regulations, such as the DSA, could prompt it to exit the European market.[29] Recently, Microsoft delayed the European rollout of its new AI, “Copilot,” because of the DMA.[30]

Apart from capturing pro-competitive conduct that benefits consumers and freezing technology in time (which would ultimately exacerbate the technological chasm between more and less advanced countries), rigid per se rules could also capture many budding companies that cannot be considered “gatekeepers” by any stretch of the imagination. This risk is especially real in the case of Brazil given the extremely low threshold for what constitutes a “gatekeeper” enshrined in Article 9 (R$70 million, or approximately USD$14 million). Thus, many Brazilian unicorns could, either immediately or in the near future, be captured by the new, restrictive rules, which could stunt their growth and chill innovative products. Ultimately, this could imperil Brazil’s current status as “[Latin America’s] most established startup hub” and cast a shadow on what The Economist has referred to as the bright future of Latin American startups.[31]

The list of harmed companies could include some of Brazil’s most promising unicorns, such as:

  • 99 (transport app)
  • Neon Bank (digital bank)
  • C6 Bank (digital bank)
  • CloudWalk (payment method)
  • Creditas (lending platform)
  • Ebanx (payment solutions)
  • Facily (social commerce)
  • com (road freight)
  • Gympass (gym aggregator and corporate benefits)
  • Hotmart (platform for selling digital products)
  • iFood (delivery)
  • Loft (real estate platform)
  • Loggi (logistics)
  • Mercado Bitcoin (cryptocurrency broker)
  • Merama (e-commerce)
  • Madeira Madeira (home and decoration products store)
  • Nubank (bank)
  • Olist (e-commerce)
  • Wildlife Studios (game developer)
  • Quinto Andar (rental platform)
  • Vtex (technology and digital commerce)
  • Unico (biometrics)
  • Dock (infrastructure)
  • Pismo (technology for payments and banking services)[32]

Question 8

Would there be behaviors in digital markets that would have a high potential to entail competitive problems, but which can be justified as generating greater efficiency for companies, transactions, and markets? Give examples of these behaviors? How should these behaviors be treated in Bill 2768/2022? In particular, a “reversal of the burden of proof” would be appropriate, in which such conduct would presumably be anti-competitive, but would it be appropriate to authorize a defense of digital platforms based on these efficiencies? Should these behaviors be considered not prohibited per se, but as a “reversal of the burden of proof” in Bill 2768/2022?

There are certain types of behavior in digital markets that have been targeted by ex-ante regulations but which are nevertheless capable of, or even central to, delivering significant procompetitive benefits. It would be unjustified and harmful to subject such conduct to per se prohibitions or to reverse the burden of proof. Instead, this type of conduct should be approached neutrally, and examined on a case-by-case basis.[33]

A.       Self-Preferencing

Self-preferencing occurs when a company gives preferential treatment to one of its own products (presumably, this type of behavior could be caught by Art. 10, paragraph II of Bill 2768). An example would be Google displaying its shopping service at the top of search results ahead of alternative shopping services. Critics of this practice argue that it puts dominant firms in competition with other firms that depend on their services, and this allows companies to leverage their power in one market to gain a foothold in an adjacent market, thus expanding and consolidating their dominance. However, this behavior can also be procompetitive and beneficial to users.

Over the past several years, a growing number of critics have argued that big tech platforms harm competition by favoring their own content over that of their complementors. Over time, this argument against self-preferencing has become one of the most prominent among those seeking to impose novel regulatory restrictions on these platforms.

According to this line of argument, complementors would be “at the mercy” of tech platforms. By discriminating in favor of their own content and against independent “edge providers,” tech platforms cause “the rewards for edge innovation [to be] dampened by runaway appropriation,” leading to “dismal” prospects “for independents in the internet economy—and edge innovation generally.”[34]

The problem, however, is that the claims of presumptive harm from self-preferencing (also known as “vertical discrimination”) are based neither on sound economics nor evidence.

The notion that platform entry into competition with edge providers is harmful to innovation is entirely speculative. Moreover, it is flatly contrary to a range of studies showing that the opposite is likely true. In reality, platform competition is more complicated than simple theories of vertical discrimination would have it,[35] and the literature establishes that there is certainly no basis for a presumption of harm.[36]

The notion that platforms should be forced to allow complementors to compete on their own terms, free of constraints or competition from platforms is a species of the idea that platforms are most socially valuable when they are most “open.” But mandating openness is not without costs, most importantly in terms of the effective operation of the platform and its own incentives for innovation.

“Open” and “closed” platforms are different ways of supplying similar services, and there is scope for competition between these alternative approaches. By prohibiting self-preferencing, a regulator might therefore close down competition to the detriment of consumers. As we have noted elsewhere:

For Apple (and its users), the touchstone of a good platform is not ‘openness,’ but carefully curated selection and security, understood broadly as encompassing the removal of objectionable content, protection of privacy, and protection from ‘social engineering’ and the like. By contrast, Android’s bet is on the open platform model, which sacrifices some degree of security for the greater variety and customization associated with more open distribution. These are legitimate differences in product design and business philosophy.[37]

Moreover, it is important to note that the appropriation of edge innovation and its incorporation into the platform (a commonly decried form of platform self-preferencing) greatly enhances the innovation’s value by sharing it more broadly, ensuring its coherence with the platform, incentivizing optimal marketing and promotion, and the like. Smartphones are now a collection of many features that used to be offered separately, such as phones, calculators, cameras and gaming consoles, and it is clear that the incorporation of these features in a single device has brought immense benefits to consumers and society as a whole. In other words, even if there is a cost in terms of reduced edge innovation, the immediate consumer welfare gains from platform appropriation may well outweigh those (speculative) losses.

Crucially, platforms have an incentive to optimize openness (and to assure complementors of sufficient returns on their platform-specific investments). This does not mean that maximum openness is optimal, however; in fact, typically a well-managed platform will exert top-down control where doing so is most important, and openness where control is least meaningful.[38]

But this means that it is impossible to know whether any particular platform constraint (including self-prioritization) on edge provider conduct is deleterious, and similarly whether any move from more to less openness (or the reverse) is harmful.

This is the situation that leads to the indeterminate and complex structure of platform enterprises. Consider the big online platforms like Google and Facebook, for example. These entities elicit participation from users and complementors by making access to their platforms freely available for a wide range of uses, exerting control over access only in limited ways to ensure high quality and performance. At the same time, however, these platform operators also offer proprietary services in competition with complementors or offer portions of the platform for sale or use only under more restrictive terms that facilitate a financial return to the platform.

The key is understanding that, while constraints on complementors’ access and use may look restrictive compared to an imaginary world without any restrictions, in such a world the platform would not be built in the first place. Moreover, compared to the other extreme — full appropriation (under which circumstances the platform also would not be built…) — such constraints are relatively minor and represent far less than full appropriation of value or restriction on access. As Jonathan Barnett aptly sums it up:

The [platform] therefore faces a basic trade-off. On the one hand, it must forfeit control over a portion of the platform in order to elicit user adoption. On the other hand, it must exert control over some other portion of the platform, or some set of complementary goods or services, in order to accrue revenues to cover development and maintenance costs (and, in the case of a for-profit entity, in order to capture any remaining profits).[39]

For instance, companies may choose to favor their own products or services because they are better able to guarantee their quality or quick delivery.[40] Mercado Livre, for instance, may be better placed to ensure that products provided by the ‘Mercado Envios logistics service are delivered in a timely manner compared to other services. Consumers may benefit from self-preferencing in other ways, too. If, for instance, Google were prevented from prioritizing Google Maps or YouTube videos in its search queries, it could be harder for users to find optimal and relevant results. If Amazon is prohibited from preferencing its own line of products on the marketplace, it may instead opt not to sell competitors’ products at all.

The power to prohibit the requiring or incentivizing of customers of one product to use another would enable the limiting or prevention of self-preferencing and other similar behavior. Granted, traditional competition law has sought to restrict the ‘bundling’ of products by requiring them to be purchased together, but to prohibit incentivization as well goes much further.

B.        Interoperability

Another mot du jour is interoperability, which might fall under Art. 10, paragraph IV of Bill 2768. In the context of digital ex ante regulation, ‘interoperability’ means that covered companies could be forced to ensure that their products integrate with those of other firms. For example, requiring a social network to be open to integration with other services and apps, a mobile operating system to be open to third-party app stores, or a messaging service to be compatible with other messaging services. Without regulation, firms may or may not choose to make their software interoperable. However, Europe’s DMA and the UK’s prospective Digital Markets, Competition and Consumer Bill (“DMCC”),[41] will allow authorities to require it. Another example is data ‘portability,’ which allows customers to move their data from one supplier to another, in the same way that a telephone number can be kept when one changes network.

The usual argument is that the power to require interoperability might be necessary to ‘overcome network effects and barriers to entry/expansion.’ However, the Brazilian government should not overlook that this solution comes with costs to consumer choice, in particular by raising difficulties with security and privacy, as well as having questionable benefits for competition. In fact, it is not as though competition disappears when customers cannot switch as easily as they turn on a light. Companies compete upfront to attract such consumers through tactics like penetration pricing, introductory offers, and price wars.[42]

A closed system, that is, one with comparatively limited interoperability, can help limit security and privacy risks. This can encourage use of the platform and enhance the user experience. For example, by remaining relatively closed and curated, Apple’s App Store gives users the assurance that apps will meet a certain standard of security and trustworthiness. Thus, ‘open’ and ‘closed’ ecosystems are not synonymous with ‘good’ and ‘bad,’ and instead represent two different product design philosophies, either of which might be preferred by consumers. By forcing companies to operate ‘open’ platforms, interoperability obligations could thus undermine this kind of inter-brand competition and override consumer choices.

Apart from potentially damaging user experience, it is also doubtful whether some of the interoperability mandates, such as those between social media or messaging services, can achieve their stated objective of lowering barriers to entry and promoting greater competition. Consumers are not necessarily more likely to switch platforms simply because they are interoperable. In fact, there is an argument to be made that making messaging apps interoperable in fact reduces the incentive to download competing apps, as users can already interact with competitors’ apps from the incumbent messaging app.

C.       Choice Screens

Some ex-ante rules seek to address firms’ ability to influence user choice of apps through pre-installation, defaults, and the design of app stores (this could fall under Art. 10, paragraph II of Bill 2768). This has sometimes resulted in the imposition of requirements to provide users with ‘choice screens,’ for instance requiring users to choose which search engine or mapping service is installed on their phone. In this sense, it is important to understand the trade-offs at play here: choice screens may facilitate competition, but they may do so at the expense of the user experience, in terms of the time taken to make such choices. There is a risk, without evidence of consumer demand for ‘choice screens,’ that such rules impose the legislator’s preference for greater optionality over what is most convenient for users. Unless there is explicit public demand in Brazil for such measures, it would be ill-advised to implement a choice screen obligation.

D.       Size and Market Power

In general, many of the prohibitions and obligations contemplated in ex-ante rules target incumbents’ size, scalability, and “strategic significance.”

It is widely claimed that because of network effects, digital markets are prone to ‘tipping’ whereby when one producer gains a sufficient share of the market, it quickly becomes a complete or near-complete monopolist. Although they may begin as very competitive, these markets therefore exhibit a marked ‘winner takes all’ characteristic. Ex ante rules often try to avert or revert this outcome by targeting a company’s size, or by targeting companies with market power.

However, there are many investments and innovations that will – if permitted – benefit consumers, either immediately or in the longer term, but which may have some effect on enhancing market power, a companies’ size, or its strategic significance. Indeed, improving a firm’s products and thereby increasing its sales will often lead to increased market power.

Accordingly, targeting “size” or conduct which bolsters market power, without any accompanying evidence of harm, creates a serious danger of a very broad inhibition of research, innovation, and investment – all to the detriment of consumers. Insofar as such rules prevent the growth and development of incumbent firms, they may also harm competition, since it may well be these firms that – if permitted – are most likely to challenge the market power of other firms in other, adjacent markets. The cases of Disney, Apple, Amazon and Globo’s launch of video-on-demand services to compete with Netflix, and Meta’s introduction of ‘Threads’ as a challenge to Twitter (or ‘X’), appear to be an example. Here, per se rules that have the aim of prohibiting the bolstering of size or market power in one area may in fact prevent entry by one firm into a market dominated by another. In that case, policymaker action protects monopoly power. Therefore, a much subtler approach to regulation is required.

Bill 2768’s reference to Tim Wu’s The Curse of Bigness, which notoriously adopts a reductive “big is bad” ethos, suggests that it could be making a similarly flawed assumption.[43]

E.        Conclusion

We do not think it is appropriate to reverse the burden of proof in any instances in the context of digital platforms. Without substantive evidence that such conduct causes widespread harm to a well-defined public interest (e.g., similar to cartels in the context of antitrust law), there is no justification for a reversal of the burden of proof, and any such reversal of the burden of proof risks undermining consumer benefits, innovation, and discouraging investment in the Brazilian economy for a justified fear that procompetitive conduct will result in fines and remedies. By the same token, we do think that where the appointed enforcer makes a prima facie case of harm, whether in the context of antitrust law or ex-ante digital regulation, it should also be prepared to address arguments related to efficiencies.

Question 9

Is there a need for a regulator? If so, which regulator would be better able to implement the regulation provided for in Bill 2768/2022? Anatel, CADE, ANPD, another existing or new regulator? Justify.

Despite the lack of clarity concerning the law’s goals and objectives, the rules proposed by Bill 2768 appear to be competition based, at least insofar as they seek to bolster free competition, consumer protection, and tackle “abuse of economic power” (Art. 4). Therefore, the agency best positioned to enforce it would, in principle, be CADE (the goals of Act 12.529/11, the Brazilian Competition Law, overlap significantly with those under Bill 2768). Conversely, there is a palpable risk that, in discharging its duties under Bill 2768, Anatel would transpose the logic and principles of telecommunications regulation to “digital” markets, which is misguided as these are two very different things.

Not only are “digital” markets substantively different from telecommunications markets, but there is really no such thing as a clearly demarcated concept of “digital market.” For example, the digital platforms described in Art. 6, paragraph II of Bill 2768 are not homogenous, and cover a range of different business models. In addition, virtually every market today incorporates “digital” elements, such as data. Indeed, companies operating in sectors as divergent as retail, insurance, healthcare, pharma, production, and distribution have all been “digitalized.” Thus, an enforcer with a nuanced understanding of the dynamics of digitalization and, especially, the idiosyncrasies of digital platforms as two-sided markets, appears necessary. While CADE arguably lacks substantive experience with digital platforms, it is better placed to enforce Bill 2768 than Anatel because of its deep experience with the enforcement of competition policy.

Question 10

Do you think that there could be any risk of bis in idem between the regulator and the competition authority with the same conduct being analyzed by both?

Based on the EU experience, there is a risk of double jeopardy at the intersection of traditional competition law and ex-ante digital regulation.

