German competition authority publishes working paper on market power of platforms and digital networks
Published on 5th Jul 2016
Competition authorities across Europe are currently taking a closer look at the challenges of applying competition law in an online world. While the European Commission’s Digital Single Market initiative looks at the broad principles of how tech, media and comms businesses should be regulated, competition authorities are faced with rapidly evolving markets and the question of when a digital player can be deemed to have market power. This is particularly true as data becomes currency and fundamentally changes the way that companies compete.
Germany takes the lead
At the forefront is the German Federal Cartel Office (Bundeskartellamt), which has made the digital sector its top policy priority. In May, the Bundeskartellamt published a joint study with the French competition authority on competition law and data (click here). In addition, the upcoming amendment of the German Act against Restrictions of Competition (ARC) will address various aspects relevant to digital markets (click here).
Think Tank on Platforms and Social Networks
The latest development was announced on 9 June 2016 when the Bundeskartellamt published a working paper on the market power of platforms and
networks on the internet.
The paper presents the first results of a “Think Tank” that the Bundeskartellamt set up in early 2015 to research the special characteristics of multi-sided platforms and networks and how they should be treated in antitrust cases. This was a reaction to the discussions about the competitive harm caused by new business strategies and competitive conduct by large internet businesses such as Google, Facebook and Amazon. The Facebook/Whatsapp merger had faced particular scrutiny because the traditional tools used to assess the market impact of a merger did not enable the European Commission to examine whether the personal data held by the parties translated into market power.
The objective of this project was therefore to develop models which will enable the Bundeskartellamt to quickly and efficiently assess cases involving the digital economy.
In its working paper, the Bundeskartellamt has summarised its conclusions from the Think Tank’s work. Overall, the Bundeskartellamt is of the view that traditional antitrust analysis continues to apply in this area and will only require some modifications in respect of certain aspects.
The Bundeskartellamt concludes that, in principle, general market definition concepts apply equally to online platforms and networks; in particular turnover continues to represent a pivotal parameter in defining a market. However, the Bundeskartellamt recognises that, due to the specifics of the digital economy, the general rule of ‘no payment no market’ may not be adequate. Thus a market may exist when a user provides personal data in exchange for the platform’s services, or even when the use of the online platform is free.
This analysis translates into the assessment of whether platforms and digital networks have market power. The Bundeskartellamt considers that, in most cases, traditional methods of assessing market power can be used. However, account should be taken of the specifics of multi-sided platforms. To examine the market dominance of digital platforms and networks, the Bundeskartellamt therefore considers the following factors particularly important:
- direct and indirect network effects – for example, a new sharing economy businesses will require a critical mass of users in order to attract businesses, but will also require a critical mass of businesses in order to attract users. This may pose a challenge to new entry in the market;
- economies of scale;
- the prevailing types of use on the opposite market side – for example, whether ‘single-homing’ (where customers use only one platform) is prevalent and the degree of differentiation between platforms;
- access to data; and
- the innovation potential of digital markets.
The Bundeskartellamt believes that it has now identified the appropriate instruments to assess digital platforms and networks and the working paper can be considered to set out its analytical framework. The working paper is therefore a step forward in legal certainty on how to assess tech, media and comms businesses under current competition law. It may also be used as a reference for internet companies when assessing their own market position and practices. Here is the link to the Bundeskartellamt’s working paper (in German).