On 9 June 2016, the German Federal Cartel Office
("FCO") published a working paper on "The Market
Power of Platforms and Networks" in which it analyzes the
competition law concepts used to delineate markets and determine
market power in the context of digital platforms and networks. This
working paper complements the German and French competition
authorities' recent report on "Competition Law and
Data" (see our Client Alert dated 17 May 2016) and is further
proof of an increasing relevance of competition law in the digital
WORKING PAPER ON MARKET POWER OF PLATFORMS AND NETWORKS
European competition authorities including the FCO currently
devote significant efforts to applying traditional antitrust laws
to the digital economy. According to Andreas Mundt, president of
"[t]he digital economy ticks differently.
Large and powerful companies which dominate the digital economy
benefit from network effects. These heavyweights can make use of
big data to gain a competitive lead; newcomers, on the other hand,
find it difficult to keep up with them. Therefore, protecting
competition in the Internet means above all keeping markets open
for competitors, newcomers and new business models."
In order to better understand the challenges to traditional
antitrust laws, the FCO set up a "Think Tank" in early
2015 that is designated to develop models which enable the FCO to
quickly and efficiently assess cases involving the digital economy.
The working paper summarizes the results of such Think Tank to date
and proposes ways to delineate markets and assess market power with
regard to digital platforms and networks.
As regards market definition, the working paper essentially
proposes two adjustments to the application of traditional
antitrust laws in the digital economy:
Whilst the use of digital platforms and networks is often free
of charge, it may nevertheless constitute a market under the
applicable competition laws. Therefore, the general "no
payment, no market" rule should no longer be applied to such
form of digital economy.
In an M&A context, innovative start-ups may enjoy
significant economic importance for established acquirers even if
the turnover they generate may be low. In order to be able to
review these kinds of transactions, merger filing requirements
should not only be triggered if the parties meet certain turnover
thresholds but also if the transaction value itself is particularly
Given that digital markets are often characterized by a high
degree of innovation dynamics, the working paper takes the view
that competition authorities should not (solely) focus on market
shares of digital platforms and networks in absolute numbers to
assess market power. Rather, in the overall assessment the
following factors should be given particular weight:
the relevance of direct and indirect network effects;
the return on scale;
the prevailing types of use on the opposite market side
(single-/multi-homing) and the degree of differentiation;
the accessibility of data; and
the innovation potential of digital markets.
CONCLUSION AND OUTLOOK
The publication of the working paper on market power of digital
platforms and networks coincides with the FCO's ongoing
proceedings in the digital sector, such as regarding booking
platforms, Facebook's data policies, Amazon's audiobook
sales policies and others, as well as with the legislative process
to amend German antitrust laws later this year
(9thamendment of the German Act against
Restraints of Competition). Against this background, it
becomes clear that the FCO's working paper is as much an
analytical competition law paper as a policy paper. Therefore,
established companies as well as innovative start-ups in the
digital sector should be prepared for increased antitrust and
merger control scrutiny by the FCO in the digital economy.
This development is by no means limited to Germany. Competition
authorities around the globe – in particular in France and in
the U.S. – are currently increasing their scrutiny of the
digital sector and are adapting or even ramping up their legal
instruments to the challenges of the digital economy.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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