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Quo Vadis, European Competition Policy?

“Shaping competition policy in the era of digitization” was the ambitious title of Brussels’ latest competition conference hosted by none other than Commissioner Vestager herself. The conference, composed of a series of panels and a keynote address delivered by Nobel Prize winner Prof. Jean Tirole, is part of a wider reflection process within Europe’s highest competition enforcer about the future of competition rules. Are they fit for the digital economy? Do they bite fast enough? And what about all those issues brought by multi-sided online platforms?

While these and many other related questions continue to be controversially discussed, it’s probably fair to say that overall, the conference would have benefited from a more diverse debate. The truth is that you don’t even have to look towards the digital industries to find voices that caution against stronger competition and regulatory intervention just because companies happen to be active over the Internet. But let’s dive into some of the topics which stood out and where Europe’s competition enforcers and the conference room would have benefited from a wider spectrum of perspectives.

First, ‘data’ was probably the single most mentioned word throughout the conference. Competition and (big) data is certainly no newcomer to the world of competition conferences, but the focus on the accumulation of data and the endless, positive data feedback loops (basically data competitively helping a company which in turn leads to even more data as consumers stay with the service) was remarkable. Some speakers discussed whether certain data or datasets could qualify as an ‘essential facility’ which could force a company into sharing that data with competitors. There is nothing to be said against thought-provoking ideas but more perspective on why some inherent characteristics of data, for example it being a non-exclusive asset, may not make it the most effective moat protecting companies from competition would have been welcome. Maybe the discussion would have also profited from somebody explaining that in many instances the true ‘bottleneck’ is data analysis — i.e. the talent you need to convert data into something meaningful.

But leaving these more technical aspects aside, a qualified industry speaker may have made the most important point of all: in consumer markets the amount of data will not help any business if that business doesn’t have products that attract consumers in the first place. Data collection starts with consumers actually using a service they like. She or he might have also pointed to industry-led efforts like the Data Transfer Project making it easy for consumers to port their data from one service provider to another. And just a small comment on the positive feedback loop: using data to improve a product to better meet customer needs, i.e. making a product more competitive, can hardly be a competition problem.

Second, it’s quite likely the second most mentioned word was ‘GDPR’ (General Data Protection Regulation) — at a competition conference, believe it or not. Related to the above, some speakers openly complained that GDPR would stand in the way of data sharing obligations because data processing will often involve personal data. There is some irony to this point: for years European regulators have tried to find solutions to the wide availability and collection of personal data culminating in the GDPR to only argue that now, data is such a scarce and exclusive asset that it may necessitate forced sharing. Maybe it’s just a clash of different regulators’ different points of view but one thing is certain: you cannot have it both ways. In that context, it was also rather remarkable how many speakers would welcome the idea of increased regulation while in the same breath pointing to the GDPR as a bad example of regulation. A more informed discussion about the pros and cons of regulation would have been more than desirable.

Third, ‘big is bad’ no longer seems to be only a European thing. The only non-academic and (officially) non-industry organization invited to speak at the conference, the US-based Open Markets Institute (OMI), made it quite clear that it has big problems with big players. In a long tirade against Amazon in particular that fluctuated between hyperbole and sheer mischaracterization, the company, and with it other platforms, were compared to state-like entities wielding excessive power. OMI’s arguments very much rested on the notion of Amazon simply being a very big player in retail which should not be allowed to operate as freely as other retailers. OMI claimed, for example, Amazon should be prohibited from producing and selling their own private label products, a common practice among retailers, for fear of discrimination. The problem with this reasoning is that Amazon is very far away from being the biggest retailer in Europe. In Germany, Amazon is the 5th biggest retailer, more than 3 times smaller than leading Edeka (measured in annual turnover). Amazon also happens to be the 5th biggest retailer in the UK, almost 3 times smaller than leading Tesco. Its annualised revenue as a proportion of total UK retail spend in 2017 was ‘only’ 4.2% — hardly a number indicative of ‘dominating’ retail. In France, Amazon doesn’t even make the top 10 list. In appealing for Amazon to be constrained OMI hasn’t looked at the numbers; if it had it would know that many other retailers would need to be regulated before Amazon.

There are many angles this discussion could have benefited from but surely one of them is the underlying economic incentive for a given behaviour. OMI stated that Amazon gives preference to its offers over the offers of third party sellers which it labeled as ‘discrimination’. Leaving aside the absence of any data to support this claim, the brutal truth is that in all likelihood Amazon would not even have an economic incentive to do that. That is because in general, retail is a fiercely competitive, low margin business (the annual operating margin is around 3% for retail while it is 33% for software and programming). It would not be surprising if Amazon’s marketplace business, i.e. its intermediation activity, was simply a more lucrative area of business than retail. Ironically, this would incentivize Amazon to actually favour sellers over its own retail business. Be that as it may, the main point is that things are just more complicated and hence require a deeper conversation than vague accusations of ‘discrimination’ — particularly if your proposed solutions include price regulation and allowing the effective cartelization of business users to ensure countervailing power.

Where the European competition policy debate will go from here is unclear. However, going forward, it certainly deserves more thought, balance and quite simply market insight. Rushing things could come at the expense of rigorous analysis that is particularly important in an area of enforcement that can have a considerable impact on a business. There are very good reasons for why the threshold for intervention was set at such a high level. Enforcers should not lose sight of that.

European Union

DisCo is dedicated to examining technology and policy at a global scale.  Developments in the European Union play a considerable role in shaping both European and global technology markets.  EU regulations related to copyright, competition, privacy, innovation, and trade all affect the international development of technology and tech markets.