Digital platforms and blockchain – is the same abuse of dominance bottle good for so different wines?

The features of so-called “digital platforms” have grabbed the headlines of competition law specialised publications for the last years: (i) easy internalisation of positive externalities generated by a user group on one side of the platform though their selling to a group on the other side; (ii) reduced transaction costs – which further increase the ability to channel positive externalities between platform sides; (iii) the exacerbated intensity of increasing returns to scale because of minimal marginal costs; or (iv) the greater value of data thanks to developments in storing and analysis technology.

These characteristics make certain economic laws applicable to digital platforms, the corollary of which seems to be a natural tendency toward monopolistic positions that maximise positive externalities arising in the form of network effects – often spilling over into neighbouring markets and producing economies of scope. This is the setting where platform operators having a quasi‑regulatory control over important, or even essential, bottlenecks to arrays of related markets (gatekeepers) emerge – which does not have to pose any concerns from the competition point of view where bottlenecks are free from permanent and significant barriers to entry.

However, the economic principles behind blockchain (so-called crypto-economics) are quite different due to its specific characteristics: (i) decentralisation (ii) transparency as regards executed transactions and opacity as regards content and parties; (iii) automaticity; (iv) immutability; and (v) multi-layer structure. Therefore, well-targeted abuse of enforcement needs the wheat to be separated from the chaff in the digital world beforehand. With many thanks to Alastria for allowing me to participate in the second issue of Alastria Legal, the purpose of my contribution (pages 41-43 – pages 38-40 in Spanish) is to shed some light on this distinction.

Abuse of dominance in digital platforms and blockchain: Is the same bottle good for so different wines?

The Spanish competition authority on the Commission’s proposed New Competition Tool and Digital Service Act. A few thoughts

The CNMC’s position paper seems to take a balanced stance in that it emphasizes the risks of across-the-board enforcement in rapidly evolving settings as digital markets where type I errors feature a particularly large potential for nipping in the bud business models that could grow very beneficial for competition and consumers. Likewise, it insists on the need not to duplicate legal frameworks – e.g. express reference is made to the overlap between tailor-made remedies addressed to large online platforms acting as gatekeepers in the Digital Service Act proposal and their imposition under the New Competition Tool, and the importance of clear rules for allocating this competence between the Commission and Member State’s authorities – maybe because they want to secure a piece of the enforcement cake.

However, the most important concerns of those flagged by the CNMC, for their implications on operators, appear to be, firstly, the setting of legal and economic criteria for intervention that guarantee at the same time a legally certain threshold and a fair balance between of the interests at play in competition rules and case law. Secondly, extreme care should be taken regarding remedies. Indeed, the quest for a level playing field should not be construed as a blind crusade on poorly defined structural risks for competition and market failures, thereby turning the new tools into a dangerous instrument of industrial policy. The focus should then be on when to intervene rather than how or who, as the CNMC rightly puts forward.

In particular, it must be noted that ‘markets prone to tipping’ are very different beyond usual characteristics such as being platform-based or data-intensive. Therefore, a dynamic market-by-market analysis focusing on the intervention gap with current competition rules and ex ante regulation. In this regard, the CNMC proposes a three-criterion test inspired by telecom regulation and already proposed by other commentators which conditions action on the prior identification of (i) high barriers to entry, (ii) market not trending towards effective competition, and (iii) insufficiency of competition law to deal with these issues. This economic side of the test must be complemented with legal safeguards, such as the burden of proof on authorities or the objective of consumer protection.

A single horizontal tool triggered on the basis of a test as the foregoing is preferable for the CNMC than ad hoc instruments reserved only for indeterminate instances such as ‘gatekeepers’ or ‘digital markets’. A different question is that proportionate and flexible ex ante regulation for operators like gatekeepers may be appropriate – but to ensure accountability, user protection and platform responsibility rather than limiting market power.

This approach seems sensible overall but it would need better design of the criteria for intervention not to impair the delicate balance between intervention in the public interest and companies’ rights and freedoms by lowering the different standards that case law has developed for each type of infringement according to its potential harm to welfare. Such outcome would have far-reaching consequences from the legal perspective (e.g. the restriction of rights that even dominant companies enjoy under national constitutions and the Charter of Fundamental Rights of the European Union) and the economic perspective (e.g. stifling of nascent innovations or underming of business incentives).

More specifically, in my opinion, at least when it comes to ‘gatekeepers’ concerns, intervention should have as pre-conditions that

i) there is an unavoidable (or at least very important) point of entry or bottleneck (as the market for client PC operating systems was deemed to be for access to the market for work group server operating systems in case T-201/04 Microsoft);

ii) there are significant and permanent barriers to entry and expansion in the bottleneck (even if the European Commission decides not to make dominance a requirement); and

iii) effective competition either in the bottleneck market or for the adjacent market is distorted (e.g. dominant company’s leveraging the in the bottleneck market or self-preferencing its business in the adjacent market, to put it in terms of dominance).