By way of comparison, and as Giuseppe Colangelo has written, the DMA is grounded explicitly on the notion that competition law alone is insufficient to effectively address the challenges and systemic problems posed by the digital platform economy.[44] Indeed, the scope of antitrust is limited to certain instances of market power (e.g., dominance on specific markets) and of anti-competitive behavior. Further, its enforcement occurs ex post and requires extensive investigation on a case-by-case basis of what are often very complex sets of facts and may not effectively address the challenges to well-functioning markets posed by the conduct of gatekeepers, who are not necessarily dominant in competition-law terms — or so its proponents argue. As a result, regimes like the DMA invoke regulatory intervention to complement traditional antitrust rules by introducing a set of ex ante obligations for online platforms designated as gatekeepers. This also allows enforcers to dispense with the laborious process of defining relevant markets, proving dominance, and measuring market effects.

However, despite claims that the DMA is not an instrument of competition law, and thus would not affect how antitrust rules apply in digital markets, the regime does appear to blur the line between regulation and antitrust by mixing their respective features and goals. Indeed, the DMA shares the same aims and protects the same legal interests as competition law.

Further, its list of prohibitions is effectively a synopsis of past and ongoing antitrust cases, such as Google Shopping (Case T-612/17), Apple (AT.40437) and Amazon (Cases AT.40462 and AT.40703).[45] Acknowledging the continuum between competition law and the DMA, the European Competition Network (ECN) and some EU member states (self-anointed “friends of an effective DMA”) initially proposed empowering national competition authorities (NCAs) to enforce DMA obligations.[46]

Similarly, the prohibitions and obligations contemplated in Art. 10 of Bill 2768 could, in theory, all be imposed by CADE. In fact, CADE has investigated, and is still investigating, several large companies which would (likely) fall within the purview of Bill 2768, such as Google, Apple, Meta, (still under investigation) Booking.com, Decolar.com, Expedia and iFood (settled through case-and-desist agreements), and Uber (all investigations closed without penalties; following an economic study, CADE found that Uber’s entry benefitted consumers[47]). CADE’s past and current investigations against these companies already covered conducts that are targeted by the DMA and Bill 2768, such as refusal to deal, self-preferencing, and discrimination.[48] Existing competition law under Act 12.529/11, the Brazilian Competition Law, thus clearly already captures the sort of conduct which is included under Bill 2768. In addition, the requirement to use data “adequately” is likely covered by data protection regulation in Brazil (Lei Geral de Proteção de Dados, LGPD, Lei Federal Nº 13.709/2018).

The difference between the two regimes is that, while general antitrust law requires a showing of harm (even if potential) and exempts conduct with net benefits to consumers, Bill 2768 in principle does not. The only limiting principle to the prohibitions and obligations contained in Art. 10 Art. 11 (III) is the principle of proportionality — which is a general principle of constitutional law and should, in any case, apply regardless of Bill 2768. Thus, the only limiting principle of Art. 10, framed broadly, is redundant.

There is one additional complication. Bill 2768 pursues many (though not all) of the same objectives as Act 12.529/11. Insofar as these objectives are shared, it could lead to double jeopardy i.e., the same conduct being punished twice under slightly different regimes. But it could also produce contradictory results because, as pointed out above, the objectives pursued by the two bills are not identical. Act 12.529/11 is guided by the goals of “free competition, freedom of initiative, social role of property, consumer protection and prevention of the abuse of economic power” (Art. 1). To these objectives, Bill 2768 adds “reduction of regional and social inequalities,” and “increase of social participation in matters of public interest.” While it is true that these principles derive from Art. 170 of the Brazilian Constitution (“economic order”), the mismatch between the goals of Act 12.529/11 and Bill 2768 and their enforcing authorities is sufficient as to lead to situations in which conduct that is allowed or even encouraged under Act 12.529/11 is prohibited under Bill 2768. For instance, procompetitive conduct by a covered platform could nevertheless exacerbate “regional or social inequalities” because it invests heavily in one region, but not others. In a similar vein, safety, privacy, and security measures implemented by, say, an operator of an App Store, which would typically be considered beneficial for consumers under antitrust law,[49] could feasibly lead to less participation in discussions of public interest (assuming one could easily define the meaning of such a term).

Accordingly, Bill 2768 could fragment Brazil´s legal framework due to overlaps with competition law, stifle procompetitive conduct, and lead to contradictory results. This, in turn, is likely to impact legal certainty and the rule of law in Brazil, which could adversely affect Foreign Direct Investment.[50] Furthermore, coordination between CADE and Anatel is likely to be costly, if the latter ends up being the designated enforcer of Bill 2768. Brazil would essentially have two Acts pursuing the same or similar goals being implemented by two different agencies, with all the extra compliance and coordination costs that come with such duplicity.

Question 11

What is your assessment of the criteria of art. 9 of Bill 2768/2022? Should it be changed? By what criteria? Is it necessary to designate the essential service-to-service access control power holder?

This criterion seems arbitrary and, in any case, extremely low. There is no objective reason that would link “power to control access” with turnover. Furthermore, even if one admits, for the sake of argument, that turnover is a relevant indication of gatekeeper power, a R$70 million threshold would capture dozens, if not hundreds of companies active in a range of industries. This can lead to a situation in which a law that was initially — and purportedly — aimed at very specific “digital” firms, like Google, Amazon, Apple, Microsoft, etc., ends up, by and large, covering a host of other, comparatively small firms, including some of Brazil’s most valuable unicorns (see Question 7). On the other hand, it is also questionable from a rule of law perspective whether a law should seek to identify the specific companies it will apply to in advance.

Lessons can be drawn from the UK’s DMCC, which has made a similar mistake. Pursuant to the current proposal for a DMCC, the UK’s CMA will be able to designate a company as having “significant market status” (“SMS”) where it takes part in a ‘digital activity linked to the United Kingdom’, and, in relation to this digital activity, has ‘substantial and entrenched market power’ and is in ‘a position of strategic significance’ (s. 2), and has a turnover of at least £1 billion in the UK or £25 billion globally (s. 7).[51] The British government has previously stated that the ‘regime will be targeted at a small number of firms’.

However, except for the monetary threshold, the SMS criteria are all broadly defined, and could in theory capture as many as 530 companies (as of March 2022, there were 530 companies with more than £1 billion in revenue in the United Kingdom, according to the Office for National Statistics).[52] Thus, although the government claims that the new regime is aimed at a handful of companies, in practice the CMA will have the power to interfere in a variety of new ways across wide swaths of the economy.

Article 9 of Bill 2768 runs into a similar problem. Granted, it identifies the types of services to which the Bill would apply in a way that the DMCC does not. However, some of the categories envisaged are still very broad: for example, online intermediation services could cover any website that connects buyers and sellers or facilitates transactions between two parties. “Operating systems” are prevalent electronic devices well beyond Apple’s iOS and Google’s Android. Indeed, an operating system is just a program or set of programs of a computer system, which manages the physical resources (hardware), the execution protocols of the rest of the content (software), as well as the user interface. They can be found in many everyday devices, either through graphical user interfaces, desktop environments, window managers or command lines, depending on the nature of the device.

Companies delivering these services, no matter their competitive position, market share, the industry they are a part of, or any other economic or factual considerations, would all be caught by Bill 2768, as long as they fulfilled the (low) R$70 million threshold. The upshot is that the enforcer will be able to apply Bill 2768 against a host of wildly different companies, some of which might not really be in a position to harm competition or misuse their market power. As a consequence, the Bill risks discouraging growth, innovation and, indeed, success, as companies become wary of growing past a certain threshold for fear of being caught in the regulator’s crosshairs. Coupled with a reversal of the burden of proof and the possibility of ignoring efficiencies arguments, the Bill would give the enforcer massive, unchecked powers, which could raise rule of law issues.

This problem can be remedied, at least to some extent, by adding a series of qualitative criteria that may or may not work cumulatively with the quantitative thresholds laid down in the Bill. These criteria should require a showing that the companies in question control access to essential facilities, that such facilities cannot be reasonably replicated, and that access is being denied with the threat that competition on the market may be eliminated (refer to Question 1 for discussion on integrating the essential facilities doctrine into Bill 2768). In addition, Bill 2768 should leverage existing measurements of market power from competition law, such as the ability to control output and increase prices. Quantitative criteria, if used, should be significantly higher and also refer to the number of active users on each platform service covered. “Active user” should in this sense be defined as a user who uses a specific service at least once daily and, at a minimum, once weekly.

Question 12

What did you think of the rules on the Digital Platforms Supervisory Fund in art. 15 of Bill 2768/2022? Is there another way to finance this type of government regulatory activity?

There are many ways of financing governmental regulatory activity that do not require the targeted companies to pay an annual tax. Government agencies are typically financed from the general government budget — and it should be the same for the agency enforcing Bill 2768.

There are at least two issues with the current approach under Art. 15. The first is capture. If an agency’s activity is funded by the regulated companies, this can lead to the capture of the agency by the regulated company and facilitate rent-seeking — i.e., the situation in which a company uses the regulator to gain an unfair advantage over rivals. Second, it also creates an incentive on the part of the agency, and the government, to widen the scope of the targeted companies, as a way to secure more funding and resources. This creates a perverse incentive that does not align with the public interest. It also discourages investment and, in a sense, is tantamount to a racket by the government.

Moreover, to the extent that the Bill operates as a direct and targeted constraint on certain companies’ exercise of their economic liberty and private property rights for the presumed benefit of the public welfare, it seems appropriate that it should be funded by general-revenue funds, apportioned according to current tax policy over the entire tax-paying population.

Question 13

To what extent do you believe that all the problems addressed in Bill 2768/2022 are already adequately addressed by competition law, more specifically by CADE, with the instruments of Law No. 12,529 of 2011?

Please see the response to Question 10.

The fact that the government is asking this question at this stage in the process suggests that perhaps the scope and the particulars of Bill 2768 have not been thoroughly thought out. Bill 2768 should be passed only if it is clear that Brazilian competition law is not up to the task. By comparison, and as indicated in the answer to Question 10 above, virtually all of the conduct in the EU’s DMA has also been addressed through EU competition law — often in the Commission’s favor. However, the EU wanted to codify a set of rules that would ensure that the Commission did not have to litigate cases before the courts and would win every case — or at least the vast majority of cases — against digital platforms. But this decision, which one may or may not agree with, came after at least some experience applying competition law to digital platforms and a determination that the gains of such an approach would outweigh the manifest costs.

Conversely, Brazil’s CADE enjoys much more limited experience in this sense, and Brazil itself presents very different economic realities and consumer interests that may not yield the same cost/benefit analysis. As mentioned above, the only “penalties” CADE has imposed against “digital platforms” resulted from voluntary settlements, meaning there has been limited need to litigate “digital” cases in Brazil. There is a lingering sense that Bill 2768 has been proposed not in response to deficiencies in the existing competition law framework, or in response to identified needs particular to Brazil, but as a response to “global trends” initiated by the EU.

Art. 13 of Bill 2768, for example, provides that mergers by covered companies will be scrutinized pursuant to the general competition law rules applicable to other companies and in other sectors. It is unclear why the same logic could not apply across the board — i.e., to all potentially anticompetitive conduct by targeted companies. Why does some conduct which can be addressed through antitrust law necessitate special regulation, but not others?

Question 14

What problems could be generated for the innovation activity of digital platforms if there is the regulation of digital platforms proposed by Bill 2768/2022? Could this be dealt with in any way within Bill 2768/2022?

Indeed, it is by no means clear that Brazil’s particular circumstances are amenable to an “ex ante” approach similar to that of the EU.

Broad prohibitions and obligations such as the ones imposed by Art. 10 of Bill 2768 risk chilling innovative conduct and freezing technology in place. As the tenth ranked country in the global information technology market and with hundreds of startups in the AI sector, Brazil is a burgeoning market with tremendous potential.[53] Its 214 million population means that growth trends are poised to continue — and, sure enough, the number of app jobs grew by 54% in 2023 compared to 2019.[54]

However, static, strict rules such as those envisioned by Bill 2768 can nip the growth of Brazilian startups in the bud by imposing unsurmountable regulatory costs (which would, in any case, benefit incumbents compared to smaller competitors) and banning conduct capable of fostering growth, benefiting consumers, and igniting competition, such as self-preferencing and refusal to deal.

Indeed, both practices can — and often are — socially beneficial. As discussed in Question 8, despite its recent malignment by some policymakers, “self-preferencing” is normal business conduct and a key reason for efficient vertical integration, which avoids double marginalization and allows companies to better coordinate production, distribution, and sale more efficiently — all to the ultimate benefits of consumers. For example, retail services such as Amazon self-preferencing their own delivery services, as in the case of “Fulfilled by Amazon,” gives consumers something they value tremendously: a guarantee of quick delivery. As we have written elsewhere:

Amazon’s granting marketplace privileges to [Fulfilled by Amazon] products may help users to select the products that Amazon can guarantee will best satisfy their needs. This is perfectly plausible, as customers have repeatedly shown that they often prefer less open, less neutral options.[55]

In a recent report, the Australian Competition Commission recognized as much, stating that self-preferencing is often benign and can lead to procompetitive benefits.[56] Indeed, there are many legitimate reasons why companies may choose to self-preference, including better customer experience, customer service, more relevant choice (curation), and lower prices.[57] Thus, banning self-preferencing, or otherwise significantly discouraging companies from engaging in self-preferencing, could hamstring company growth — including by Brazilian companies that are currently in an early stage of development — and impede market entry by companies who could have been innovators.

Similarly, forcing companies to deal with third parties could stifle innovation by incentivizing free-riding and discouraging companies from making investments. Indeed, why would a company innovate or invest if it knows it will then have to share such investments and innovations with passive rivals who have undertaken none of these risks? The consequence is a stalemate where, rather than fighting to be the first to innovate and enjoy the fruits borne of such innovation, companies are rather encouraged to game the system by waiting for others to make the first step and then free riding on their achievements. This essentially upends the process of dynamic competition by artificially rearranging the incentive to innovate and invest vs. the incentive to free ride, reducing the benefits of the former and increasing the benefits of the latter.

It would be catastrophic to drive a wedge in Brazil’s ability to grow its technology sector and innovate — especially considering the country’s vast potential. Indeed, rather than a triumph of regulation over innovation, Brazil should strive to be precisely the opposite.[58]

Question 15

What would be the practical difficulties of applying this type of legislation contemplated by Bill 2768/2022?

Funds to finance what could be a considerable amount of enforcement are necessary, but not sufficient, to ensure effectiveness. In the EU, the Commission’s DG Competition, one of the world’s foremost and best-endowed competition authorities, has famously struggled to hire the staff necessary to implement the Digital Markets Act. In short, “DMA experts” currently do not exist — and the Commission will either have to train such experts itself or hire them when expertise develops through enforcement. But this creates a chicken-and-egg scenario, where enforcement — or at least good enforcement — cannot happen without good experts, and good experts cannot materialize without enforcement. There is no reason to believe that these considerations do not map onto the Brazilian context.

