The digital future of competition law

Digital technology is changing the lives of people and companies. One of the effects of digitalisation is that the competition instruments of 20 years ago no longer provide sufficient support in the modernised platform economy. Few means are available, for instance, to adequately regulate digital platforms. Germany and France have proposed legislative amendments at a national level to fill this gap. But they are following different approaches, which gives rise to the risk of fragmentation.

National competition authorities therefore considered it time for measures at a European level. In October 2019, the Dutch, Belgian and French competition authorities drew up a memorandum on the challenges with which competition authorities are faced in a changing digital world. Other EU Member States have also written a letter to Margrethe Vestager on how competition law can remain relevant and effective in a changing world. Competition authorities are clearly in search of support.

Digital Services Act package

The European Commission (“Commission”) has now taken up the gauntlet. Partly on the basis of these signals, the Commission has published its digital strategy, named ‘Shaping Europe’s digital future’. It promises the introduction of a Digital Services Act package. One of its objectives is to modernise enforcement instruments of competition authorities by means of two new Regulations. On 2 June 2020, the Commission presented the following two legislative proposals:

  1. An ex-ante regulatory instrument (gatekeeper instrument) aimed at controlling the market power of large platforms that act as “gatekeepers" at an earlier stage.
  2. New investigative powers for the Commission to tackle structural competition problems on “tipping markets”: markets that weigh heavily in favour of one powerful player, primarily due to network effects, but where no clear dominance has yet been established. At present they sometimes fall outside the scope of the EU competition rules or cannot be addressed effectively using existing instruments. The Commission plans to use the new tool to investigate both markets at risk of “tipping” and markets that do not deliver competitive outcomes even without anti-competitive conduct.

Gatekeeper instrument

The competition authorities’ memorandum already addressed the importance of ex ante instruments. The competition authorities stated that an instrument that allows the Commission and the Member States’ competition authorities to impose proportionate measures ex ante on dominant companies to avoid competition problems was preferable to ex post enforcement when competition law offences are committed. In the letter to Margrethe Vestager other competition authorities also expressed a wish for ex ante regulation of platforms that are of paramount importance to competition.

The Commission did not focus on dominance or on paramount importance. It stated in its initiative that measures could be imposed on platforms with a gatekeeper position to effectively avoid competition problems. The term “gatekeeper” was thereby introduced. That term has yet to be specifically defined at a European level, but it will most likely not be necessary to demonstrate dominance. Vestager has already stated during a meeting with the European Parliament that the term “gatekeeper” is difficult to define. The Commission wishes to base the definition of that term on familiar concepts in the enforcement of competition law, focusing on the essential facility doctrine and market power.

Dutch approach to gatekeepers

Mona Keijzer, the State Secretary for Economic Affairs and Climate Policy (the “State Secretary”), proposed a definition in a letter to the House of Representatives. Platforms would hold a gatekeeper position if consumers or companies have no means of avoiding those platforms, meaning that a company needs the platform to reach consumers, and vice versa. Those gatekeeper platforms could unilaterally determine what conditions they impose on consumers and companies.

A number of factors may be considered in determining whether a digital platform holds such a position, in the State Secretary’s opinion. Those factors are (strong) network effects, economies of scale, synergy benefits and single-homing. The State Secretary believes that a platform may be deemed to hold a gatekeeper position if those factors are present (to some extent).

New investigative powers for the Commission in tipping markets

Some markets are currently facing structural competition problems that primarily occur within digital platforms, which fall outside the scope of Articles 101 and 102 of the TFEU. The resulting problems cannot be dealt with in the most efficient manner on those markets. The Commission has therefore also organised a consultation on new investigative powers that supplement the gatekeeper instrument. Those investigative powers would allow the Commission to impose measures on certain markets or even certain companies. A position of power, for instance, would then not be required. Structural competition problems must exist for action to be taken on a market or at a company. Those problems may present themselves in two different ways:

  1. Structural risks to competition: certain market characteristics (such as network effects and economies of scale, the lack of multi-homing and lock-in effects) combined with the behaviour of the companies that operate on those markets may present a threat to competition. That applies in particular to markets that run the risk of “tipping” in favour of one large player. The risks to competition caused by market players with a large market or a gatekeeper position can be avoided by taking early action.
  2. Structural lack of competition: certain market structures do not deliver competitive outcomes (structural market failure) even without companies acting in an anti-competitive manner, e.g. in the case of high concentration and entry barriers, consumer lock-in, lack of access to data or data conglomeration. Oligopolistic market structures, for instance, increase the risk of tacit collusion.

After a structural competition problem has been identified by means of a market survey, the new instrument must allow the Commission to impose behavioural rules and, where necessary, to take structural (corrective) measures. But no infringement will have occurred and no fines will be imposed on the market players. The Commission has presented four options to that effect in its proposal:

  1. an instrument based on market position without sector boundaries. That would allow the Commission to take action on any market with structural competition problems at companies that hold a dominant position. Abuse of this dominant position need not be established in that case;
  2. a sector-specific instrument based on market position. The use of that instrument would be limited to markets where the main structural problems occur. This option appears to be directed at preventing abuse by Big Tech. Such a case must also involve dominant position;
  3. an instrument based on market structure that is directed at digital markets; or
  4. an instrument based on market structure that can be applied to every market.

The instruments in options 3 and 4 would pertain to every structural problem. Options 3 and 4 would thereby also offer a solution to structural market problems that are not directly related to dominance.

To be continued

It is not yet clear how the term “gatekeeper” and the new investigation powers will be used. It is clear, however, that fewer companies and markets will evade (or be able to evade) the competition rules. The Commission has stated that in Q4 of 2020, after the consultation has been processed (the consultation period runs until 8 September 2020), it will present further details of the two legislative proposals (Regulations). The first steps will then be taken to modernise the competition instruments. The Commission’s proposals have yet to pass through the legislative process. They have therefore yet to be approved by the European Parliament and the Council of the European Union. The Commission’s new initiative may run into obstacles there. To be continued, therefore.

Current ex ante regime in merger control

Regardless of the introduction of the proposed new ex ante instruments, supervisory authorities such as ACM are also able to use the existing ex ante instruments. In exercising its merger control, ACM has been able (twice) in less than one year to attach behavioural remedies to its approval of transactions involving data (and access to data) in combination with a possible gatekeeper role. Supervisory authorities such as ACM are likely to take that approach more often in such transactions. That should be taken into account both by the reporting parties and by their competitors in transactions involving the inception or reinforcement of a possible digital gatekeeper role.

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