Competition Policy in the Digital Era: Too Dynamic to Regulate?
It is well known that the overwhelming surge of technology prevalent in the past few decades has disrupted the legal industry. In the context of competition law, the dynamic nature of digital platforms, Big Data, Fintech and E-commerce is a key concern. The main topic of this article so arises: ‘are current competition laws and policies appropriate for protecting competition law in this dynamic digital era? If not, how should this area be regulated?
In April 2019, The European Commission published the ‘Report Competition Policy for the Digital Era’. This report emphasised that EU competition enforcement needs to be “adapted and refined” to account for the challenges posed by digitisation. So, what are these challenges? The three main challenges concern the distinctiveness of digital markets and platforms compared to other markets – giving them higher economies of scope; firstly, they have lower costs of production, which allows incumbent players to strengthen their positions over time. Moreover, it is more convenient for users to use existing technology or services regardless of any lower costs provided by new entrants; this phenomenon is known as ‘incumbency advantage’. Unlike what was previously thought, competition is not ‘one click away’. Finally, the issue of data collection has ever-increasing importance. These platforms collect vast amounts of data, which they can use in turn to develop and innovate. For example, Google can use the search data of users to improve its search engine algorithms; new entrants to the market do not have this advantage. The fast-moving and unique challenges posed by the rise of digitalisation requires the current competition rules to be adjusted to meet the intricacies this sector.
Current Competition Law Rules
According to Article 101 and 102 of the Treaty of the Functioning of the European Union (TFEU), the dominant approach as to the goal of competition law is consumer welfare. Consumer welfare concerns the harm or benefit to consumers in the form of high or low pricing. The efficacy of this model in the context of digital markets has been somewhat mixed. The model has been criticised as being too unduly focused on price, which makes it myopic with a too high of an evidential threshold for intervention. Antithetically, according to 'Unlocking Digital competition, a report by the Digital Expert Panel advising the UK Competition and Markets Authority (CMA), this traditional approach of basing competition policy on consumer welfare does not need to be changed. This is because consumer welfare can encapsulate quality, service level, privacy concerns if considered in a broader sense. Notably, the panel admits that the approach does need to be updated and adapted to work more effectively for the digital economy.
More practically, the issue with the current competition law framework is that certain unwanted practices of dynamic digital platforms can only be brought under the 'abuse of dominance'. This claim has a high burden of proof and decisions often take years to be decided, by which time the fast-paced digital market has already changed the way it operates. Therefore, the current ‘after event’ policy is arguably lacking.
Regulation and Reform
In June 2020, the Commission launched a consultation to seek views on Digital Services Act package. The Commission is considering gatekeeping regulations for digital platforms. Two of the measures proposed in the Act will lead to a reassessment of how the competition law rules apply to the digital services market. The first being a proposal for a new regulation to apply to online platforms that act as gatekeepers in markets. The second is a proposed introduction of a new market investigation tool to allow regulators to act more quickly to address cases of harm in digital markets.
In terms of gatekeeper platforms in the market, the Commission is proposing 'before the event' instrument to address market power concerns. Through this instrument, the Commission is trying to set out the 'rules of the game' in the digital market, ensuring that large platforms behave fairly towards consumers and can be challenged quickly and effectively by other market participants. This is an attempt to fix the previously slow-acting decision making by the Commission as well as trying to prevent market concentration and foreclosure. The tool could act as the equivalent to the UK's digital market taskforce, which promotes codes of conduct for specific digital markets. Such reforms mitigate the sluggish pace of 'after event' regulation by cutting the problem 'at its root'.
The consultation also includes a new competition tool which investigates digital markets of concern, usually with very few big players in the market, before abuse of dominance is established. However, it is essential to note that these powers are mere market investigation tools with no ability to enforce competition law rules.
Reform in this area of competition law has been long overdue with current competition law not quite attuned to the demands of rapid-fire digitisation. As with every piece of reform, the marker of success lies with its enforceability and ability to grant appropriate remedies. With giants like Google submitting a 135-page response pushing against the Digital Services Act in September 2020, it remains to be seen; will the new Digital Services Act rise to the challenge of regulating gatekeepers, or will digital markets be too dynamic to regulate?