Brazil faces an additional challenge, however: attracting talent. Unlike in the EU, where posts at the Commission are highly coveted due to the high salaries, perks, and job security they confer, CADE’s resources are more modest and likely cannot compete fully with the private sector. Thus, before passing Bill 2768, the government should be clear on how the law would be enforced, and by whom.

Other issues include the heavy compliance burden of the Bill, which will affect not only the so-called “tech giants” but any company above the modest R$70 million turnover threshold, the difficulties in interpreting the ambiguous prohibitions and obligations contemplated in Art. 10 (and the litigation which may ensue, on which see Question 16), the cost of crafting of adequate remedies within the meaning of Art. 10, and the looming possibility that the Bill will capture procompetitive conduct and stifle innovation. As we have written with respect to ASEAN countries and the possibility of implementing EU-style competition regulation there:

The ASEAN nations exhibit extremely diverse policies regarding the role of government in the economy. Put simply, some of the ASEAN nations seem ill-suited to the far-reaching technocracy that almost inevitably flows from adopting the European model of competition enforcement. Others might simply not have sufficient resources to staff agencies that could, satisfactorily, undertake the type of far-reaching investigations that the European Commission is famous for.[59]

Question 16

Do you see a lot of room for the judicialization of this type of regulation provided for in Bill 2768/2022? On what devices?

The enforcement of Bill 2768 is likely to lead to substantial litigation, not least because many of the core concepts of the Bill are ambiguous and open to interpretation.

For instance, what does “discriminatory” conduct within the meaning of Art. 10, para. II entail? Can a covered platform treat business users differently based on objective criteria, such as quality, history, and trustworthiness, or must all business users be treated equally? In this sense, it is uncertain whether the specific meaning ascribed to “discriminatory conduct” under competition law applies in this context. Similarly, what does “adequate” use of data collected in the exercise of a firm’s activities mean (paragraph III)? Does paragraph IV of Art. 10 imply that a covered platform can never deny access to business users? Presumably, covered platforms will want to know how and why this general obligation deviates from the narrower essential facilities doctrine under Brazilian competition law.

Art. 11 adds certain caveats to this, such as that intervention should be tailored, proportionate and consider the impact, costs, and benefits. Again, what sort of impact, costs and benefits are relevant — on consumers, business users, the covered platform, society as a whole?

If this is anything to go by, Bill 2768 is likely to be a legally contentious one.

Question 17

Are the definitions in article 6 of Bill 2768/2022 adequate for the purpose of this proposal?

Art. 6 and, indeed, the entire impetus behind Bill 2768, rests on two questionable assumptions:

  1. That covered products and services are different from other products or services; and
  2. That these products and services are sufficiently similar to be considered (and regulated) as a group.

The former would be more convincing if the remedies contemplated by the Bill, such as non-discrimination, adequate use of data, and access, had not been previously used in other markets and for other products. Granting access on “Fair, Reasonable, and Nondiscriminatory” (“FRAND”) terms is often used in the context of competition law and IP law, both of which apply across industries. The duty to use data “adequately” is generally contemplated by data protection laws, which also apply broadly. The same can be said for access obligations, which are frequent under competition law and in regulated industries (such as telecommunications or railways).

In addition, neither the products and services in Art. 6 of the Bill, the companies that operate them, nor the business models they employ are monolithic. Voice assistants and social media, for instance, are vastly different products. The same can be said about cloud computing, which is not really a “platform” in the sense that, say, online intermediation is. The products and services in Art. 6 themselves are also highly heterogeneous, with a single category encompassing a motley list of products, from e-commerce to online maps and app stores.

The same argument applies to the companies that sell these products and services, which — despite the ubiquitous “Big Tech” moniker — are ultimately very different firms.[60] As Apple CEO Tim Cook has said: “Tech is not monolithic. That would be like saying ‘All restaurants are the same’ or ‘All TV networks are the same.’”[61]

For instance, while Google (Alphabet) and Facebook (Meta) are information-technology firms that specialize in online advertising, Apple remains primarily an electronics company, with around 75% of its revenue coming from the sale of iMacs, iPhones, iPads, and accessories. As Amanda Lotz of the University of Michigan has observed:

The profits on those [hardware] sales let Apple use very different strategies than the non-hardware [“Big Tech”] companies with which it is often compared.[62]

It also means that most of its other businesses — such as iMessage, iTunes, Apple Pay, etc. — are complements that “Apple uses strategically to support its primary focus as a hardware company.” Amazon, on the other hand, is primarily a retailer, with its Amazon Web Services and advertising divisions accounting for just 15% and 7% of the company’s revenue, respectively.[63]

Even when two “gatekeepers” are active in the same products/service market, they often have markedly different business models and practices. Thus, despite both selling mobile-phone operating systems, Android (Google) and Apple employ very different product-design philosophies. As we argued in an amicus curiae brief submitted last month to the U.S. Supreme Court in Apple v. Epic Games:

For Apple and its users, the touchstone of a good platform is not “openness,” but carefully curated selection and security, understood broadly as encompassing the removal of objectionable content, protection of privacy, and protection from “social engineering,” and the like.… By contrast, Android’s bet is on the open platform model, which sacrifices some degree of security for the greater variety and customization associated with more open distribution. These are legitimate differences in product design and business philosophy.[64]

These various companies and markets have diverse incentives, strategies, and product designs, therefore belying the idea that there is any economically and technically coherent notion of what comprises “gatekeeping.” In other words, both the products and services that would be subject to Art. 6 of Bill 2768 and those companies themselves are highly heterogeneous, and it is unclear why they are placed under the same umbrella.

Question 18

Instead of pure ex-ante regulation, would any other type of monitoring and/or regulation of digital markets make sense?

A special unit within CADE, operating within the limits of current antitrust laws, should be seriously assessed before rushing to adopt far-reaching, ex-ante regulation in digital markets. Most of the conduct covered by ex-ante regulation in the EU, for example, is spun off from competition law cases. This suggests that such conduct falls within the limits of traditional competition law and can be properly addressed through EU competition law.

Accordingly, a digital unit within CADE would leverage the expertise of staff with a background in applying antitrust law to “digital markets.” Chances are that, if such a unit cannot be formed within CADE, which boasts staff with the expertise that most closely resembles what would be required to enforce Bill 2768, it likely cannot be formed anywhere else — at least not without siphoning off talent from CADE. This would be a mistake, as CADE has a critical role in suppressing behavior that unambiguously harms the public interest, such as cartels (arguably, this is where Brazil should be focusing its resources).[65] Creating a new unit to prosecute novel conduct with uncertain effects on social welfare at the expense of suppressing conduct that is manifestly harmful does not pass a cost-benefit analysis and would ultimately damage Brazil’s economy.

Question 19

Do you think that the set of solutions described in art. 10 of Bill 2768/2022 are adequate?

It is difficult to answer this question without a clear notion of what Bill 2768 aims to achieve. Adequate for what?

Question 20

Are the set of sanctions provided for in art. 16 of Bill 2768/2022 adequate?

This is also difficult to answer. If the objective is to thwart all proscribed conduct, no matter the consequences for innovation, investment, and consumer satisfaction, then a high fine is called for — and many companies will stop doing business as a result (which will very effectively stop all undesirable behavior – but also all desirable behavior). If raising revenue is the objective, then the amount of enforcement times the level of sanction needs to be low enough to operate not as a bar to behavior but a fee for doing business. We do not know if the level of sanctions in Art. 16 is appropriate for this — nor, we hasten to add, should this ever be the intention of such a law!

On the other hand, if optimal deterrence is the objective, imposing sanctions considerably lower than those in the EU (as a sanction of 2% of the infringing companies’ Brazilian turnover would be) appears reasonable. Fines for antitrust infringements in the EU can be up to 10% of the company’s worldwide turnover; and fines for violations of the DMA can even reach 20%.[66] But Brazil should not seek to deter investment and innovation to the extent the EU has.

It is, of course, difficult to identify a causal link between competition fines and investment/innovation. But what we do know is this: The pace of economic growth in Europe has lagged that of the U.S. by a significant margin:

Fifteen years ago, the size of the European economy was 10% larger than that of the U.S., however, by 2022 it was 23% smaller. The GDP of the European Union (including UK before Brexit) has grown in this period by 21% (measured in dollars), compared to 72% for the US and 290% for China.[67]

Meanwhile, none of the world’s 10 largest technology companies, and only two of the 25 largest, are based in Europe.[68] And the large U.S. and Asian multinationals are spread across the entire technology industry, from electronic components (chips, mobile phones and computers) to app development companies, websites, and e-commerce. There may be many reasons for these discrepancies, but one of them is almost certainly the differences in the economic regulatory environments, including the extent of competition-law overdeterrence.[69]

Question 21

Article 10 provides for several obligations in a non-exhaustive list on which the regulator could impose other measures. Should an exhaustive list of measures be envisaged?

Exhaustive lists have the advantage of fostering predictability and cabining the enforcer’s discretion, thus limiting rent-seeking, and ensuring that enforcement stays tethered to the public interest. Assuming, of course, that the sort of measures which are envisaged act in the public interest in the first place.

The problem with how Bill 2768 is framed in its current state is that it is too open-ended. It is understandable that Bill 2768 does not want to tie the enforcers’ hands and has opted for bespoke interventions rather than blanket prohibitions and obligations. This is to be welcomed. However, it should not come at the expense of legal certainty, and it must not fail to impose limits on the enforcer’s discretion. This currently does not seem to be the case.

Article 10 thus provides that platform operators will be subject to “amongst others, the following obligations…” It is not clear, from this numerus apertus list, what the enforcer can and cannot do. But the problem is deeper than just Article 10; nowhere in the Bill is it explained what the goals of the new rules are. The proposed redrafting of Article 19-A of Law 9.472 of 16 July 1997 states, in paragraphs III, IV, and V is vague – it does not impose sufficiently clear limiting principles on the Bill’s reach. Indeed, it suggests that the goals of Bill 2768 would be to prevent conflicts of interest, prevent infringements of user’s rights, and prevent economic infringements by digital platforms in areas which are competence of CADE. Article 4 of Bill 2768 includes other goals: freedom of initiative, free competition, consumer protection, a reduction in regional and social inequality, repressing economic power and bolstering social participation. Elsewhere, it is implied that the goal is to diminish “gatekeeper power” (under “Justifications”).

In other words, it is not clear what Bill 2768 doesn’t empower the enforcer to do.

Furthermore, the prohibitions and obligations in Paragraphs I-IV of Art. 10 are similarly opaque. For instance, what is “adequate” use of collected data? (III). Does paragraph IV imply that a targeted platform may never refuse access to their service? In fact, one thing that is missing from Bill 2768 is the ability to escape a prohibition or obligation by demonstrating efficiencies or through an objective justification (such as, e.g., safety and security or privacy).

Clearly, Bill 2768 cannot predict all of the instances in which Art. 10 will be used. But, in order to strike a balance between the enforcer’s nimbleness and the law’s administrability and predictability, it needs to give a more focused account of the Bill’s goals, and how the provisions in Art. 10 help to achieve them. In other words: Articles 3, 4, and 10 need to be much clearer. Otherwise, the Bill risks doing more harm than good to targeted companies, business users, competitors, and ultimately, consumers. The “Justifications” section of the Bill states that it does not wish to impose a “straitjacket” on targeted companies through the imposition of strict ex ante rules. This is reasonable, especially considering the lack of evidence of unambiguous harm. But granting an enforcer like Anatel, which lacks experience in “digital markets,” broadly defined powers to intervene on the basis of equally broad goals amounts to imposing a straitjacket by another name. In a regulatory “panopticon” in which companies are never sure of what is and is not allowed, some might reasonably choose not to take risks, innovate, and bring new products to the market —because they do not wish to risk being subject to fines (Art. 16) and potential structural remedies, like break-ups (Art. 10, paragrafo unico). In other words, they might assume that much more is prohibited than is actually prohibited.

[1] PL 2768/2022, Dispõe sobre a organização, o funcionamento e a operação das plataformas digitais que oferecem serviços ao público brasileiro e dá outras providências, available at https://www.camara.leg.br/proposicoesWeb/fichadetramitacao?idProposicao=2337417.

[2] REGULATION (EU) 2022/1925 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 14 September 2022, on contestable and fair markets in the digital sector and amending Directives (EU) 2019/1937 and (EU) 2020/1828 (Digital Markets Act).

[3] https://www.mercadosdigitais.org/.

[4] Case C-7/97 Bronner, EU:C:1998:569.

[5] See, e.g., Commissioner Ana Frazão’s majority decision in Procedure No. 08012.003918/2005-14 (Defendant: Telemar Norte Leste S.A.), paras. 60-62, https://tinyurl.com/4dc38vvk.

[6] See Commissioner Mauricio Maia’s reporting majority decision in Administrative Procedure No. 08012.010483/2011-94 (Defendants: Google Inc. and Google Brasil Internet Ltda.), paras. 180-94; 224-42, https://tinyurl.com/3c9emytw.

[7] A 2021 report by IBRAC identified the high entry rate into the market of online sales platforms. See IBRAC, Revista do Revista do IBRAC Número 2-2021, available at https://ibrac.org.br/UPLOADS/PDF/RevistadoIBRAC/Revista_do_IBRAC_2_2021.pdf.

[8] Bronner, Para. 67.

[9] See Colangelo, G., The Digital Markets Act and EU Antitrust Enforcement: Double & Triple Jeopardy, ICLE White Paper (2022), available at https://laweconcenter.org/resources/the-digital-markets-act-and-eu-antitrust-enforcement-double-triple-jeopardy.

[10] CADE, Mercados de Plataformas Digitais, SEPN 515 Conjunto D, Lote 4, Ed. Carlos Taurisano CEP: 70.770-504 – Brasília/DF, available at https://cdn.cade.gov.br/Portal/centrais-de-conteudo/publicacoes/estudos-economicos/cadernos-do-cade/Caderno_Plataformas-Digitais_Atualizado_29.08.pdf.

[11] On the notion that DMA-style rules are “sector-specific competition law,” see Nicolas Petit, The Proposed Digital Markets Act (DMA): A Legal and Policy Review, 12 J. Eur. Compet. Law & Pract. 529 (May 11, 2021).

[12] See Verizon Communications, Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398 (2003). “Compelling such firms to share the source of their advantage is in some tension with the underlying purpose of antitrust law, since it may lessen the incentive for the monopolist, the rival, or both to invest in those economically beneficial facilities.”

[13] Hou, L., The Essential Facilities Doctrine – What Was Wrong in Microsoft?, 43(4) International Review of Intellectual Property and Competition Law 251-71, 260 (2012).

[14] See Williamson, O.E., The Vertical Integration of Production: Market Failure Considerations, 61 Am. Econ. Rev. 112 (1971); Klein, B., Asset Specificity and Holdups, in The Elgar Companion to Transaction Cost Economics, P. G. Klein & M. Sykuta, eds. (Edward Elgar Publishing, 2010), 120–126.

