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German Monopolkommission dares to address challenges of digital markets! (I)

 

business concept on wallThe ever growing use of digital services is confronting companies, consumers, politics and society as a whole with new challenges. Competition policy is also facing the necessity to adapt to these new developments. The German Monopolkommission is firmly decided to address these challenges to competition policy in the special report “Competition policy: the challenge of digital markets” (you can access the full report, in German language only, here). The report evaluates the need for action in terms of regulation and competition law considering economic characteristics of digital markets and the relevance of data for digital business models.

 

Telefónica, as many other players in these markets, celebrates that competition authorities and regulators start to realize about, and most important analyse, the complex reality of digital markets and the doubts it poses on the application of competition law. We share the view of the Monopolkommission on several of the topics related to digital markets specific features, which we have in many occasions highlighted. Those are the following:

 

-          Multisided nature of digital business models. Multisided digital platforms are acknowledged to have a significant role on competition dynamics given the powerful market positions they enjoy. An economic analysis of such platforms is complex, with conventional methods not being sufficient and with the need to consider all sides of a platform in the analysis.

 

-          Network effects. The more members the platform has the more attractive it is for the individual member. Direct and indirect effects (crossed between different sides of the markets) have an economic significance to be analysed.

 

-          Vertical Integration and data concentration. The broadening of their activities into adjacent markets and convergence of services (operating systems, hardware, household technology, telecommunication infrastructure, autonomous mobility systems, …) all with the potential objective of accumulating additional users’ data volumes, though might enable companies to better respond to users preferences, may be problematic from a competition policy perspective. These may result in stable, long term, overarching systems controlled by a unique player, thus prompting the risk of locking-in users, according to the report.

 

The power and value of personal data and its relevancy for competition is fully acknowledged by the Monopolkommission. Not only the competitive advantage implied by having huge amounts of data and the capability of analyse it, but also the related privacy concerns are highlighted. The usage of the data can have positive effects on welfare such as derived by personalisation of services, but also negative, such as price differentiation on users unaware of the use of their personal data.

 

The report makes a competition assessment on different platform ecosystems, such as online advertising markets, search engines, social networks, and e-commerce, providing a legal perspective on the protection of undistorted competition. In the case of merger control, the Monopolkommission does consider the existing legal framework not being sufficiently effective, highlighting the case of acquisition of companies with low turnover but holding commercially valuable data or having a considerable market potential for other reasons, which cannot be captured under current notification requirements; nor by the EU law, neither by the German one. This is a clear reference to the purchase of WhatsApp by Facebook and the challenges posed to the current merger control procedure already highlighted in post early 2015.

 

The report also analyses, although it is not its main focus, the influence of digitalization in the broader economy and works out four general principles to be observed. Firstly, the Commission emphasises on the need of an ongoing re-assessment of the regulatory framework in areas where innovative business models or services have entered regulated markets.

 

Secondly, the extension of regulation on Internet service providers intended to create a level playing field should only be the case when their effect on the market is comparable with that of non-Internet-based service providers with whom they compete.

 

Thirdly, political support to “Industry 4.0” business models (adjustments to existing business models to the digital economy) should be addressed to minimize the risk of competition distortion as a side effect. And finally, public funding mechanisms in areas where competition appears to fail, such as young innovative companies or start-ups, raise no competition related concerns, being positively valued.

 

To finalise the report, the Monopolkommission summarizes into a set its policy recommendations for the development process of the digital markets that shall be the subject of an additional post in this series focusing on the Commission report. Stay tune not to miss it!

 

Note: This post is based on the English summary of the report provided by the Monopolkommission itself

 

También puedes leer este post en español aquí.

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Enrique Medina
Chief Policy Officer