Are smart contracts to outsmart competition rules?

Digital economy has been posing a massive challenge for competition enforcers, who are often led to stretch analogue-world rules in an attempt to capture brand new business dimensions. Therefore, one can easily imagine how difficult it will be for them to catch collaborative phenomena defying the very concepts of business and economy.

Blockchain is the archetypal case since it reunites the various ingredients for this paradigm shift: decentralisation, collaboration, automation, and determinism. It may even render obsolete the traditional game-theoretic approach to collusion as a trade-off between the benefits of cooperation and the threat of detection or defection.

Consequently, a better understanding of colluders’ changed incentives in each case seems necessary to determine whether the coin would land on the side of either increased attractiveness of coordination or stronger competition. This is the background to the potential obstacles and benefits to be expected in blockchain technology from the perspective of competition rules, and, in particular, on agreements between companies, which I discuss in the contribution “Coordination in blockchain: Are smart contracts to outsmart competition rules?

Coordination in blockchain: Are smart contracts to outsmart competition rules? – IE Law Hub

If the old competition rulebook has weathered the storm of digital economy so far, blockchain may pose too much of a challenge: it may bring a change of incentives that at least calls for more flexible and cooperative enforcement, albeit perhaps not a complete paradigm shift.

Coordination and information exchanges in financial markets. What comes first the chicken or the egg?

Intervention by competition authorities in financial markets is a complex and delicate task, given that financial service providers act not only as competitors but also as counterparties, intermediaries, and cooperation partners. In this context, contacts and information-sharing are necessary to create efficiencies such as the reduction of capital costs and transaction costs, or innovation and risk management.

This paper published on IE Legal Hub – Law Ahead explores the different approaches that have been proposed to tackle illegal coordination without hindering necessary information flows.

For instance, competition authorities in the United Kingdom (UK) have shown more willingness to characterise information exchanges as restrictions by object in themselves without need to identify an overarching agreement but relying on the presumption of causal connection to subsequent conduct.

Contrariwise, the European Commission appears to treat information exchanges as instrumental to broader pre‑existing coordination rather than ascertaining whether they could effectively constitute concerted practices in their own right. This would arguably relax the standard for information exchanges to constitute concerted practices – which might have already resulted in at least one judicial setback in case T-180/15 Icap and others v Commission.

Besides, the Spanish and Portuguese authorities have opted for a more nuanced approach, respectively, by placing the emphasis on the competitive outcome of the joint setting of conditions by competitors, and by accepting commitments in order to preserve potentially efficient information-sharing systems.

The Android of dawn

Last July the Commission struck back on Google with record fines, just like in summer 2017. On this occasion, Mountain View’s famous replicant was targeted by Berlaymont’s blade runner to cut short excessive optimism about Intel’s new dawn[1]. Indeed, the Android decision[2] joins Qualcomm (exclusivity payments)[3] in post-Intel Article 102 enforcement, their full versions not having been published yet. However, some light has already been shed on the way in which the EU trustbuster is interpreting the Court of Justice’s guidance in the seminal judgement on the chipmaker’s exclusivity payments and, more generally, on whether the more-economic approach is to be expected in digital world abuses.

This paper supplements the post Do androids dream of exclusivity with a conclusion on whether the Android decision should be read as a new setback to the long-awaited more-economic approach to abuse of dominance. Food for thought until the full decision comes out, in which we will see if the Commission interpreted the Intel ruling in the sense of requiring a full-fledged analysis of anticompetitive effects and efficiencies to invalidate Google’s. If this is the case, the battle for a digital approach to abuse enforcement might not be lost yet.

The Android decision: Is the EU blade runner seeking to retire the more-economic replicant?

[1] Judgement of the Court of Justice dated 6 September 2017 in case C-413/14 P Intel v Commission.

[2] Decision of the European Commission dated 18 July 2018 in case AT.40009 Google Android.

[3] Decision of the European Commission dated 25 January 2018 in case AT.40220 Qualcomm (exclusivity payments).

Has the Spanish Competition Authority found a way out of project finance antitrust maze?

Project finance has fallen under the spotlight of competition authorities as traditional antitrust concerns over competitors’ joining forces have met with increasing worries about financial customers suffering from information asymmetries.

Against this background, pricing, and more precisely “market conditions”, has been the thread pulled by the Spanish trustbuster to unravel, felicitously or not, the long entangled knot of syndicated loans and financial derivatives in its recent Financial Derivatives decision.

In this article, the three limbs of the decision will be discussed: loan syndication as a cooperation agreement among competitors, price coordination, and loan and hedge tie-in.