[15] Commission Decision No. AT.39740 — Google Search (Shopping).

[16] A. Hoffman, Where Does Website Traffic Come From: Search Engine and Referral Traffic, Traffic Generation Café (Dec. 25, 2018), https://trafficgenerationcafe.com/website-traffic-source-search-engine-referral.

[17] See Manne, G., Against the Vertical Discrimination Presumption, Concurrences N° 2-2020, Art. N° 94267 (May 2020), https://www.concurrences.com/en/review/numeros/no-2-2020/editorial/foreword.

[18] On the need for caution when granting a right to access see, for example, Trinko: “We have been very cautious in recognizing such exceptions [to the right of [a] trader or manufacturer engaged in an entirely private business, freely to exercise his own independent discretion as to parties with whom he will deal], because of the uncertain virtue of forced sharing and the difficulty of identifying and remedying anticompetitive conduct by a single firm.”

[19] United States v. Aluminum Co. of America, 148 F.2d 416, 430 (2d Cir. 1945).

[20] “Thus, as a general matter, the Sherman Act ‘does not restrict the long recognized right of [a] trader or manufacturer engaged in an entirely private business, freely to exercise his own independent discretion as to parties with whom he will deal.’” United States v. Colgate & Co., 250 U. S. 300, 307 (1919).

[21] Foremost Pro Color, Inc. v. Eastman Kodak Co., 703 F.2d 534, 545 (9th Cir. 1983) (citations omitted).

[22] See Manne, G. & B. Sperry, Debunking the Myth of a Data Barrier to Entry for Online Services, Truth on the Market (Mar. 26, 2015), https://truthonthemarket.com/2015/03/26/debunking-the-myth-of-a-data-barrier-to-entry-for-online-services; Manne, G. & B. Sperry (2014). The Law and Economics of Data and Privacy in Antitrust Analysis, 2014 TPRC Conference Paper, available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2418779.

[23] See generally, Grunes, A. & M. Stucke, Big Data and Competition Policy (Oxford University Press, Oxford, 2016); Newman, N, Antitrust and the Economics of the Control of User Data, 30 Yale Journal on Regulation 3 (2014).

[24] See the examples discussed in Manne, G. & B. Sperry, Debunking the Myth of a Data Barrier to Entry for Online Services, Truth on the Market (Mar. 26, 2015), https://truthonthemarket.com/2015/03/26/debunking-the-myth-of-a-data-barrier-to-entry-for-online-services.

[25] Lerner, A., The Role of ‘Big Data’ in Online Platform Competition (2014), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2482780.

[26] Bowman, S. & G. Manne, Platform Self-Preferencing Can Be Good for Consumers and Even Competitors, Truth on the Market (Mar. 4, 2021), https://truthonthemarket.com/2021/03/04/platform-self-preferencing-can-be-good-for-consumers-and-even-competitors.

[27] C. Goujard, Google Forced to Postpone Bard Chatbot’s EU Launch Over Privacy Concerns, Politico (Jun. 13, 2023), https://www.politico.eu/article/google-postpone-bard-chatbot-eu-launch-privacy-concern.

[28] M. Kelly, Here’s Why Threads Is Delayed in Europe, The Verge (Jul. 10, 2023), https://www.theverge.com/23789754/threads-meta-twitter-eu-dma-digital-markets.

[29] Musk Considers Removing X Platform From Europe Over EU Law, Euractiv (Oct. 19, 2023), https://www.euractiv.com/section/platforms/news/musk-considers-removing-x-platform-from-europe-over-eu-law.

[30] Jud, M., Still No Copilot in Europe: Microsoft Rolls Out 23H2 Update, Digitec.ch (Nov. 1, 2023), https://www.digitec.ch/en/page/still-no-windows-copilot-in-europe-microsoft-rolls-out-23h2-update-30279.

[31] The Future is Bright for Latin American Startups, The Economist (Nov.13, 2023), available at https://www.economist.com/the-world-ahead/2023/11/13/the-future-is-bright-for-latin-american-startups.

[32] See Distrito, Panorama Tech América Latina (2023), available at https://static.poder360.com.br/2023/09/latam-report-1.pdf.

[33] The following is adapted from Manne, G., Against the Vertical Discrimination Presumption, Concurrences N° 2-2020, Art. N° 94267 (May 2020) https://www.concurrences.com/en/review/numeros/no-2-2020/editorial/foreword and our comments on the UK’s proposed Digital Markets, Competition and Consumers (“DMCC”) Bill: Auer, D., M. Lesh & L. Radic (2023). Digital Overload: How the Digital Markets, Competition and Consumers Bill’s Sweeping New Powers Threaten Britain’s Economy, 4 IEA Perspectives 16-21 (2023), available at https://iea.org.uk/wp-content/uploads/2023/09/Perspectives_4_Digital-overload_web.pdf.

[34] H. Singer, How Big Tech Threatens Economic Liberty, The Am. Conserv. (May 7, 2019), https://www.theamericanconservative.com/articles/how-big-tech-threatens-economic-liberty.

[35] Most of these theories, it must be noted, ignore the relevant and copious strategy literature on the complexity of platform dynamics. See, e.g., J. M. Barnett, The Host’s Dilemma: Strategic Forfeiture in Platform Markets for Informational Goods, 124 Harv. L. Rev. 1861 (2011); D. J. Teece, Profiting from Technological Innovation: Implications for Integration, Collaboration, Licensing and Public Policy, 15 Res. Pol’y 285 (1986); A. Hagiu & K. Boudreau, Platform Rules: Multi-Sided Platforms as Regulators, in Platforms, Markets and Innovation, A. Gawer, ed. (Edward Elgar Publishing, 2009); K. Boudreau, Open Platform Strategies and Innovation: Granting Access vs. Devolving Control, 56 Mgmt. Sci. 1849 (2010).

[36] For examples of this literature and a brief discussion of its findings, see Manne, G., Against the Vertical Discrimination Presumption, Concurrences N° 2-2020, Art. N° 94267 (May 2020), https://www.concurrences.com/en/review/numeros/no-2-2020/editorial/foreword.

[37] International Center for Law & Economics, International Center for Law & Economics Amicus Curiae Brief Submitted to the U.S. Court of Appeals for the Ninth Circuit 20-21 (2022), https://tinyurl.com/ywu553vb.

[38] See generally, Hagiu & Boudreau, Platform Rules: Multi-Sided Platforms as Regulators, supra note 31; Barnett, The Host’s Dilemma, supra note 31.

[39] Barnett, J., id.

[40] See Radic, L. and G. Manne, Amazon Italy’s Efficiency Offense, Truth on the Market (Jan. 11, 2022), https://tinyurl.com/2uht4fvw.

[41] Introduced as Bill 294 (2022-23), currently HL Bill 12 (2023-24), Digital Markets, Competition and Consumers Bill, available at https://bills.parliament.uk/bills/3453.

[42] Farrell, J., & P. Klemperer Coordination and Lock-In: Competition with Switching Costs and Network Effects, 3 Handbook of Industrial Organization1967-2072 (2007), available at https://www.sciencedirect.com/science/article/abs/pii/S1573448X06030317.

[43] Bill 2768, “Justifications.” See also Wu, T, The Curse of Bigness: Antitrust in the New Gilded Age, Columbia Global Reports (2018).

[44] Colangelo, G., The Digital Markets Act and EU Antitrust Enforcement: Double & Triple Jeopardy, ICLE White Paper 2022-03-23 (2022), available at https://laweconcenter.org/wp-content/uploads/2022/03/Giuseppe-Double-triple-jeopardy-final-draft-20220225.pdf.

[45] See also Caffarra, C. and F. Scott Morton, The European Commission Digital Markets Act: A Translation, Vox EU (Jan. 5, 2021), https://voxeu.org/article/european-commission-digital-markets-act-translation.

[46] How National Competition Agencies Can Strengthen the DMA, European Competition Network (Jun. 22, 2021), available at https://ec.europa.eu/competition/ecn/DMA_joint_EU_NCAs_paper_21.06.2021.pdf.

[47] For the full study, see https://cdn.cade.gov.br/Portal/centrais-de-conteudo/publicacoes/estudos-economicos/documentos-de-trabalho/2018/documento-de-trabalho-n01-2018-efeitos-concorrenciais-da-economia-do-compartilhamento-no-brasil-a-entrada-da-uber-afetou-o-mercado-de-aplicativos-de-taxi-entre-2014-e-2016.pdf.

[48] For a detailed overview of CADE’s decisions in digital platforms and payments services, see https://cdn.cade.gov.br/Portal/centrais-de-conteudo/publicacoes/estudos-economicos/cadernos-do-cade/mercado-de-instrumentos-de-pagamento-2019.pdf; https://cdn.cade.gov.br/Portal/centrais-de-conteudo/publicacoes/estudos-economicos/cadernos-do-cade/Caderno_Plataformas-Digitais_Atualizado_29.08.pdf.

[49] See, e.g., Epic Games, Inc. v. Apple Inc. 20-cv-05640-YGR.

[50] Staats, J. L., & G. Biglaiser, Foreign Direct Investment in Latin America: The Importance of Judicial Strength and Rule of Law, 56(1) International Studies Quarterly 193–202 (2012), https://doi.org/10.1111/j.1468-2478.2011.00690.x.

 

[51] HL Bill 12 (2023-24), Digital Markets, Competition and Consumers Bill, https://bills.parliament.uk/bills/3453.

[52] Auer, D., M. Lesh, & L. Radic (2023). Digital Overload: How the Digital Markets, Competition and Consumers Bill’s Sweeping New Powers Threaten Britain’s Economy, 4 IEA Perspectives 16-21, available at https://iea.org.uk/wp-content/uploads/2023/09/Perspectives_4_Digital-overload_web.pdf.

[53] See Dailey, M. Why the US Rejected European Style Digital Markets Regulation: Considerations for Brazil’s Tech Landscape, Progressive Policy Institute (Oct. 2, 2023), pp 5-6, available at https://www.progressivepolicy.org/wp-content/uploads/2023/10/PPI-Brazil-EU-Tech.pdf.

[54] Id.

[55] See Radic, L. and G. Manne, Amazon Italy’s Efficiency Offense. Truth on the Market (Jan. 11, 2022), available at https://tinyurl.com/2uht4fvw.

[56] ACCC, Digital Platform Services Inquiry, Discussion Paper for Interim Report No. 5: Updating Competition and Consumer Law for Digital Platform Services (Feb. 2022), available at https://www.accc.gov.au/system/files/Digital%20platform%20services%20inquiry.pdf.

[57] Bowman, S. & G. Manne, Platform Self-Preferencing Can Be Good for Consumers and Even Competitors, Truth on the Market (Mar. 4, 2021), https://laweconcenter.wpengine.com/2021/03/04/platform-self-preferencing-can-be-good-for-consumers-and-even-competitors.

 

[58] See Portuese, A. The Digital Markets Act: A Triumph of Regulation Over Innovation, ITIF Schumpeter Project (Aug. 24, 2022), available at https://itif.org/publications/2022/08/24/digital-markets-act-a-triumph-of-regulation-over-innovation.

 

[59] Auer, D., G. Manne & S. Bowman, Should ASEAN Antitrust Laws Emulate European Competition Policy?, 67(5) Singapore Economic Review 1637–1697, 1687 (2022).

[60]See Lotz, A. ‘Big Tech’ Isn’t a Monolith. It’s 5 Companies, All in Different Businesses, Houston Chronicle (Mar. 26, 2018), https://www.houstonchronicle.com/techburger/article/Big-Tech-isn-t-a-monolith-It-s-5-companies-12781761.php; see also Chaiehloudj, W. & Petit, N. On Big Tech and The Digital Economy, Competition Forum (Jan. 11, 2021), https://competition-forum.com/on-big-tech-and-the-digital-economy-interview-with-professor-nicolas-petit.

[61] Asher Hamilton, I. Tim Cook Says He’s Tired of Big Tech Being Painted as a ‘Monolithic’ Force That Needs Tearing Apart, Business Insider (May 7, 2019), https://www.businessinsider.com/apple-ceo-tim-cook-tired-of-big-tech-being-viewed-as-monolithic-2019-5.

[62] Lotz, 2018.

[63] G. Cuofano, Amazon Revenue Breakdown, Four Week MBA (Aug. 10, 2023), https://fourweekmba.com/amazon-revenue-breakdown.

[64] International Center for Law & Economics, International Center for Law & Economics Amicus Curiae Brief Submitted to the U.S. Supreme Court (2022), available at https://laweconcenter.org/wp-content/uploads/2023/11/ICLE-Amicus-Apple-v-Epic-SCt-10.27.23-FINAL.pdf.

[65] See Zúñiga, M. Latin America Should Follow Its Own Path on Digital-Markets Competition, Truth on the Market (Nov. 7, 2023), https://truthonthemarket.com/2023/11/07/latin-america-should-follow-its-own-path-on-digital-markets-competition.

[66] As pointed out in Question 10, however, there is a risk of double jeopardy considering that some of the conduct caught by Bill 2768 might also be covered by Brazilian competition law. In such cases, the 2% would be compounded by the penalties contemplated under Act 12.529/11, the Brazilian competition law, and the level could easily be too high.

[67] Weekly Foreign Policy Report No. 1329: A Europe Vassal to the US?, Política Exterior (Jun. 26, 2023) https://www.politicaexterior.com/articulo/una-europa-vasalla-de-eeuu.

[68] See, e.g., 100 Biggest Technology Companies in the World, Yahoo Finance (Aug. 23, 2023), available at https://finance.yahoo.com/news/100-biggest-technology-companies-world-175211230.html.

[69] See, e.g., Weekly Foreign Policy Report No. 1329: A Europe Vassal to the US?, Política Exterior (Jun. 26, 2023) https://www.politicaexterior.com/articulo/una-europa-vasalla-de-eeuu.

Regulatory Comments

Jogando o Jogo da Imitação na Regulação de Mercados Digitais – Uma Análise Cautelar para o Brasil

Introdução

Em 11 de outubro de 2022, João Maia (Deputado Federal, Partido Liberal) propôs o Projeto de Lei 2768/22 (“Projeto de Lei 2768” ou “Projeto”), que traz uma proposta de regulação de mercados digitais. [1] O Projeto de Lei 2768 é a resposta brasileira a tendências globais em direção à regulamentação ex-ante das plataformas digitais, sendo pelo menos parcialmente inspirado no Regulamento dos Mercados Digitais da União Europeia (“DMA”).[2] Em nossa contribuição à consulta pública sobre o Projeto de Lei (“Consulta”), argumentamos que o Brasil deve ter cautela ao importar diretamente uma regulação ainda não testada, dado que o país possui uma situação factual própria e única. Em vez de replicar impulsivamente tendências regulatórias da UE, o Brasil deveria adotar uma abordagem mais metódica e baseada em evidências. Um regime regulatório sólido exige que novas regras sejam fundamentadas em uma visão clara das falhas de mercado específicas que pretende abordar, bem como uma compreensão de seus custos e potenciais consequências acidentais. Infelizmente, o Projeto de Lei 2768 não atende a esses requisitos. Como demonstramos em nossa resposta à Consulta, não está claro que a legislação de defesa da concorrência brasileira tenha deixado de abordar problemas concorrenciais em mercados digitais a ponto de tornar necessária uma regulação digital sui generis. Em realidade, é pouco provável que existam “instalações essenciais” efetivas nos mercados digitais brasileiros a ponto de tornar necessária uma regulação que crie obrigações de acesso; é também pouco provável que “dados” representem uma barreira intransponível à entrada. Outros aspectos do Projeto de Lei –  como a designação da Anatel como autoridade responsável; os patamares extremamente baixos de faturamento fixados para identificação de um “controlador de acesso essencial”; e a ausência de qualquer consideração ao bem-estar do consumidor como um parâmetro relevante para a determinação de existência de danos ou para a identificação de exceções – também estão equivocados. Portanto, da forma como atualmente proposta, o Projeto de Lei 2768 levanta riscos de não apenas aumentar a pressão sobre os esparsos recursos públicos do país, como de reduzir a inovação, aumentar preços aos consumidores, e prejudicar o próspero ecossistema de startups do país.

