The Commission’s documents include, among others, the following inception impact assessments:
i. In relation to the Digital Services Act package – one exploring policy options to amend the regulatory framework in cases where online ecosystems are controlled by large platforms, which may act as gatekeepers between businesses and consumers. Policies may include imposing up-front rules and obligations on how those platforms may behave.
ii. In relation to competition – one considering options for a new competition enforcement tool designed to address certain competition issues that cannot be tackled by the current EU competition laws. This tool would allow the Commission to investigate and impose remedies in markets which are not currently working well, similar to the UK’s market investigation tool.
The Digital Services Act package work is being undertaking by the European Commission under two pillars: one that seeks to put in place clear rules to protect users of digital services; and the other, to ensure platforms behave fairly and face competition.
While the Digital Services Act package is purely focused on digital markets and large online platforms, the option for a new competition tool to address structural issues could have implications beyond online markets. The rationale is that there is substantial overlap between digital and non-digital markets with the digitalisation of the economy. If the broadest option that has been put forward by the Commission is taken forward, this would allow the Commission to review and intervene in markets beyond large online platforms.
The consultation periods on these new initiatives are now open. Through the consultation period, the Commission will be interested to hear from smaller players, who have difficultly entering or remaining in markets, along with existing stakeholders, such as the large digital platforms. The consultation process offers any company that wishes to influence the ongoing debate a timely opportunity to get its views across.
New competition tool
Background to proposed competition power reforms. Current EU competition laws can address anti-competitive agreements, concerted practices and abuses of a dominant position. However, the Commission has been concerned for some time that there are certain structural competition issues, including that of some online platforms acting as gatekeepers between businesses and consumers, that cannot be addressed using current competition rules (indeed, some EU Member States have enacted their own laws to tackle these issues). To address these structural issues, the European Commission is consulting on options for a new competition tool as well as platform-specific ex ante (i.e., before the event) regulation. This will specifically look at the perceived issue that a limited number of large online platforms represent the largest share of certain digital markets and can act as gatekeepers to these markets.
Structural competition issues
What are structural competition issues? The Commission has identified two categories of structural issues: (i) structural risks for competition; and (ii) a structural lack of competition. The Commission has not given a specific list of markets covered by the impact assessment and this consultation is designed to elicit responses from a wide range of companies. There are qualitative descriptions of the features of the markets which may have structural competition issues, as summarised below:
- Structural risks for competition (referred to as ‘tipping markets’) – where market characteristics mean that a powerful market player can become established and entrenched or act as a gatekeeper to the market. For example, this may include social media platforms where there are strong network effects (i.e., users gravitate towards the platform with the most users).
- Structural lack of competition – where the market is not creating a competitive outcome due to market failure. This includes (i) markets where there are high barriers to entry, difficulties in accessing data, a concentration of market players and/or consumer lock-in; and (ii) oligopolistic market structures where there could be an increase in tacit collusion, which could include markets where there is more transparency through algorithm-based technology.
The Commission notes that while structural competition issues may be more common in digital markets, similar features may be found in non-digital markets as well.
What options are being considered to address the structural issues? The Commission’s stated focus is on helping SMEs compete more effectively against existing, powerful market players, the result of which should be lower prices and higher quality. The options being considered are:
- Option 1. A dominance-based competition tool applicable to all markets. This tool would allow the Commission (and national competition authorities) to identify the unilateral behaviour of a dominant company prior to it excluding competitors or raising costs, and to intervene against the dominant company without having to find an abuse of that dominance (as required under its existing powers).
- Option 2. A digital-market-only dominance-based competition tool. This would be similar to option 1 but would only apply to certain digital, or digitally enabled, markets which are considered prone to concerns due to existing positions of dominance in the markets. It is unclear which markets are intended to be covered, or whether this tool would be adaptable to future, new markets.
- Option 3. A market structure-based competition tool applicable to all markets. This option could apply to all markets and not just markets where there is a dominant player. This tool would allow the Commission to intervene where a structural lack of competition in the market prevents the market from functioning properly. The outcome of this could be the Commission recommending legislation to improve the market concerned (again, as above, companies in the market would not be found to have infringed competition laws).
- Option 4. The same tool as option 3 but again this would apply only to a limited number of digital, or digitally enabled, markets where concerns have been identified.
Proposals to regulate gatekeepers
What are the perceived issues with online gatekeepers? The Commission considers that a few platforms have a (disproportionally) large share of the value in the digital economy. These large players can act as gatekeepers between businesses and consumers, and benefit from strong network effects. The Commission is concerned that businesses are increasingly dependent on a small number of platforms, creating various problems: an imbalance in bargaining power; new entrants being unable to compete (which leads to less choice for consumers); and, due to the data they have gathered, large platforms finding it easy to enter adjacent markets (which, in turn, can lead to their capturing these markets).
What options are being considered to address these issues? The options being considered are ex ante regulation to ensure that the markets controlled by the large online platforms remain fair and contestable:
- Option 1. Revise the framework set out in the Platform-to-Business Regulation (EU) 2019/1150. This proposal would adapt the existing framework to cover certain practices by the platforms that fall within its scope. This could cover things like: platforms ‘self-preferencing’ (e.g., a search engine ranking its own services highest), data access policies and unfair contractual provisions. The amendments would potentially reinforce or extend existing rules within the framework around platform transparency (for instance, rules on data access).
- Option 2. Adopt a framework empowering regulators to collect information from large online platforms. This option seeks to amend the existing framework to allow an EU regulator to collect certain data to gain insight into the business practices of the platform.
- Option 3. Adopt a new and flexible regulatory framework for large online platforms. Criteria would be developed to identify which platforms this new regulation should apply to. Platforms falling within these criteria could be supervised and enforcement action taken by the regulator if needed. There are also two sub-options in relation to this:
(a) Prohibition or restriction of certain unfair trading (‘blacklisted’) practices by large online platforms acting as gatekeepers. The blacklisted practices would be set out and clearly defined. The relevant platforms would be prevented from implementing the blacklisted practices, presumably with the threat of sanction if they do.
(b) Adoption of tailor-made remedies which would target large online platforms acting as gatekeepers on a case-by-case basis where necessary and justified. Examples include non-personal data access obligations, specific requirements regarding personal data portability and interoperability requirements.
Next steps. Now is the time for stakeholders and interested parties to respond to the Commission’s consultations. Stakeholders have until 30 June 2020 to submit their views on both of the inception impact assessments, and the public have until 8 September 2020 to respond to the open consultations.
Client Alert 2020-385