Syndicated loans and financial derivatives: ‛Belling the cat’ of market conditions

Google Search. Shopping for an appropriate abuse standard

Now that Google and the Commission are at daggers drawn in Luxembourg over the 27 June decision in Google Search,[1] it seems like high time to make our educated guesses about how the recently disclosed arguments in the tech giant’s September appeal[2] will come into play. Therefore, this post is a sort of an update (or a plug-in) to my recent paper EU Competition Law Needs to Install a Plug-in,[3] which for better or for worse was submitted one day after the Commission’s decision was adopted and it was published five days before we had the first news of Google’s bringing the case before the General Court.

As anticipated, Google’s appeal will revolve around the claim that the theory of damage behind its conduct was that of an essential facilities case, while the Commission found it abusive below the refusal to deal threshold. As a matter of fact, Nicholas Banasevic (head of the unit responsible for the Google case) has made clear that the June decision is ‘a very detailed effects-based decision‘ in a ‘plain and simple leveraging case,’ without there being any need to ‘apply another “label” to it, including abuses such as “refusal to supply” rivals.’[4]

Banasevic’s assertion implies that the Silicon Valley company’s leveraging on its dominance in general search to artificially favour its own products in an adjacent market would suffice to be found abusive, as far as the (actual or potential) anticompetitive effect is supported by a fair deal of evidence. No wonder, Google’s reaction would be trying to bring the discussion to the field of legal standard by pleading that the Commission’s move away from the refusal to supply test constitutes an attempt to lowering the abuse threshold below the essential facilities requirements of indispensability and removal of effective competition.

Against this backdrop, it must be recalled that the long-drawn Google Shopping battle, the first chapter of which was brought to a close by the June decision, touches upon a number of de lege lata and de lege ferenda questions. Indeed, it tables both the debate over the adjustments required by competition law of the European Union to be able to deal with the challenges of the digital environment and the traditional controversy about the limits of competition authorities’ say in dominant companies’ business models.

Continue reading “Google Search. Shopping for an appropriate abuse standard”

Vestager’s razor to cut the ordo-liberal knot

To turn the page on more than forty years of quarrel over whether antitrust is about protecting the competitive process without prejudging its result or about ensuring that markets have a competitive structure (thereby tipping the balance towards a particular market outcome), Commissioner Vestager has finally applied Ockham’s law of parsimony. In front of the European antitrust establishment attending the Chillin’ Competition conference last 21 November, the Commissioner heralded a return to the exploitation origins of EU competition law. Continue reading “Vestager’s razor to cut the ordo-liberal knot”

Has the Commission let slip the watchdogs of war?

E-commerce is no longer the last frontier of antitrust law, but rather the battlefield of a war which is already being fought on many fronts. On the trustbuster’s side, the Bundeskartellamt’s purposeful and self-proclaimed leadership as regards vertical restraints on the use of online marketplaces has recently met with the Commission’s slowly but steadily coming back into play from its initial indolence (as proven by the Preliminary Report on the e-commerce sector inquiry published on 15 September 2016), and its recent alliance with the French authority (whose help the EU watchdog has sought to carry out probes in the e‑commerce sector).

At any rate, the rules of this regulatory game will be set by the judges in Luxembourg, already questioned by the German judiciary whether selective distributors at the retail level can be lawfully barred from enlisting online sale-handling services of third-party platforms discernible to the public, regardless of the supplier’s quality standards (request for a preliminary ruling in case C-230/16). On the undertaking’s side of the house, Amazon has asked to be heard in the case as a golden opportunity to tip the scales in favour of retailer’s freedom to sell products on marketplaces.

Although the focus is clearly placed on retailers’ ability to use marketplaces, until the ECJ delivers its verdict the Italian Autorità Garante della Concorrenza e del Mercato (which seems to like riding high on the Booking.comExpedia wave), has availed of the tense interlude to streamline the online booking sector again by launching a monitoring project. This project aims at gauging the implementation of the commitments made by and Expedia in partnership with other nine National Competition Authorities (Belgium, Czech Republic, France, Germany, Hungary, Ireland, Netherlands, Sweden and UK).

This landscape having paved the way for a bit of self-promotion, I will take the opportunity to present my recent publication in the European Journal of Legal Studies with the headline: ‘Price parity clauses: Has the Commission let slip the watchdogs of war? Continue reading “Has the Commission let slip the watchdogs of war?”

The bonfire of the vanities 3.0

Google doesn’t seem to have expiated its sins as Berlaymont’s crusade is about to become a Seven Years’ War. This week, we have witnessed with weary amazement Mountain View’s questing beast being struck by two new charge sheets: a supplementary statement of objections that persists restlessly in the unpalatable self-preferencing theory of harm and a brand new accusation of limiting third-party websites’ ability to display advertisements from rival online advertising intermediaries. Thus, a third limb has now been added to Vestager’s admonition barely three months after the tech colossus was made aware of her concerns over Android (see ‘Do androids dream of exclusivity?’). Continue reading “The bonfire of the vanities 3.0”