Pergunta 1

Identificação de “facilidades essenciais” no universo dos mercados digitais. Dê exemplos de ativos de plataformas no mercado digital atuando no Brasil em que ao mesmo tempo: a) não haja plataformas digitais com ativos substitutos próximos a estes ativos b) estes ativos sejam difíceis de duplicação com eficiência ao menos próxima da empresa proprietária c) sem o acesso a este ativo, não seria possível atuar em um ou mais mercados, pois ele constitui um insumo fundamental.

Pelas razões que discutimos abaixo, é improvável que existam exemplos de verdadeiras “instalações essenciais” nos mercados digitais no Brasil.

É importante definir o significado de “instalação essencial” com precisão. O conceito de instalação essencial é um termo de última geração usado no direito da concorrência, que foi definido de forma diferente em todas as jurisdições. Ainda assim, a ideia geral das doutrinas de instalações essenciais é que há casos em que a negação de acesso a uma instalação por um operador existente pode distorcer a concorrência. No entanto, para separar os casos em que a negação de acesso constitui uma expressão legítima da concorrência no mérito das situações em que ela indica uma conduta anticompetitiva, os tribunais e as autoridades de defesa da concorrência elaboraram uma série de testes.

Assim, na UE, o caso de referência Bronner estabeleceu que a doutrina das instalações essenciais se aplica nos casos do art. 102 do TFUE quando:

  1. A recusa for suscetível de eliminar toda a concorrência no mercado por parte da pessoa que solicitar o serviço;
  2. A recusa não puder ser objetivamente justificada; e
  3. O serviço em si for indispensável para a condução dos negócios dessa pessoa, ou seja, não há substituto efetivo ou potencial para o insumo solicitado.[3]

Além disso, a instalação deve ser genuinamente “essencial” para competir, e não apenas conveniente.

Da mesma forma, o CADE incorporou a doutrina de instalações essenciais à política de concorrência brasileira, impondo o dever de lidar com os concorrentes.[4]

A definição de “instalações essenciais” e, consequentemente, a extensão e os limites da doutrina de instalações essenciais, nos termos do Projeto de Lei 2768/2022 (“Projeto de Lei 2768”), devem refletir princípios experimentados e testados do direito da concorrência. Não há razão para que as instalações essenciais sejam tratadas de forma diferente nos mercados “digitais”, ou seja, mercados que envolvem plataformas digitais, do que em outros mercados. Neste sentido, estamos preocupados que o enquadramento da Pergunta 1 revele uma inconsistência que deve ser abordada antes de seguir em frente; ou seja, quando os ativos de uma empresa são “difíceis” de replicar de forma eficiente, justifica-se forçar um concorrente a conceder acesso a esses ativos. A ideia é equivocada e pode até produzir o oposto do que o Projeto de Lei 2768 supostamente visa obter.

Como indicado acima, o conceito fundamental que sustenta a doutrina das instalações essenciais é que ela se aplica a um produto ou serviço que é pouco lucrativo ou impossível de duplicar. Normalmente, isso se aplica à infraestrutura, como telecomunicações ou ferrovias. Por exemplo, esperar que os concorrentes dupliquem rotas de transporte, como ferrovias, seria irreal — e economicamente um desperdício. Em vez disso, os governos frequentemente escolheram regular esses setores como serviços públicos de monopólio natural. Predominantemente, a prática inclui obrigatoriedade de acesso a todos os participantes de tais instalações essenciais mediante preços regulados e condições não discriminatórias que tornam a atividade de outras empresas viável e competitiva – facilitando assim a concorrência em um mercado secundário em situações em que a concorrência poderia ser impossível.

No entanto, o governo deve se perguntar em que medida essa lógica se aplica às chamadas plataformas digitais.

Os mecanismos de busca on-line, por exemplo, não são impossíveis ou excessivamente difíceis de replicar — nem o acesso a qualquer um deles é indispensável. Hoje, muitos mecanismos de busca estão disponíveis no mercado: Bing, Yandex, Ecosia, DuckDuckGo, Yahoo!, Google, Baidu, Ask.com e Swisscows — entre outros.

Mais precisamente, o mero acesso aos mecanismos de pesquisa não é realmente um problema. Em vez disso, na maioria dos casos, aqueles que reclamam da atividade de um mecanismo de busca geralmente desejam acesso aos primeiros resultados ou que o mecanismo de busca priorize seus próprios serviços de mercado secundário em detrimento do concorrente. Mas este espaço é irrisoriamente escasso; não há como ele ser alocado a todos os participantes. Ele também não pode ser alocado em termos imparciais; por definição, um mecanismo de busca deve priorizar os resultados.

Tratar um mecanismo de busca como uma instalação essencial geraria resultados problemáticos. Por exemplo, exigir acesso não discriminatório aos principais resultados de um mecanismo de busca seria como exigir que uma ferrovia oferecesse serviço a todos os transportadores a qualquer momento que o transportador quisesse, independentemente do congestionamento da ferrovia, dos horários de outros transportadores e da otimização pela ferrovia de seus horários. Não só seria impossível, mas nem sequer é exigido das instalações essenciais tradicionais.

Notadamente, embora as primeiras classificações na página de resultados de um mecanismo de busca seja, sem dúvida, um benefício para os negócios, existem outras maneiras de alcançar os clientes. De fato, como o CADE decidiu em um caso relativo ao Google Shopping, mesmo que a primeira página do resultado do Google seja relevante e importante para sites classificados, ela não é insubstituível, na medida em que existem outras maneiras de os consumidores encontrarem sites on-line. O Google não é um intermediário obrigatório para acesso ao site.[5] Além disso, como observado, as páginas de resultados de busca devem, por definição, discriminar para funcionar corretamente. Considerá-las instalações essenciais implicaria disputas intermináveis (e determinações tecnicamente complicadas) para decidir se as decisões de priorização do mecanismo de busca eram “adequadas” ou não.

Da mesma forma, plataformas de varejo on-line, como Amazon e Mercado Livre, são muito bem-sucedidas e convenientes, mas os vendedores podem usar outros métodos para alcançar os clientes. Por exemplo, eles podem vender em lojas físicas ou configurar facilmente seus próprios sites de varejo usando uma infinidade de provedores de software como serviço (“SaaS”) para facilitar o processamento e o atendimento de pedidos. Além disso, a presença e o sucesso simultâneos de Mercado Livre, B2W (Submarino.com, Americanas.com, Shoptime, Soubarato), Cnova (Extra.com.br, Casasbahia.com.br, Pontofrio.com), Magazine Luiza e Amazon no mercado brasileiro desqualifica a alegação de que qualquer uma dessas plataformas é indispensável ou irreplicável.[6]

Argumentos semelhantes podem ser feitos sobre as demais plataformas digitais abrangidas pelo art. 6, inciso II, do PL 2768. Por exemplo, o WhatsApp pode ser de longe o serviço de comunicação interpessoal mais popular do país. Ainda assim, há muitas alternativas de alcance fácil (e principalmente gratuito) para os consumidores brasileiros, como Messenger (62 milhões de usuários), Telegram (30 milhões), Instagram (64 milhões), Viber (3 milhões), Hangouts (2 milhões), WeChat (1 milhão), Kik (500.000 usuários) e Line (1 milhão de usuários). O grande número de usuários de cada aplicativo sugere que o multi-homing (multifornecimento) é generalizado.

Em suma, embora o acesso a uma determinada plataforma digital possa ser conveniente, especialmente se ela for atualmente a mais popular entre os usuários, é altamente questionável se esse acesso é essencial. E, como o Advogado Geral Jacobs observou em seu parecer em Bronner, a mera conveniência não cria um direito de acesso segundo a doutrina das instalações essenciais.[7]

Recomendação: O Projeto de Lei 2768 deve deixar claro que os princípios e requisitos de “instalações essenciais”, dentro do significado do direito da concorrência, se aplicam integralmente aos deveres e às obrigações contemplados no art. 10 — e que a definição de uma “instalação essencial” é um pré-requisito para a imposição desses deveres ou obrigações.

Pergunta 2

É necessária uma regulação que garanta o acesso ao(s) ativo(s) do(s) exemplo(s) da questão 1? O que tal regulação deveria garantir para que o acesso ao ativo viabilize a entrada de terceiros naqueles mercados digitais?

Antes de considerar se a regulamentação é necessária para garantir o acesso a ativos de determinadas empresas, o governo deve primeiramente considerar se garantir esse acesso é necessário e legítimo. Em nossa resposta à Pergunta 1, argumentamos que é improvável que seja. Se o governo, no entanto, decidir o contrário, a próxima pergunta lógica deve ser se o direito da concorrência, incluindo a própria doutrina das instalações essenciais, é suficiente para abordar quaisquer problemas alegados identificados na Pergunta 2.

Indiscutivelmente, a melhor maneira de responder a essa pergunta seria por meio do experimento natural de permitir que o CADE apresente processos contra plataformas digitais — supondo que possa construir um caso prima facie em cada instância — e verificar se ferramentas tradicionais do direito da concorrência fornecem ou não uma solução viável e, se não, se essas ferramentas podem ser aprimoradas pela reforma da lei de concorrência do Brasil, ou se é necessária uma nova regulamentação prévia abrangente.

Em comparação, a UE experimentou a lei de concorrência da UE antes de aprovar o Projeto de Lei dos Mercados Digitais (“DMA”). De fato, a maioria, se não todas, as proibições e obrigações da DMA decorrem de processos do direito da concorrência.[8] A UE acabou decidindo que preferia aprovar regras prévias gerais contra determinadas práticas, em vez de ter de litigar com base no direito da concorrência. Se essa foi ou não a decisão correta está em debate, mas uma coisa é certa: A UE testou seu kit de ferramentas de concorrência extensivamente contra plataformas digitais, antes de aprender com os resultados e decidir que precisava ser complementado com um novo conjunto de regras mais amplas, fáceis de aplicar e claras.

Em contraste, o Brasil instaurou apenas alguns processos de defesa da concorrência contra plataformas digitais. De acordo com números publicados pelo CADE, o[9] CADE analisou 233 processos de fusão relacionados a mercados de plataformas digitais entre 1995 e 2023 e, com relação a condutas unilaterais (casos de monopolização) — aquelas mais relevantes para a discussão do PL 2768 — abriu 23 processos de conduta. Com relação a esses 23 processos, 9 ainda estão sendo investigados, 11 foram julgados improcedentes e apenas 3 foram encerrados pela assinatura de um Termo de Compromisso de Cessação (TCC). Neste sentido, apenas 3 processos (TCCs) de 23 poderiam ter sido, em certa medida, “condenados”. É questionável se esses processos fornecem o tipo de evidência da existência de problemas intrínsecos de concorrência nos oito mercados de serviços identificados no art. 6, parágrafo II, do Projeto de Lei 2768 que justificariam novas regras de acesso “específicas do setor”.[10]

De fato, a recente entrada de empresas em muitos desses mercados sugere que o oposto está mais próximo da verdade. Existem inúmeros exemplos de entrada em uma variedade de serviços digitais, incluindo TikTok, Shein, Shopee e Daki, para citar apenas alguns.

Sérios problemas podem surgir quando produtos que não são instalações essenciais são tratados como tal, dos quais citamos dois.

Em primeiro lugar, estender demais a doutrina das instalações essenciais pode incentivar o oportunismo.[11] Não é para esse objetivo nem a intenção para a qual a doutrina das instalações essenciais, devidamente compreendida, deve ser usada:

Consequentemente, o [Tribunal de Justiça Europeu] implica que a [doutrina das instalações essenciais] não é concebida para a conveniência das empresas explorarem livremente as empresas dominantes, mas apenas para a necessidade de sobrevivência no mercado secundário em situações em que não existem substitutos efetivos.[12]

Por que desenvolver uma plataforma de varejo on-line concorrente, quando o acesso ao Mercado Livre ou à Amazon é garantido por lei? O oportunismo pode desencorajar investimentos de empresas terceiras e “guardiões” direcionados — especialmente no desenvolvimento e na melhoria de plataformas de negócios concorrentes (ou modelos de negócios alternativos que não são réplicas exatas das plataformas existentes). Ao contrário dos objetivos declarados do Projeto de Lei 2768, isso poderia entrincheirar ainda mais os operadores existentes, pois a capacidade de se aproveitar dos investimentos de terceiros incentiva as empresas a se afastarem dos principais mercados dos operadores existentes para atuar como complementadores nesses mercados.

De fato, uma preocupação séria — e subestimada — é o custo de assumir riscos excessivos por empresas que podem contar com proteções regulatórias para garantir a viabilidade contínua, mesmo quando ela não é garantida.

As empresas devem desenvolver seus modelos de negócios e operá-los em reconhecimento ao risco envolvido. Um complementador que se torna dependente de uma plataforma para distribuição de seu conteúdo assume um risco. Embora possa se beneficiar de um maior acesso aos usuários, ele se coloca à mercê do outro — ou pelo menos enfrenta grande dificuldade (e um custo significativo) para se adaptar a mudanças imprevistas na plataforma sobre as quais não tem controle. Essa é uma espécie de problema de “especificidade de ativo” que anima grande parte da literatura de Economia de Custos de Transação.[13]

Mas o risco pode ser calculado. As empresas ocupam posições especializadas em cadeias de suprimentos em toda a economia e fazem investimentos arriscados e específicos de ativos o tempo todo. Na maioria das circunstâncias, as empresas usam contratos para alocar risco e responsabilidade de forma a viabilizar o relacionamento. Quando é muito difícil gerenciar o risco por contrato, as empresas podem se integrar verticalmente (alinhando assim seus incentivos) ou simplesmente seguir caminhos separados.

