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by Salvatore Nava

In early June, the Commission launched a public consultation for a New Competition Tool designed to address perceived gaps in EU competition law, especially when dealing with digital markets. The outcome of that consultation, including the Commission’s proposal, is expected to be published in the coming weeks.

Indeed, digital markets present certain features that make them prone to the emergence and persistence of market power. Network effects and a tendency to single-home, especially on the user side of platforms, contrive to make many digital markets susceptible to monopolization; data has emerged as an asset that provides an unmatchable competitive advantage to those that hold it; control over large user bases makes certain digital platforms indispensable trading partners for business users; further, digital companies often have a conflicting dual role as they operate both as platforms and as a business user over the same platform. So far, the existing competition law framework and the enforcement of competition rules by the European Commission and national competition authorities have proven to be somewhat ineffective in facing these challenges.

The story we have been told time and again by digital incumbents is that any market power they enjoy is fleeting, and as such not a reason for concern, as they are subject to disruptive innovations that would dislodge them from their leading market position. However, empirical evidence clearly shows that this is not the case: the likes of Amazon, Facebook and Google have not only maintained their leadership in their respective core business, but have been able to leverage it to enter and effectively monopolize adjacent markets. The resulting prominence across several, related markets reinforces their existing competitive advantage in a negative feedback loop that entrenches their overall position, which has become virtually unchallengeable.

Gatekeeper scenarios are also a source of concern. They occur in two-sided markets when users on one side (typically consumers) single-home: the platform they use then becomes the sole means for users on the other side (typically business users) to reach them, thus providing the platform with significant market power. A related scenario is one where the gatekeeper holds a dual role, maintaining the platform and operating as a business user, as this can create the incentive for self-preference: the platform would likely make higher margins from a sale made through its own seller, rather than a third-party one, thus creating the incentive for a discrimination that would harm competing business users of the platform as well as consumers.

These issues cannot be fixed through the use of traditional enforcement tools: Article 101 of the EU Treaty deals with agreements and does not cover these concerns; Article 102 of the EU Treaty could in theory be applied to some of them (such as gatekeeping) but has a number of limitations. Indeed, Article 102 allows intervention to deal with specific anticompetitive conducts. However, the competitive concerns that arise in digital markets are of a more systematic nature, stemming from the inherent characteristics of these markets: anticompetitive conducts take advantage of these features but addressing them through traditional enforcement tools would not represent an effective and lasting solution. Further, building an Article 102 case takes time: given how dynamic digital markets are, and how fast prominent positions can be gained (also thanks to networks effects), the enforcement of Article 102 may prove ineffective.

Along with the introduction of appropriate ex ante regulation, the Commission needs a new tool that enables it to intervene in a more flexible and timely manner, preventing companies’ conducts as well as market features from permanently harming competition. While it should not entail fines, the new tool should be backed up by full investigative powers: the Commission should be able to send requests for information and interview company management and personnel (as well as impose penalties for non-compliance). Building cases requires collecting information, and companies are often the best – if not the only – source of information. Further, the new tool should entail the ability by the Commission to make recommendations/proposals to policy makers as well as impose remedies on companies.

These powers should of course be balanced by appropriate safeguards. While it would not result in an infringement decision or in the imposition of penalties, the new competition tool could have relevant consequences on companies involved in the investigation, such as the divestiture of assets. It is thus essential that companies have every right to fully participate in the proceedings, access relevant documents, express their views and so on, very similarly to what occurs in art. 101 and art. 102 proceedings. This should also include the ability to appeal any decision and the right to have a full judicial review.