United States: Abuse Of Dominance Concerning Online Platforms

Large online platforms such as Amazon, Facebook and Google have a strong presence in Europe. Although general competition law principles apply to them, cases concerning  online platforms give rise to a lot of novel questions in respect of the application of Article 102 of the Treaty onthe Functioning of the European Union (TFEU) compared to  traditional ‘analog’ markets. Among others, questions arise as to the definition of online platforms for the purpose of antitrust enforcement, the definition of the relevant market and the assessment of market power. Despite these uncertainties in the competitive assessment, competition authorities at both European and national level are increasingly focusing on online platforms. 

Identifying Online Platforms

There is a wide set of different businesses commonly categorized as online platforms, from online advertising platforms (e.g., Google’s AdSense) to marketplaces (e.g., Amazon), from social media (e.g., Facebook) to search engines (e.g., Google), from transportation businesses (e.g., Uber) to accommodation systems (e.g., Airbnb). This triggers the question as to whether there is a single all-encompassing definition of online platforms. This is relevant for various reasons. First, as online platforms engage in different economic activities (e.g., intermediation of supply and demand as well as supply of products or services to customers), it is important to determine whether there are separate ‘undertakings’ within the meaning of Article 102 TFEU for each activity performed by the online platform. Second, uncertainties as to the boundaries of the notion of online platforms might have an impact on the prima facie competitive assessment and the number of players deemed to be active on the same market, including a finding of market  power and abuse. Finally, the European Commission  (EC) is attempting to introduce sector-specific regulations that will necessarily require a delimitation of the scope of  application.

In order to provide a definition of practical relevance for antitrust enforcement, the Bundeskartellamt (BKartA) has defined online platforms as undertakings providing intermediation services that allow for direct interaction between two or more distinct groups of users connected by indirect network effects.1  In the BKartA’s view; therefore, an appropriate platform demarcation requires a broad definition of indirect network effects covering both platforms with bilateral positive indirect network effects (e.g., hotel booking platforms) and platforms with unilateral indirect network effects (e.g., advertising platforms).

Conversely, the EC has concluded that “there is no consensus on a single definition of online platforms as a clear- cut definition would likely be too narrow, or conversely apply to a very wide range of internet services.”2 However, instead of providing a single all-encompassing definition, in its Staff Working Document3 the EC identifies a number of important characteristics that online platforms generally share, i.e., (i) the capacity to facilitate and extract value from direct interactions or transactions between users; (ii) the ability to collect, use and process a large amount of personal and non-personal data in order to optimize inter alia the service and experience of each user; (iii) the capacity to build networks where any additional user will enhance the experience of all existing users (‘network effects’); (iv) the ability to create and shape new markets into more efficient arrangements that bring benefits to users but may also disrupt traditional ones; and (v) the reliance on information technology.

Although a one-size-fits-all definition seems to be difficult, the definition issue is of utmost importance and requires at least a case-by-case analysis based on predefined characteristics as those identified by the EC.

Defining The Relevant Market

Although the general principles (substitutability from both demand and supply sides) apply to the definition of the relevant market concerning online platforms, cases involving these businesses may also give rise to novel questions. First, many online platforms are used for free, and since price is traditionally considered an essential competitive  parameter, the question arises whether a market exists at all when services are offered completely free of charge. Second, most online platforms are characterized by multi- sided markets, thus the question arises as to whether the two sides of an intermediation platform should be considered as distinct relevant markets or whether the platform offer should be treated as one product. Although in some cases the EC identified a single two-sided relevant market,4 some competition authorities like the BKartA have called for a case-by-case analysis. Ultimately, this determination is fundamental to the assessment of market power and the competitive constraints faced by online platforms.

Assessing Online Platforms’ Market Power

The question as to whether an undertaking is dominant plays a decisive role in the application of competition law. However, also in relation to the assessment of market power, online platforms present some specifics that need to be taken into account. First, possession of vast amounts of data by online platforms is a factor that might indicate market  power, as pointed out for the first time in Facebook/WhatsApp.5 Indeed, the more detailed data online platforms have, the more knowledge they will acquire about customers, thus enabling them to provide better services at a lower price, which in turn will increase their market power over time. As the former president of the French Competition Authority (FCA) Bruno Lasserre clearly put it, “market power comes from companies’ capacity to collect a large amount of personal data and to use it commercially.” Second, online platforms have a strong incentive to be first movers due to significant winner-takes-all effects. Third, multi-homing, i.e., the practice of using two or more platforms simultaneously, may have a significant impact on the competitive constraints faced by a platform, thus reducing their market power. Finally, market shares are a less reliable proxy of market power compared to traditional markets. This is because the possibility of disruptive competition is inherent in the digital markets, and a very strong market position could be suddenly challenged if there are low barriers to entering the market, thus leading to dominant firms rapidly losing their ephemeral market power.

Recent Dominance Cases Concerning Online Platforms In Europe

Despite the difficulties and uncertainties faced in the enforcement of antitrust rules vis-à-vis online platforms, both national competition authorities and the EC are becoming increasingly active in these markets.

In March 2016, the BKartA announced that it had opened proceedings against Facebook to assess whether the use of terms and conditions in violation of data protection provisions could amount to an abusive imposition of unfair conditions on users, thus breaching German provisions prohibiting abuses of dominance.6 This is one of the first instances where antitrust law met privacy provisions in a fully fledged probe, which is why it attracted criticism for trespassing on privacy issues.

In May 2016, the FCA initiated a sector inquiry on online advertising and data processing, with a view to assessing the competitive situation in that market.7 In addition, in July 2017 the FCA went a step further and launched a public consultation with the aim of complementing the information already gathered as a result of the inquiry.8

At the EU level, the EC is also increasingly focusing on the enforcement of antitrust provisions in digital markets. For example, in June 2017, it fined Google €2.42 billion for abusing its dominant position as a search engine by promoting its own comparison shopping service in its generic search results and demoting the results of its competitors  through its generic search algorithms.9 Furthermore, Google is facing two ongoing probes into its Android mobile operating system and AdSense advertising system, which might come to an end in the next few months.

Conclusion

Online platforms pose a number of interesting questions in relation to various aspects of competition law assessments. Competition authorities across Europe are still in search of an approach towards these issues, and such uncertainties raise criticism in light of the need for legal certainty. Significant caution will need to be taken when applying general principles to online platforms, also in light of the fast-moving nature of these businesses.

Footnotes

1 Bundeskartellamt’s Working Paper, The Market Power of Platforms and Networks, June 2016, p. 2.

2 Commission Staff Working Document, Online Platforms, Accompanying the document Communication on Online Platforms and the Digital Single Market, SWD(2016) 172 final, p. 2.

3 Id.

4 Case COMP/M.4731 - Google/DoubleClick.

5 Case COMP/M.7217 - Facebook/Whatsapp. 

6 Press release, Bunderskartellamt initiates proceeding against Facebook on suspicion of having abused its market power by infringing data protection rules, March 02, 2016.

7 Press release, The Autorité de la concurrence begins, at its own initiative, gathering information in order to assess data processing in the on-line advertising sector, May 26, 2016.

8 Press release, Public consultation on online advertising, July 11, 2017. 

9 Press release, Antitrust: Commission fines Google €2.42 billion for abusing dominance as search engine by giving illegal advantage to own comparison shopping service, June 27, 2017.

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