O fato de uma plataforma criar uma oportunidade como apoio para os complementadores não significa que a decisão de uma empresa de fazê-lo — e fazê-lo sem um plano de contingência viável — faça sentido para os negócios. No caso dos sites de comparação de compras em questão, na decisão do Google Shopping da UE,[14] por exemplo, era totalmente previsível que o algoritmo do Google evoluiria. Também era totalmente previsível que ele evoluiria de maneiras que poderiam diminuir ou até mesmo evitar seu tráfego. Como disse um especialista em marketing digital, “contar com o tráfego dos mecanismos de busca como sua principal fonte de tráfego é um pouco insensato, para dizer o mínimo”.[15]

Fornecer garantias (que é o que uma regra de acesso “guardião” realiza) nessa situação cria um problema significativo: Proteger os complementadores do risco inerente a um modelo de negócios, no qual eles são totalmente dependentes de outra empresa com a qual não têm relação contratual, representa, no mínimo, tão provável como incentivar a tomada de riscos excessivos e o excesso de investimento ineficiente quanto garantir que o investimento e a inovação não sejam muito baixos.[16]

Em segundo lugar, conceder a empresas e concorrentes acesso a bens ou serviços, exceto nos poucos e restritos casos[17] em que o acesso a esses bens e serviços é verdadeiramente essencial para sustentar a concorrência no mercado, envia às plataformas a mensagem errada. A mensagem é que, depois de serem incentivadas a competir, as empresas de sucesso serão punidas por prosperarem. Isso contraria o espírito do direito concorrencial e o princípio da livre concorrência, que o PL 2768 deve ter o cuidado de não eliminar. Como o grande jurista norte-americano Learned Hand observou no processo U.S. v. Aluminum Co. of America: “O concorrente de sucesso, tendo sido instado a competir, não deve ser atacado quando vencer.”[18]

Além disso, forçar as empresas a fazer negócios com terceiros está em desacordo com o princípio de que, a menos que uma violação da lei de defesa da concorrência possa ser verificada, as empresas devem ser livres para fazer negócios com quem quiserem.[19] De fato, é uma pedra angular da economia de livre mercado que “as leis de defesa da concorrência [não] imponham um dever às [empresas]. . . para auxiliar [concorrentes]. . . ‘sobreviver ou expandir.’”[20]

Pergunta 3

Descreva casos nos mercados digitais em que há pelo menos uma outra empresa com ativos substitutos próximos a estes ativos da empresa principal, mas que ainda assim nenhuma das plataformas digitais que detêm o ativo provém acesso a ele. Ou seja, mesmo havendo mais de um ativo no mercado, continua havendo problema de acesso ao ativo. Como o PL 2768/2022, especialmente seu art. 10, poderia ser melhorado para aprimorar o acesso ao insumo essencial?

Não temos conhecimento desses processos.

Pergunta 4

Descreva casos em que a propriedade de dados em mercados digitais cria uma barreira à entrada que torna muito difícil ou mesmo impossível a entrada no mercado das plataformas digitais incumbentes. Como o PL 2768/2022 poderia mitigar este problema, reduzindo a barreira à entrada representada por acesso a dados?

A medida em que os dados representam uma barreira à entrada é, em nossa opinião, muito exagerada. O PL 2768 não deve supor que os dados são uma barreira à entrada e deve avaliar criticamente as alegações em contrário — especialmente se pretende construir um novo regime regulatório abrangente com base nessa suposição.[21]

Em poucas palavras, as teorias de “dados como barreira à entrada” afirmam que os dados on-line podem constituir uma barreira à entrada, isolando os serviços estabelecidos da concorrência e garantindo que apenas os maiores provedores prosperem. Essa barreira de dados à entrada, alega-se, pode permitir que empresas com poder de monopólio prejudiquem os consumidores, seja diretamente por meio de “atos negligentes”, como discriminação de preços, ou indiretamente, aumentando os custos de publicidade, que são repassados aos consumidores.[22]

No entanto, a noção de dados como uma barreira à entrada relevante de defesa da concorrência é mais uma suposição do que a realidade.

Primeiro, apesar da pressa em abraçar o “excepcionalismo da plataforma digital”, os dados são úteis para todos os setores. “Dados” não é um fenômeno novo específico para empresas on-line. Vale a pena repetir que os varejistas off-line também recebem vantagens substanciais e beneficiam muito os consumidores, ao saber mais sobre o que os consumidores querem e quando querem. Por meio de dispositivos como cupons, descontos de associação e cartões de fidelidade (para não mencionar listas de discussão direcionadas e a antiga prática de mineração de dados de comprovantes de check-out), os varejistas físicos podem rastrear dados de compra e atender melhor os consumidores. Não só os consumidores recebem melhores ofertas por usá-los, mas também os varejistas sabem quais produtos estocar e anunciar, e quando e com quais produtos realizar vendas.[23]

Obviamente, também há uma série de outros usos dos dados, incluindo segurança, prevenção de fraudes, otimização de produtos, redução de riscos para o segurado, saber qual conteúdo é mais interessante para os leitores etc. A importância dos dados vai muito além do mundo on-line e muito além do mero uso no varejo em geral. Descrever qualquer empresa como detentora de monopólio dos dados é, portanto, um erro.

Em segundo lugar, não é o volume de dados que leva ao sucesso, mas como esses dados são usados para criar produtos ou serviços atrativos para os usuários. Em outras palavras: a informação é importante para as empresas devido ao valor que dela pode ser extraído, e não pelo valor inerente dos dados em si. Assim, muitas empresas que acumularam grandes volumes de dados foram posteriormente incapazes de transformar esses dados em uma vantagem competitiva para ter sucesso no mercado. Por exemplo, Orkut, AOL, Friendster, Myspace, Yahoo! e Flicker — para citar alguns — todos ganharam imensa popularidade e acesso a volumes significativas de dados, mas não conseguiram reter seus usuários porque seus produtos não eram, em última análise, inexpressivos.

Não só os dados são menos importantes do que o que deles pode ser extraído, mas também são menos importantes do que o produto subjacente que eles informam. Por exemplo, o Snapchat criou um concorrente para o Facebook com tanto sucesso (e em tão pouco tempo) que o Facebook tentou comprá-lo por $3 bilhões (o Google ofereceu $4 bilhões). Mas o interesse do Facebook no Snapchat não era sobre seus dados. Em vez disso, o Snapchat era valioso — e um desafio competitivo para o Facebook — porque incorporou inteligentemente a percepção (aparentemente nova) de que muitas pessoas queriam compartilhar informações de uma maneira mais privada.

Da mesma forma, Twitter, Instagram, LinkedIn, Yelp, TikTok (e o próprio Facebook) começaram com poucos (ou nenhum) dados, mas, no entanto, obtiveram sucesso. Enquanto isso, apesar de suas supostas vantagens de dados, a tentativa do Google em redes sociais, o Google+, jamais alcançou o Facebook em termos de popularidade entre os usuários (e, portanto, também não entre os anunciantes) e foi desativado em 2019.

Ao mesmo tempo, não é o caso em que os supostos gigantes de dados — aqueles que supostamente se isolam por trás das barreiras à entrada de dados — realmente tenham, de qualquer maneira, o tipo de dados mais relevante para as startups. Como argumentou Andres Lerner, se você quisesse iniciar um negócio de viagens, os dados do Kayak ou Priceline (ou Decolar.com local) seriam muito mais relevantes.[24] Ou se você quisesse iniciar um negócio de compartilhamento de veículos, os dados das empresas de táxi seriam mais úteis do que os perfis amplos e transversais de mercado que o Google e o Facebook têm. Considere empresas como a Uber e a 99 que não tinham dados de clientes quando começaram a desafiar as empresas de táxi estabelecidas que detinham desses dados. Se os dados fossem realmente tão significativos, elas jamais poderiam ter competido com sucesso. Mas a Uber e a 99 conseguiram competir efetivamente porque construíram produtos que os usuários queriam usar — elas tiveram uma ideia para uma armadilha melhor. Os dados que elas acumularam foram obtidos depois que elas inovaram, entraram no mercado e superaram seus desafios com sucesso — não antes.

Portanto, reclamações sobre dados que facilitam vantagens competitivas incontestáveis têm demonstrado exatamente o contrário. As empresas precisam inovar para atrair dados do consumidor; caso contrário, os consumidores migrarão para os concorrentes (incluindo novos entrantes e operadores estabelecidos). Como resultado, o desejo de fazer uso de mais e melhores dados impulsiona a inovação competitiva, com resultados claramente impressionantes: A explosão contínua de novos produtos, serviços e de outros aplicativos é uma evidência de que os dados não são um gargalo para a concorrência, mas um estímulo para impulsioná-la.

Em terceiro lugar, a concorrência on-line está (metaforicamente – mas não muito) a um clique ou deslize do polegar. Ou seja, as barreiras à entrada e os custos de migração são baixos. De fato, apesar da suposta prevalência de barreiras de dados à entrada, a concorrência on-line continua a aumentar, com os recém-chegados constantemente emergindo e triunfando. A entrada de varejistas on-line e de outras plataformas digitais no Brasil é um caso em questão (Vide Perguntas 1 e 2). Isso sugere que as barreiras à entrada não são tão altas a ponto de impedir uma concorrência robusta.

Novamente, apesar dos supostos monopólios baseados em dados do Facebook, Google, Amazon, Apple e outros, existem concorrentes poderosos nos mercados em que competem:

  • Se os consumidores quiserem fazer uma compra, é mais provável que façam suas buscas no Mercado Livre ou na Amazon do que no Google ou no Facebook, mesmo com o lançamento do Facebook Marketplace.
  • O mecanismo de busca Google Flights não conseguiu ameaçar seriamente — muito menos deslocar — seus concorrentes, como os críticos temiam. Decolar.com, Kayak, Expedia e similares continuam sendo os sites de busca de viagens mais proeminentes — apesar de o Google ter literalmente comprado o acervo de dados de voo e a inteligência de processamento de dados da ITA.
  • O ChatGPT, uma das startups mais valorizadas atualmente, se tornou um sério adversário aos mecanismos de busca tradicionais.
  • O TikTok cresceu rapidamente para desafiar aplicativos populares de mídia social, como Instagram e Facebook.

Mesmo supondo, a título de argumento, que os dados criam uma barreira à entrada, há poucas evidências de que os consumidores não possam migrar facilmente para um concorrente. Embora, em alguns casos, haja efeitos na rede on-line, como nas redes sociais, a história ainda mostra que as pessoas migrarão. O Myspace era considerado uma rede dominante, até que tomou uma série de decisões de negócios ruins, e os usuários acabaram no Facebook; O Orkut teve um destino semelhante. Da mesma forma, os usuários da Internet podem e usam o Bing, o DuckDuckGo, o Yahoo! e uma infinidade de mecanismos de busca mais especializados, além e no lugar do Google, e cada vez mais também recorrem a outras maneiras de encontrar informações on-line (como pesquisar uma marca ou um restaurante diretamente no Instagram ou no TikTok, ou fazer uma pergunta ao ChatGPT). De fato, o próprio Google já foi um entrante iniciante, que substituiu nomes antes familiares como Yahoo! e AltaVista.

Em quarto lugar, o acesso a dados não é exclusivo. Os dados não são como o petróleo. Se, por exemplo, a Petrobras perfurar e extrair petróleo do solo, esse petróleo não mais estará disponível para outras empresas. Os dados não são igualmente finitos. O Google saber o aniversário de alguém também não limita a capacidade do Facebook de saber o aniversário da mesma pessoa. Embora os bancos de dados possam ser proprietários, os dados subjacentes não o são. E o que importa mais do que os dados em si é o nível de qualidade com que eles são analisados (veja o primeiro ponto). Como os dados não são exclusivos como o petróleo, qualquer tentativa de forçar o compartilhamento de dados e ajudar os concorrentes cria um problema de oportunismo. Por que passar pelo esforço de coletar dados valiosos sobre os clientes para saber o que eles querem e ser capaz de melhor atendê-los, quando a regulamentação exige que a Apple efetivamente forneça os dados?

Em conclusão, o problema de conceder aos concorrentes acesso aos dados é que os dados são uma consequência da concorrência, não um pré-requisito para ela. Assim, em vez de aumentar sua capacidade de competir, “presentear” os concorrentes com os frutos de tentativas bem-sucedidas de concorrência de outros corre o risco de destruir os incentivos de ambos os grupos para projetar produtos atrativos e acumular esses dados em primeiro lugar. Ao reverter a causalidade entre dados e concorrência, o Projeto de Lei 2768 corre o risco de sufocar inadvertidamente a mesma concorrência que supostamente busca reforçar.

Pergunta 5

Cite casos em que uma empresa no mercado digital no Brasil usou dados de terceiros em função de sua característica de provedor de insumo essencial, prejudicando o terceiro competitivamente?

Não temos conhecimento desses processos.

No entanto, o enquadramento desta pergunta deve ser claro sobre o que se entende por “prejudicar um terceiro competitivamente”. O uso de dados de terceiros é um dos principais impulsionadores da concorrência. Mesmo que os concorrentes sejam “prejudicados” como resultado, eles são prejudicados apenas na medida em que não se equiparem ao preço ou à qualidade oferecidos pela plataforma.

A concorrência é, em grande parte, impulsionada pelo uso do conhecimento dos produtos dos rivais — incluindo seu preço, qualidade, quantidade e como eles são vendidos e apresentados aos consumidores. De fato, o modelo de concorrência perfeita pressupõe, em grande medida, que todos os produtos no mercado são homogêneos (mesmo que isso raramente seja confirmado na prática). O uso de dados de terceiros para igualar e superar as ofertas dos concorrentes pode ser visto como uma expressão moderna dessa dinâmica. De fato, como já escrevemos antes:

Não podemos presumir que algo é ruim para a concorrência apenas porque é ruim para determinados concorrentes. Muitos comportamentos inequivocamente pró-concorrência, como o corte de preços, também tendem a dificultar a vida dos concorrentes. O mesmo acontece quando uma plataforma digital fornece um serviço melhor do que as alternativas fornecidas por terceiros vendedores no site. […].

Não há dúvida de que isso é desagradável para os comerciantes que precisam competir com essas ofertas. Mas também não é diferente de ter de competir com rivais mais eficientes, com custos mais baixos ou melhor percepção de demanda do consumidor. Copiar produtos e buscar maneiras de oferecê-los com melhores recursos ou a um preço mais baixo, que os críticos da autopreferência destacam como uma preocupação particular, sempre foi uma parte fundamental da concorrência no mercado – de fato, é a principal maneira pela qual a concorrência ocorre na maioria dos mercados.[25]

Qualquer proibição per se do uso de dados de terceiros impediria as plataformas digitais de usar dados para melhorar sua oferta de produtos de maneiras que poderiam beneficiar os consumidores.

Recomendação: Supondo que a lei de concorrência e a lei de PI (Propriedade Intelectual) não estejam à altura da tarefa de coibir abusos de dados de terceiros, o Projeto de Lei 2768 deve garantir que essas proibições sejam feitas sob medida para cobrir condutas que não tenham outra explicação racional além de procurar excluir um concorrente. Ele não deve capturar usos de dados de terceiros que impulsionem a concorrência e beneficiem os consumidores, mesmo que isso resulte na saída de um concorrente do mercado.

