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German Monopolkommission dares to address challenges of digital markets! (III – Search, Social networks and e-Commerce)

Female with laptop in Camper VanThis last post on Monopolkommission’s report regarding the challenge of digital markets is focused on three specific topics: Search engines, Social networks and E-commerce.

 

With regards Search engines, the report acknowledges its importance for the digital economy, stating that they play a central role for internet users, operators of web pages and online advertisers and contribute significantly to lowering transaction costs. The market definition (the separation between general and vertical searches) and the market power associated only with market share of search inquiries is questioned and a call is made to take all sides of the platform and their interdependencies into account. The report highlights the tendency towards concentration driven by the amount of data controlled by the provider and the learning effect. It is also acknowledged that abuses could arise, for example, related to the preference of own services or the display of other providers’ content. In any case, the Monopolkommission does not advocate to regulate search platforms and, instead of it, it suggests to strengthen the enforcement of rights of other market participants, especially right-holders (it also recommend to further develop copyright rules), and the introduction of technical standards and regulations to enable users to actively select search providers.

 

We agree with these views by the Kommission, particularly with the trend to concentration and the possible abuses. We also think that regulation is not the best choice as long as it can decrease the incentives to invest and innovate. However, if regulation is not foreseen in cases where a platform take a gatekeeper role, the enforcement of competition law should be specially stringent, effective and agile to be able to avoid and punish eventual abuses. This should also be suggested to competition authorities in our view.

 

On Social Networks, the report also recognized its relevance, especially for communication purposes and for creating sharing content, calling attention on the concentration of user interaction on Facebook. The Monopolkommisison highlights the tendency to concentration due to the network effects, the lack of interoperability, the high switching costs, the lock-in effects and the lack of data/content portability. It also acknowledges the potential for abuse, exclusionary (as for example competitors’ foreclosure) or exploitative (as excessive data collection). The central role of user data and the need for consumers and data protection (asking for rules on the “right to be forgotten” and data portability) is also mentioned. The Kommission concludes that current competition law does not need to be adapted to solve competition concerns regarding social networks, but additional legal measures are demanded to create an special and enforceable statutory right of choice for internet users, allowing them to be better informed about the scope of any consent, to enforce their privacy rights or even to refuse the use of their data without losing the right to use the service. The report also suggests to increasing the conciseness and relevance of standard T&Cs, applying the same rules to free charge services as to the ones applied to paid services.

 

Telefónica strongly supports these views by the Monopolkommission, but being also aware of the difficulties in the application of traditional competition law tools to digital markets (with particular features: free services, multi-sided markets, network effects, etc.), we would also advocate for a more dynamic, flexible and innovative application of the current rules to these markets.

Finally, regarding e-Commerce, while acknowledging its current significant position, the report highlights its growth tendency and expects that further increases in the share of retail sales will take place. Trading platforms and online market places are the main players, where dealers, consumers and advertisers connect, bringing many advantages for all of them and the economy as a whole. As they compete with stationary dealers the market definition is difficult. In some areas, market concentration is a fact, and joined to indirect network effects, scale effects, restrictions to new suppliers and reputational effects can create the conditions for competition concerns to arise, sometimes even below the level of market dominance. Main problems would be related to buyer power –for instance, abusive purchase practices- and vertical integration -discrimination in favor of own services, aggressive growth strategies, vertical restraints like price parity clauses or prohibitions to use third-party platforms, as well as cross-border trade restrictions. In any case, the Kommission does not see the need for legislative changes and thinks that competition concerns could be solved through current competition rules.

 

We also share the Monopolkommission views that any competition concern could be solved through competition law and we also welcome the sectorial enquiry launched by DGCOMP, which hopefully will bring more light on the different aspects of the eventual restrictions on e-commerce across Europe. The diverse and complex reality of this mean of distribution should be thoroughly analyzed to check if some of the restrictions are just due to the own nature of some products (for example the language in the case of contents) or if anticompetitive conducts are taking place.

 

With this post we finish a detailed analysis on the Monopolkommission report which has been a very welcome beginning on the analysis of digital realities by competition authorities and regulators. We hope that this is just the very beginning and that innovative and dynamic approaches will be developed by those regulators in charge of the challenging task of applying competition law to this “brave new digital world”.

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Enrique Medina

Chief Policy Officer of Telefónica