top of page
  • giannitribuzio1

4-Digital Disruption: Competition laws for the Digital economy


Markets can exist along a continuum – from a perfectly competitive market where no single firm has dominant market power, to a perfect monopoly where a single firm has absolute control over what consumers can buy. A competition policy tries to balance competitive markets by supporting both effective competition and the optimal functioning of free markets but it is still an expression of the values of a Society, a particular Region ect and it may therefore be susceptible to change.


The aim of competition laws is to create legal tools designed to moderate the exercise of market power that often harms consumers and the market as a whole when it’s not moderated. The consequences of an abuse of market power might cause an artificial raise of prices, restrict competition, and deprive consumers of choice through limiting supply, reducing the quality or variety of products or services, and retarding innovation.


There are three key principles in competition law:

  1. Prohibition of cartels and other anticompetitive agreements (Collusion)

  2. Prohibition of the abuse of market power and dominance behavior and monopolization

  3. Scrutiny of proposed mergers and acquisitions between two or more firms that might significantly reduce effective competition levels


Competition laws in the Digital market (characteristics, limitations)


The digital economy has created new regulatory needs and challenges because of the nature of the online environment and the changed consumer behaviors. Main specific characteristics:


- Digital market have the tendency to create network effect. As a service increases in value more people in the same network find it valuable. This enable market monopolies and support single firm dominance,


- The prevalence of zero-price markets in the digital space makes policy regulation not applicable because the traditional indicator of market power (price) is not applicable here;


- The prevalence of multisided markets, which are characterized by multiple group of supply and demand having interaction in a platform; Its value proposition is to enable this connection, making it easier for them to find and relate to each other.


- Centrality of innovation; innovation plays an important role in digital market so any intervention in the market to limit it might cause a delay of innovation


- Digital ecosystems; a complex network of stakeholders that connect online and interact digitally in ways that create value for all.


These effects can create concentrated markets or even a single-firm monopoly. This is due to winner-takes-all dynamics, where the network effects make the growth of a platform increasingly dominant and resilient to challenges from competition. Important limitations of the current competition laws in the digital Markets are 1)The difficulty of demonstrating individual dominance in digital markets; 2)The need to distinguish between behavior that is simply unfair rather than anticompetitive; 3)The extensive time frame required to respond to potential violations, which is especially problematic in digital markets still in the early stages of change.


From the market side perspective the main problems are:


Self-preferencing

In the contest with digital platforms, self-preferencing involves a company giving preferential treatment to its own products or services on its digital platform, while in competition with rival products or services offered on that same platform. This could be anticompetitive when the platform operates in at least two adjacent markets: the platform market – where it holds a dominant position – and at least one adjacent market, where it provides goods or services through the platform in competition with rivals.

Big tech's role in the digital market is those of essential facilities, vertically integrated firms that facilitate trade. However, the unintended consequences of imposing limits is to discourage innovation that these big firms bring in a very dynamic market.


Strategic mergers and acquisitions

These are acquisitions where a large firm acquires a potential future competitor to remove competition from the market, thereby reducing the choice and variety of products available to consumers (dominant position). These may not be killer acquisitions in the traditional sense of acquiring duplicate and competing products and services, because they instead target complementary products and service

Should big tech firms be permitted to acquire a promising start up? The major challenge in these instances is that the decision relies on accurately predicting the future success of a start-up’s business model or product, which initially has limited market share and profitability


Algorithmic price collusion

Autonomous pricing algorithms have raised concerns of possible anticompetitive behaviors because may independently discover the benefit of avoiding price wars to maximize profits for sellers in an effort to rapidly respond to market changes, match prices to demand, and beat offers from competitors

This could enable collusion “by trial and error, with no prior knowledge of the environment in which they operate, without communicating with one another, and without being specifically designed or instructed to collude”



Possible Approaches to solve these problems:

  1. Co-regulation, where market-wide obligations are imposed on digital businesses

  2. Implementation of a code of conduct specific to large digital platforms

  3. Adoption of new regulatory tools to complement the existing competition law framework

  4. proposal to break up big tech companies or treat them like conventional regulated utilities.



THE DIGITAL SERVICE ACT (goals, benefit and challenges)


When internet was born 20 years ago it was considered by legal authorities as a shopping mall( ecommerce).Today things have completely changed and Internet has become THE market place (where people communicate, socialize, work).Our lives are online. The present regulation cannot cope anymore with the new business models adopted by very large players that have come to dominate the online world creating their ad-hoc ecosystems were few platforms control all others.


In a nutshell the regulators want to create the conditions for a fair digital market of the future increasing due diligence obligations for intermediaries of digital services by making them more accountable, to set a robust governance structure for the effective supervision of these providers (legal requirements and more stringent restrictions where necessary) and create greater transparency requirements to guarantee trust, fair trading, open choices and safety for the users


Harmonizing the current fragmented framework would benefit the service providers; Enhancing consumers’ protection would benefit citizens; Updating the liability regime of digital service providers( give legal certainty and clarity to online businesses about what their responsibility and obligations are) would benefit Society, the democratic control over platforms and mitigate systemic risks.


One benefit is to increase transparency by harmonizing practices, behavior and procedures and make them act quickly with clear rules. The business model based on digital platforms that use algorithms to structure a digital ecosystem on the base of online advertisement (to create data content) has potential consequence for Democracy, free debate. The approach seems to be collaborative because, to prevent misuse of platforms, Big Companies will promote compliance by voluntary own-initiative investigations (independent audits of their systems)


Another clear benefit of the proposal seems to be the increased due diligence obligations imposed on very big players (>45 million users). It seeks to install responsible and diligent behavior(accountability) of intermediary services providers to ensure a safe online environment to allow citizens to exercise their fundamental rights(freedom of expression and information).Few large providers will have onerous obligation like taking action against legal but harmful contents, illegal content and activities. Online platforms that enable consumers to enter into contractual agreements with traders hosted on their platform will be required to undertake checks on the trader. The checks must verify the trader’s identity and make sure that they are traceable before that trader can operate on the platform


Challenge: For very large platforms, the Commission would have direct enforcement powers and could impose fines of up to 6% of the global turnover of the service providers. This could be perceived as too punitive and create a case for a perceived hostile environment for big tech providers in EU although authorities say it is not attacking their size but simply making them behave more responsible.






2 views0 comments

Recent Posts

See All

Comments


bottom of page