Pergunta 6

Descreva casos em que uma dificuldade de interoperabilidade com os sistemas de uma empresa torna muito difícil ou impossível a entrada em um ou mais mercados digitais. Como o PL 2768/2022 poderia mitigar este problema, reduzindo a barreira à entrada representada por falta de interoperabilidade?

Não temos conhecimento desses processos.

No entanto, ao considerar potenciais mandatos de interoperabilidade, o governo deve estar ciente dos riscos e compensações que acompanham essas medidas, especialmente em termos de segurança, proteção e privacidade (vide Pergunta 8 para obter uma discussão mais detalhada).

Pergunta 7

O Digital Market Act (DMA) Europeu optou por realizar proibições absolutas (per se) de algumas condutas nos mercados digitais como o self-preferencing, dentre outras. Já o PL 2768/2022 optou por não fazer qualquer conduta proibida ex-ante. Caberia haver uma ou mais condutas com proibições absolutas (per se) no PL 2768/2022? Por que? Por favor, propor redação, explicitando em que parte do PL se localizaria?

Não. Não deve haver proibições absolutas sobre esses tipos de conduta, especialmente sem experiência substantiva que sugira que essa conduta é sempre ou quase sempre prejudicial e em grande parte irremediável (neste item, respondemos à pergunta em termos gerais; consulte a Pergunta 8 para obter uma discussão sobre por que determinada conduta (por exemplo, autopreferência) não deve ser proibida).

Independentemente do dano aos negócios das empresas-alvo, proibições (ou mandatos) excessivamente amplas podem prejudicar os consumidores, arrefecendo a conduta pró-concorrência e desestimulando a inovação e o investimento, especialmente quando não for necessária uma demonstração de dano e a lei não for passível de argumentos de eficiência (como no caso do DMA). O fato de que essas proibições se aplicam a mercados muito diferentes (por exemplo, serviços em nuvem têm pouca relação com mecanismos de busca), independentemente do contexto, também é um sinal claro de que elas são excessivamente amplas e mal definidas.

De fato, há indícios de que, onde o DMA foi introduzido, ele atrasou o avanço da tecnologia. Por exemplo, a “Bard AI” do Google foi lançada mais tarde na Europa devido aos regulamentos incertos e rígidos de IA e privacidade da UE.[26] Da mesma forma, o “Threads” da Meta não está disponível na UE precisamente devido às restrições impostas pelo DMA e pelo regulamento de privacidade de dados da UE (GDPR).[27] Elon Musk, CEO da X (anteriormente Twitter), indicou que o custo de cumprir os regulamentos digitais da UE, como o DSA, poderia levar a empresa a sair do mercado europeu.[28] Recentemente, a Microsoft atrasou o lançamento na Europa de sua nova IA, “Copilot”, por causa do DMA.[29]

Além de capturar a conduta pró-concorrência que beneficia os consumidores e congelar a tecnologia no tempo (o que acabaria por exacerbar o abismo tecnológico entre países mais e menos avançados), as regras rígidas per se também poderiam capturar muitas empresas emergentes que não podem ser consideradas “guardiãs” por qualquer nível de imaginação. Esse risco é especialmente real no caso do Brasil, dado o limite extremamente baixo para o que constitui um “guardião”, consagrado no Artigo 9 (R$70 milhões, ou aproximadamente US$14 milhões). Assim, muitos unicórnios brasileiros poderiam, imediatamente ou em um futuro próximo, ser capturados pelas novas regras restritivas, o que poderia prejudicar seu crescimento e arrefecer produtos inovadores. Em última análise, isso poderia colocar em risco o status atual do Brasil como “o centro de startups mais bem estabelecido [da América Latina”] e lançar uma sombra sobre o que a The Economist se referiu como o futuro brilhante das startups latino-americanas.[30]

A lista de empresas prejudicadas pode incluir alguns dos unicórnios mais promissores do Brasil, como:

  • 99 (aplicativo de transporte)
  • Neon Bank (banco digital)
  • C6 Bank (banco digital)
  • CloudWalk (meio de pagamento)
  • Creditas (plataforma de empréstimos)
  • Ebanx (soluções de pagamento)
  • Facily (comércio social)
  • com (frete rodoviário)
  • Gympass (agregador de academia e benefícios corporativos)
  • Hotmart (plataforma de venda de produtos digitais)
  • iFood (serviço de entrega)
  • Loft (plataforma imobiliária)
  • Loggi (logística)
  • Mercado Bitcoin (corretora de criptomoedas)
  • Merama (e-commerce)
  • Madeira Madeira (loja de produtos para casa e decoração)
  • Nubank (banco)
  • Olist (e-commerce)
  • Wildlife Studios (desenvolvedora de jogos)
  • Quinto Andar (plataforma de locação de imóveis)
  • Vtex (tecnologia e comércio digital)
  • Unico (biometria)
  • Dock (infraestrutura)
  • Pismo (tecnologia para pagamentos e serviços bancários)[31]

Pergunta 8

Haveria condutas nos mercados digitais que teriam uma alta potencialidade de implicar problemas competitivos, mas que podem ser justificadas como gerar maior eficiência às empresas, às transações e aos mercados? Dê exemplos destas condutas? Como estas condutas deveriam ser tratadas no PL 2768/2022? Em particular, seria cabível uma “inversão de ônus da prova” em que tais condutas seriam presumivelmente anticompetitivas, mas que seria cabível autorizar uma defesa das plataformas digitais baseadas nessas eficiências? Caberia contemplar estas condutas não como proibidas per se, mas com “inversão de ônus da prova” no PL 2768/2022?

Existem certos tipos de comportamento nos mercados digitais que foram alvo de regulamentações prévias, mas que são, no entanto, capazes ou mesmo fundamentais para oferecer benefícios pró-concorrência significativos. Seria injustificado e prejudicial sujeitar essa conduta a proibições per se ou inverter o ônus da prova. Em vez disso, esse tipo de conduta deve ser abordado de forma imparcial e examinado caso a caso.[32]

A.      Autopreferência

A autopreferência ocorre quando uma empresa oferece tratamento preferencial a um de seus próprios produtos (presumidamente, esse tipo de comportamento poderia ser coberto pelo art. 10, inciso II, do PL 2768). Um exemplo seria o Google exibir seu serviço de compras no topo dos resultados de busca antes dos serviços de compras alternativos. Os críticos dessa prática argumentam que ela coloca as empresas dominantes em concorrência com outras empresas que dependem de seus serviços, e isso permite que as empresas alavanquem seu poder em um mercado para ganhar posição em um mercado adjacente, expandindo e consolidando seu domínio. No entanto, esse comportamento também pode ser pró-concorrência e benéfico para os usuários.

Nos últimos anos, um número crescente de críticos tem argumentado que as grandes plataformas de tecnologia prejudicam a concorrência ao favorecer seu próprio conteúdo em detrimento de seus complementadores. Ao longo do tempo, esse argumento contra a autopreferência tornou-se um dos mais proeminentes entre aqueles que buscam impor novas restrições regulatórias a essas plataformas.

De acordo com essa linha de argumentação, os complementadores estariam “à mercê” das plataformas tecnológicas. Ao discriminar em favor de seu próprio conteúdo e contra “provedores de ponta” independentes, as plataformas de tecnologia fazem com que “as recompensas pela inovação de ponta [sejam] atenuadas pela apropriação descontrolada”, levando a perspectivas “sombrias” para os atores independentes na economia da internet – e a inovação de ponta em geral. “[33]

O problema, no entanto, é que as alegações de dano presuntivo da autopreferência (também conhecida como “discriminação vertical”) não se baseiam em dados econômicos sólidos nem em evidências.

A noção de que a entrada da plataformas em concorrência com provedores de ponta é prejudicial à inovação é inteiramente especulativa. Além disso, é totalmente contrário a uma série de estudos que mostram que o oposto provavelmente é verdadeiro. Na realidade, a competição de plataformas é mais complicada do que as simples teorias de discriminação vertical,[34] e a literatura estabelece que certamente não há base para presunção de dano.[35]

A noção de que as plataformas devem ser forçadas a permitir que os complementadores concorram em seus próprios termos, livres de restrições ou concorrência de plataformas, é uma espécie de ideia de que as plataformas são mais socialmente valiosas quando são mais “abertas”. Mas a obrigatoriedade da abertura não é isenta de custos, o mais importante em termos do funcionamento eficaz da plataforma e de seus próprios incentivos à inovação.

Plataformas “abertas” e “fechadas” são formas diferentes de fornecer serviços semelhantes, e há espaço para concorrência entre essas abordagens alternativas. Ao proibir a autopreferência, um órgão regulador pode, portanto, encerrar a concorrência em detrimento dos consumidores. Como observamos em outra parte:

Para a Apple (e seus usuários), a pedra de toque de uma boa plataforma não é “abertura”, mas seleção e segurança cuidadosamente escolhidas, entendidas amplamente como abrangendo a remoção de conteúdo censurável, proteção da privacidade e proteção contra “engenharia social” e similares. Por outro lado, a aposta do Android é no modelo de plataforma aberta, que sacrifica algum grau de segurança pela maior variedade e personalização associadas a uma distribuição mais aberta. Essas são diferenças legítimas no design do produto e na filosofia de negócios.[36]

Além disso, é importante notar que a apropriação da inovação de ponta e sua incorporação à plataforma (uma forma comumente criticada de autopreferência da plataforma) aumenta muito o valor da inovação, compartilhando-a de forma mais ampla, garantindo sua coerência com a plataforma, incentivando o marketing e a promoção ideais e afins. Os smartphones hoje são uma coleção de muitos recursos que costumavam ser oferecidos separadamente, como telefones, calculadoras, câmeras e consoles de jogos, e fica claro que a incorporação desses recursos em um único dispositivo trouxe imensos benefícios aos consumidores e à sociedade como um todo. Em outras palavras, mesmo que haja um custo em termos de redução de inovação de ponta, os ganhos imediatos de bem-estar do consumidor com a apropriação da plataforma podem muito bem superar essas perdas (especulativas).

Fundamentalmente, as plataformas têm um incentivo para otimizar a abertura (e garantir aos complementadores retornos suficientes em seus investimentos específicos da plataforma). No entanto, isso não significa que a abertura máxima seja ideal; de fato, normalmente uma plataforma bem gerenciada exercerá controle de cima para baixo quando essa medida for mais importante e a abertura onde o controle ocorrer for menos significativa.[37]

Mas isso significa que é impossível saber se alguma restrição específica da plataforma (incluindo a autopriorização) na conduta do provedor de ponta é prejudicial e, da mesma forma, se qualquer mudança de mais para menos abertura (ou o contrário) é prejudicial.

Essa é a situação que leva à estrutura indeterminada e complexa dos empreendimentos de plataforma. Considere as grandes plataformas on-line, como Google e Facebook, por exemplo. Essas entidades obtêm a participação de usuários e complementadores ao disponibilizar gratuitamente o acesso às suas plataformas para uma ampla gama de usos, exercendo controle sobre o acesso apenas de maneira limitada para garantir alta qualidade e desempenho. Ao mesmo tempo, no entanto, esses operadores de plataforma também oferecem serviços proprietários em concorrência com complementadores, ou oferecem partes da plataforma para venda ou uso apenas mediante termos mais restritivos que facilitam um retorno financeiro à plataforma.

A chave é entender que, embora as restrições ao acesso e uso dos complementadores possam parecer restritivas, quando comparadas com um mundo imaginário sem restrições, nesse mundo a plataforma primeiramente nem sequer seria construída. Além disso, em comparação com o outro extremo — apropriação total (em que circunstâncias a plataforma também não seria construída…) — essas restrições são relativamente menores e representam muito menos do que a apropriação total de valor ou restrição de acesso. Como Jonathan Barnett resume adequadamente:

A [plataforma], portanto, enfrenta uma questão de compensação básica. Por um lado, deve perder o controle sobre uma parte da plataforma para obter a adoção do usuário. Por outro lado, deve exercer controle sobre alguma outra parte da plataforma, ou algum conjunto de bens ou serviços complementares, a fim de acumular receitas para cobrir os custos de desenvolvimento e manutenção (e, no caso de uma entidade com fins lucrativos, a fim de capturar quaisquer lucros remanescentes).[38]

Por exemplo, as empresas podem optar por favorecer seus próprios produtos ou serviços porque são elas mais capazes de garantir sua qualidade ou entrega rápida.[39] O Mercado Livre, por exemplo, pode estar em melhor posição para garantir que os produtos fornecidos pelo serviço de logística ‘Mercado Envios’ sejam entregues em tempo hábil em comparação com outros serviços. Os consumidores também podem se beneficiar da autopreferência de outras maneiras. Se, por exemplo, o Google fosse impedido de priorizar os vídeos do Google Maps ou do YouTube em seus resultados de busca, poderia ser mais difícil para os usuários encontrar resultados ideais e relevantes. Se a Amazon for proibida de preferir sua própria linha de produtos no mercado, ela poderá optar por não vender os produtos da concorrência.

O poder de proibir a exigência ou o incentivo de clientes de um produto para usar outro permitiria a limitação ou prevenção da autopreferência e de outros comportamentos semelhantes. Concedido, o direito da concorrência tradicional tem procurado restringir o “agrupamento” de produtos, exigindo que eles sejam comprados juntos, mas proibir o incentivo também vai muito além.

B.      Interoperabilidade

Outro mot du jour é a interoperabilidade, que pode se enquadrar no art. 10, inciso IV, do PL 2768. No contexto da regulamentação digital prévia, “interoperabilidade” significa que as empresas abrangidas podem ser forçadas a garantir que seus produtos se integrem a produtos de outras empresas. Por exemplo, exigir que uma rede social esteja aberta à integração com outros serviços e aplicativos, que um sistema operacional móvel esteja aberto a lojas de aplicativos de terceiros ou que um serviço de mensagens seja compatível com outros serviços de mensagens. Sem regulamentação, as empresas podem ou não optar por tornar seu software interoperável. No entanto, o DMA da Europa e a futura Lei de Mercados Digitais, Concorrência e Consumo (“DMCC”) do Reino Unido[40] permitirão que as autoridades assim o exijam. Outro exemplo é a “portabilidade” de dados, que permite aos clientes transferir seus dados de um fornecedor para outro, da mesma forma que um número de telefone pode ser mantido quando se muda de rede.

O argumento usual é que o poder de exigir interoperabilidade pode ser necessário para “superar os efeitos da rede e as barreiras à entrada/expansão”. No entanto, o governo brasileiro não deve ignorar que essa solução representa custos para a escolha do consumidor, em particular por levantar dificuldades com segurança e privacidade, além de ter benefícios questionáveis para a concorrência. De fato, não é como se a concorrência desaparecesse quando os clientes não conseguem migrar tão facilmente quanto ao acender uma luz. As empresas competem antecipadamente para atrair esses consumidores por meio de táticas como preços de penetração, ofertas introdutórias e guerras de preços.[41]

Um sistema fechado, ou seja, com interoperabilidade comparativamente limitada, pode ajudar a limitar os riscos de segurança e privacidade. Isso pode incentivar o uso da plataforma e melhorar a experiência do usuário. Por exemplo, ao permanecer relativamente fechada e com curadoria, a App Store da Apple oferece aos usuários a garantia de que os aplicativos atenderão a um determinado padrão de segurança e confiabilidade. Assim, ecossistemas “abertos” e “fechados” não são sinônimos de “bons” e “ruins” e, em vez disso, representam duas filosofias diferentes de design de produto, qualquer uma das quais pode ser preferida pelos consumidores. Ao forçar as empresas a operar plataformas “abertas”, as obrigações de interoperabilidade poderiam, assim, minar esse tipo de concorrência entre marcas e anular as escolhas do consumidor.

Além de potencialmente prejudicar a experiência do usuário, também é duvidoso que alguns dos mandatos de interoperabilidade, como aqueles entre mídias sociais ou serviços de mensagens, possam atingir seu objetivo declarado de reduzir as barreiras à entrada e promover uma maior concorrência. Os consumidores não são necessariamente mais propensos a migrar de plataforma simplesmente porque são interoperáveis. Na verdade, há um argumento a ser feito de que tornar os aplicativos de mensagens interoperáveis de fato reduz o incentivo para baixar aplicativos concorrentes, já que os usuários já podem interagir com os aplicativos dos concorrentes a partir do aplicativo de mensagens existente.

C.      Telas de Seleção

Algumas regras prévias procuram abordar a capacidade das empresas de influenciar a escolha dos aplicativos pelo usuário por meio da pré-instalação, padrões e design de lojas de aplicativos (isso pode se enquadrar no art. 10, parágrafo II, do Projeto de Lei 2768). Isso às vezes resultou na imposição de exigências para fornecer aos usuários “telas de seleção”, por exemplo, exigindo que os usuários escolham qual mecanismo de busca ou serviço de mapeamento está instalado em seu telefone. Nesse sentido, é importante entender as compensações em jogo aqui discutidas: as telas de seleção podem facilitar a competição, mas podem fazê-lo às custas da experiência do usuário, em termos do tempo necessário para fazer essas escolhas. Existe o risco, sem evidência de demanda do consumidor por ‘telas de seleção’, de que essas regras imponham a preferência do legislador por maior opcionalidade sobre o que é mais conveniente para os usuários. A menos que haja uma demanda pública explícita no Brasil por essas medidas, seria imprudente implementar uma obrigação de tela de seleção.

D.     Tamanho e Poder de Mercado

Em geral, muitas das proibições e obrigações contempladas nas regras  prévias visam o tamanho, a escalabilidade e a “importância estratégica” dos operadores existentes.”

É amplamente alegado que, devido aos efeitos de rede, os mercados digitais são propensos a “tombamento”, pelo que, quando um produtor ganha uma participação suficiente no mercado, ele rapidamente se torna um monopolista completo ou quase completo. Embora possam começar sendo muito competitivos, esses mercados, portanto, exibem uma característica marcante de o “vencedor leva tudo”. As regras prévias geralmente tentam evitar ou reverter esse resultado, visando o porte de uma empresa ou empresas com poder de mercado.

No entanto, existem muitos investimentos e inovações que – se permitidos – beneficiarão os consumidores, seja imediatamente ou no longo prazo, mas que podem ter algum efeito no aumento do poder de mercado, no porte de uma empresa ou em sua importância estratégica. De fato, melhorar os produtos de uma empresa e, assim, aumentar suas vendas muitas vezes levará a um aumento do poder de mercado.

Consequentemente, a segmentação de “porte/tamanho” ou conduta que reforça o poder de mercado, sem qualquer evidência de dano, cria um sério perigo de inibição muito ampla de pesquisa, inovação e investimento – tudo em detrimento dos consumidores. Na medida em que tais regras impeçam o crescimento e o desenvolvimento de empresas estabelecidas, elas também podem prejudicar a concorrência, uma vez é bem possível que essas mesmas empresas – se permitido – sejam mais propensas a desafiar o poder de mercado de outras empresas em outros mercados adjacentes. Os casos de lançamento de serviços de vídeo sob demanda da Disney, Apple, Amazon e Globo para competir com a Netflix e a introdução pela Meta do ‘Threads’, como um adversário do Twitter (ou ‘X’), parecem ser um exemplo. Neste caso, regras per se que tenham o objetivo de proibir o aumento do porte ou do poder de mercado em uma área podem, de fato, impedir a entrada de uma empresa em um mercado dominado por outra. Neste caso, a ação dos legisladores protege o poder de monopólio. Portanto, é necessária uma abordagem muito mais sutil da regulamentação.

A referência do Projeto de Lei 2768 a The Curse of Bigness, de Tim Wu, que notoriamente adota um ethos redutivo de “grande é ruim”, sugere que poderia estar sendo feita uma suposição igualmente falha.[42]

E.      Conclusão

Não consideramos apropriado reverter o ônus da prova em nenhum caso, no contexto das plataformas digitais. Sem evidências substanciais de que essa conduta cause danos generalizados a um interesse público bem definido (por exemplo, semelhante aos cartéis no contexto da lei de defesa da concorrência), não há justificativa para uma reversão do ônus da prova, e qualquer reversão nesse sentido corre o risco de minar os benefícios ao consumidor, a inovação e desencorajar o investimento na economia brasileira pelo medo justificado de que a conduta pró-concorrência resulte em multas e recursos. Da mesma forma, acreditamos que, quando o órgão executor nomeado estabelece um processo prima facie de dano, seja no contexto da lei de defesa da concorrência ou da regulamentação digital prévia, ele também deve estar preparado para abordar argumentos relacionados à eficiência.

Pergunta 9

É necessário que haja um regulador? Se sim, qual regulador estaria melhor capacitado para implementar a regulação prevista no PL 2768/2022? Anatel, o CADE, a ANPD, outro regulador existente ou novo? Justifique.

Apesar da falta de clareza com relação às metas e aos objetivos da lei, as regras propostas pelo Projeto de Lei 2768 parecem ser baseadas na concorrência, pelo menos na medida em que buscam reforçar a livre concorrência, a proteção do consumidor e combater o “abuso de poder econômico” (art. 4). Portanto, o órgão mais bem posicionado para aplicá-la seria, em princípio, o CADE (os objetivos da Lei 12.529/11, a Lei da Concorrência brasileira, se sobrepõem significativamente aos do Projeto de Lei 2768). Por outro lado, há um risco palpável de que, no cumprimento de suas atribuições nos termos do Projeto de Lei 2768, a Anatel poderia transpor a lógica e os princípios da regulamentação das telecomunicações para os mercados “digitais”, o que é um equívoco porque são duas coisas muito diferentes.

Não apenas os mercados “digitais” são substancialmente diferentes dos mercados de telecomunicações, mas realmente não existe um conceito claramente demarcado de “mercado digital”. Por exemplo, as plataformas digitais descritas no art. 6, parágrafo II, da Lei 2768 não são homogêneas e abrangem uma variedade de modelos de negócios diferentes. Além disso, praticamente todos os mercados hoje incorporam elementos “digitais”, como dados. De fato, as empresas que operam em setores tão divergentes como varejo, seguros, saúde, farmacêutica, produção e distribuição, foram todas “digitalizadas”. Assim, parece necessário um órgão executor com sutil entendimento da dinâmica da digitalização e, principalmente, das idiossincrasias das plataformas digitais como mercados bilaterais. Embora o CADE indiscutivelmente careça de experiência substantiva com plataformas digitais, ele está em melhor posição para fazer cumprir o Projeto de Lei 2768 do que a Anatel por causa de sua profunda experiência com a aplicação da política de concorrência.

Pergunta 10

Você avalia que poderia haver algum risco de bis in idem entre o regulador e a autoridade de concorrência com a mesma conduta sendo analisada por ambos?

Com base na experiência da UE, existe um risco de dupla penalização na interseção entre o direito da concorrência tradicional e a regulamentação digital prévia.

A título de comparação, e como escreveu Giuseppe Colangelo, o DMA baseia-se explicitamente na noção de que o direito da concorrência por si só é insuficiente para enfrentar efetivamente os desafios e problemas sistêmicos colocados pela economia da plataforma digital.[43] De fato, o escopo de defesa da concorrência é limitado a determinadas instâncias de poder de mercado (por exemplo, domínio em mercados específicos) e de comportamento anticompetitivo. Além disso, sua execução ocorre posteriormente e requer uma extensa investigação caso a caso do que muitas vezes são conjuntos de fatos muito complexos, e talvez não consigam abordar efetivamente os desafios ao bom funcionamento dos mercados colocados pela conduta dos guardiões, que não são necessariamente dominantes em termos do direito da concorrência — ou assim argumentam seus proponentes. Como resultado, regimes como o DMA invocam a intervenção regulatória para complementar as regras tradicionais do direito da concorrência, introduzindo um conjunto de obrigações prévias para plataformas on-line designadas como guardiães. Isso também permite que os órgãos executores se liberem do processo trabalhoso de definir mercados relevantes, provar dominância e mensurar os efeitos do mercado.

No entanto, apesar das alegações de que o DMA não é um instrumento do direito da concorrência e, portanto, não afetaria a forma como as regras de defesa da concorrência se aplicam nos mercados digitais, o regime parece obscurecer a linha entre regulamentação e defesa da concorrência, misturando suas respectivas características e objetivos. De fato, o DMA compartilha os mesmos objetivos e protege os mesmos interesses legais que o direito da concorrência.

Além disso, sua lista de proibições é efetivamente uma sinopse de processos de defesa da concorrência antigos e em andamento, como o Google Shopping (Processo T-612/17), a Apple (AT.40437) e a Amazon (Processos AT.40462 e AT.40703).[44] Reconhecendo a continuidade entre o direito da concorrência e o DMA, a European Competition Network (ECN) e alguns estados membros da UE (auto-intitulados “amigos de um DMA eficaz”) propuseram inicialmente capacitar as autoridades nacionais de defesa da concorrência (NCAs) para fazer cumprir as obrigações do DMA.[45]

Da mesma forma, as proibições e obrigações previstas no Art. 10 do PL 2768 poderiam, em tese, ser todas impostas pelo CADE. Na verdade, o CADE investigou, e ainda está investigando, várias grandes empresas que (provavelmente) se enquadram no âmbito do Projeto de Lei 2768, como o Google, Apple, Meta, (ainda sob investigação) Booking.com, Decolar.com, Expedia e iFood (investigações encerradas por acordo de cessação e desistência) e Uber (todas as investigações encerradas sem penalidades; após um estudo econômico, o CADE constatou que a entrada do Uber beneficiou os consumidores[46]). As investigações passadas e presentes do CADE contra essas empresas já abrangeram condutas que são alvo da DMA e do PL 2768, como recusa de negociação, auto preferência e discriminação.[47] As normas de concorrência existentes nos termos da Lei 12.529/11, a Lei de Concorrência Brasileira, portanto, claramente já captura o tipo de conduta que está incluída no Projeto de Lei 2768. Além disso, o requisito de usar dados “adequadamente” provavelmente é coberto pela regulamentação de proteção de dados no Brasil (Lei Geral de Proteção de Dados, LGPD, Lei Federal nº 13.709/2018).

A diferença entre os dois regimes é que, enquanto a lei geral antitruste exige uma demonstração de dano (mesmo que potencial) e isenta condutas com benefícios líquidos aos consumidores, o Projeto de Lei 2768, em princípio, não o faz. O único princípio limitante às proibições e obrigações contidas no Art. 10 Art. 11 (III) é o princípio da proporcionalidade — que é um princípio geral do direito constitucional e deve, em qualquer caso, ser aplicado independentemente do Projeto de Lei 2768. Assim, o único princípio limitante do Art. 10, enquadrado de forma ampla, é redundante.

Há uma outra complicação. O Projeto de Lei 2768 persegue muitos (embora não todos) dos mesmos objetivos que a Lei 12.529/11. Na medida em que esses objetivos são compartilhados, isso pode levar a um bis in idem, ou seja, a mesma conduta ser punida duas vezes sob regimes ligeiramente diferentes. Mas também poderia produzir resultados contraditórios porque, como apontado acima, os objetivos perseguidos pelos dois projetos de lei não são idênticos. A Lei 12.529/11 é orientada pelos objetivos de “livre concorrência, liberdade de iniciativa, papel social da propriedade, defesa do consumidor e prevenção do abuso do poder econômico” (Art. 1º). A esses objetivos, o Projeto de Lei 2768 acrescenta “redução das desigualdades regionais e sociais” e “aumento da participação social em questões de interesse público”. Embora seja verdade que esses princípios derivam do Art. 170 da Constituição Brasileira (“ordem econômica”), o descompasso entre os objetivos da Lei 12.529/11 e do Projeto de Lei 2768 e suas autoridades de supervisão é suficiente para levar a situações em que a conduta permitida ou mesmo incentivada pela Lei 12.529/11 é proibida pelo Projeto de Lei 2768. Por exemplo, a conduta pró concorrência por uma plataforma coberta pode, no entanto, exacerbar “desigualdades regionais ou sociais” porque investe fortemente em uma região, mas não em outras. Da mesma forma, medidas de segurança, privacidade e proteção implementadas por, digamos, um operador de uma App Store, que normalmente seriam consideradas benéficas para os consumidores nos termos da lei antitruste,[48] poderiam levar a uma menor participação em discussões de interesse público (assumindo que se poderia facilmente definir o significado de tal termo).

Consequentemente, o Projeto de Lei 2768 poderia fragmentar a estrutura legal do Brasil devido a sobreposições com o direito da concorrência, sufocar a conduta pró concorrência e levar a resultados contraditórios. Isso, por sua vez, provavelmente afetará a segurança jurídica e o estado democrático de direito no Brasil, o que poderia afetar adversamente o Investimento Estrangeiro Direto.[49] Além disso, é provável que a coordenação entre o CADE e a Anatel seja onerosa caso esta última acabe sendo a fiscalização designada do PL 2768. O Brasil teria essencialmente duas Leis que buscam objetivos iguais ou semelhantes sendo implementados por duas agências diferentes, com todos os custos extras de conformidade e coordenação que acompanham essa duplicidade.

Pergunta 11

Qual sua avaliação acerca do critério do art. 9 do PL 2768/2022? Deve ser alterado? Por qual critério? Cabe fazer a designação de detentor de poder de controle de acesso essencial serviço a serviço?

Esse critério parece arbitrário e, de qualquer modo, extremamente irrelevante. Não há nenhuma razão objetiva que vincule o “poder de controlar o acesso” ao volume de negócios. Além disso, mesmo que se admita, por uma questão de argumentação, que o volume de negócios é um indicador relevante de poder de gatekeeper, um limite de R$ 70 milhões cap