Competition Law in the Digital Market
WEEK 1
Introduction to EU competition law
Prohibition of cooperation: Article 101 TFEU
● Directed at cooperation (i.e. multilateral)
● Not an absolute prohibition; exceptions contained in subparagraph
Prohibition of abuse of dominance: Article 102 TFEU
● Focused on one company acting in a way that is bad for competition (i.e. unilateral)
Merger control: Merger Regulation
● Prior approval of big mergers & take-overs
+ Article 106-109 TFEU
Competition in internal market
(Parts of) EU competition law can be explained via internal market (which is about free movement (Article 26(2)
TFEU)
- Internal market is an area without barriers to free movements; undertakings are thus not allowed to
reconstruct such barriers → Consten & Grundig (c. 340)
Do we block everything that creates a barrier to trade between Member States?
Consten & Grundig
● Importance of free movement of goods within EU & exclusive distribution agreements are only permissible
under certain conditions
Designing competition law
- All agreements that intend to restrict trade between MS are prohibited
- Limitation: subjective test; difficult to prove intent
- All agreements that intend to have an effect on trade between MS are prohibited
- Limitation: positive effects on trade would also be excluded & all agreements on cross-border trade
will be included → it is too broad
- All agreements that intend to or result in an effect on trade between MS are prohibited
- Limitation: no intention has to be proven, but how is the effect assessed?
- All agreements that intend to or result in an effect on trade between MS are prohibited unless this effect is
justified on grounds of [….]
- Strengths: escape clause & broad formulation
>Which is best and why?
● Broadly formulated prohibition with an escape clause
Competition law beyond the internal market
Competition law is not just about the creation of the internal market; while it is an important aspect thereof, it is not
the only one → there has to be another motive
● There are no statutory objectives for EU competition law (unless we consider Article 3 TFEU), so we are left
with reverse engineering
Framework for reverse engineering
Factors relevant to (understanding) competition (based on economics) → S-C-P thinking
1. Market structure
a. Number of companies in the market?
i. Monopoly
1. Single company has exclusive control over supply of produce/service in market;
characterized by absence of direct competition; firm holds significant market
power & faces (little to) no competition → dictate prices, output levels & other
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, market conditions without (significant) constraints; may lead to higher prices,
reduced consumer choice & lower levels of innovation and efficiency
a. Monopolies that abuse their market power to stifle competition/harm
consumers are undesirable from competition & consumer welfare
perspective → lack of innovation, higher prices, undersupply &
potentially poor quality products
b. Natural monopolies are not necessarily illegal or harmful; may be
allowed or regulated (eg. utilities providing essential services like water
or electricity) to benefit from economies of scale/it not being
economically feasible to have multiple providers
+ Regulated monopolies
ii. Perfect competition
1. Large number of small firms producing & selling identical/homogenous products;
no firm has ability to influence market price/conditions
a. Characteristics:
i. Many buyers & sellers
ii. Homogenous products
iii. Perfect information
iv. Free entry & exit
v. Price takers
vi. Profit maximization
iii. Oligopoly
1. Small number of large firms dominating market for product/service; have
substantial market share & influence over market conditions
a. Characteristics:
i. Few large firms
ii. Interdependence
iii. Barriers to entry
iv. Product differentiation
v. Non-price competition
vi. Collusion & strategic behavior
vii. Price rigidity
b. Example: market for petrol retailing along motorways
i. Closed-off market & entry barriers
ii. Limited number of companies
iii. Homogenous products & price competition
iv. Price transparency & consumer choices
v. Price signaling & cartel behavior
vi. Oligopolistic interdependence
vii. Coziness & higher prices
iv. Moligopoly
1. Mixture between monopoly & oligopoly; most relevant for digital markets
b. Barriers to entry/exit (including legal barriers (eg. contracts) or algorithms & geoblocking in digital
markets)
i. Lower barriers = better market structure
1. Company will always behave good, as it will fear potential competition—it will be
aware that negative changes in conduct will lead to new competitors entering
market
2. Conduct of market
a. How are the companies behaving in the market?
i. Combine structure + conduct as indicators
1. How will monopolists behave in the market?
2. Are monopolists incentivised to innovate?
ii. Bad behavior, but why is it bad?
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, 1. Because of its impact on structure
2. Because of its impact on performance
3. Because it is bad in and of itself
3. Market’s performance
a. Focus on consumer welfare
i. Forms of efficiency in economics
1. Static efficiency
2. Dynamic efficiency
ii. Consumers benefit from these efficiencies → receive innovative products with right quality,
at right price (as opposed to lower production, outdated & overpriced products, etc.)
Reverse engineering case-law
A great amount of cases involve (potential) competitors; few cases concern consumers complaining about
infringements of competition law
● Efficiency, competitive processes, competitors → Intel (par.41)
● Safeguarding competition as a means to promote consumer welfare & economic efficiency → Metro I
● Promoting competition, protecting consumer welfare, preventing abuse of dominance → GlaxoSmithKline
● Exclusionary abuses, multi-sided platforms, objective justifications → Cartes Bancaires
Applying S-C-P thinking to EU competition law
Structure determines whether Art. 102 applies
● Art. 102 applies to markets with ‘bad structure’ → dominant companies
Conduct determines whether Art. 101 applies
● Art. 101(1) applies to ‘bad conduct’ → conclusion of an agreement or concerted practice
Performance determines whether Art. 101(3) applies
● Art. 101(3) provides an escape clause if agreement is good for consumers → fair share for consumers
+ S-C-P thinking vs S-C-P paradigm
>What determines whether EU competition law intervenes & what is the appropriate test?
- S-C-P thinking by Harvard school economists:
- They believed that there was a one-way causal relation between S, C, and P → must only
examine market structure as a poor market structure determines all other factors
- Allowed them to merely look at structure; lower burden of proof for competition authorities
(number of companies & barriers to entry)
- S-C-P paradigm by Chicago school economists:
- Disproved S-C-P thinking; no evidence that points to such a one-way causal relationship
- Impact on normative value of theory
- Antitrust as focus on consumer welfare prescription—only applies when there is
an impact on consumer welfare
- Consumer only cares about P; market structure & conduct are not as interesting
Which indicators matter (most)?
>Different approaches based on EU case-law—there is no single decisive factor/litmus test; EU competition law can
be triggered by various effects in relation to S, C, and P
● Metro I
● GlaxoSmithKline
● Cartes Bancaires
Different actors attribute more weight to certain indicators while attributing less importance to others, why?
Error-cost framework
Competition laws are about protecting competition–but we do not know what exactly competition is and therefore
cannot predict when there will be a restriction thereof; we need clear(er) indicators of when there is a restriction of
competition for legal certainty
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, - Costs of administering certain tests can be very significant whereas these tests may also yield ambiguous
results
- Concept used to balance the costs of potentially making mistakes or errors with the costs of false
positives and false negatives
- Example: COVID-19 tests conducted in classrooms
- Relation to competition law:
- The more complicated & uncertain competition law is, the larger the error-cost becomes → would
the costs of an intrusive measure to identify consumer benefit/loss outweigh the costs of not
intervening in a company’s behaviour?
- Determining conduct & performance of market participants becomes more challenging
- Particularly in digital markets, competition law becomes more complex &
uncertain
- Only if all actors agree that X is bad for competition, can we intervene; anything that falls in a gray
area is an error-cost (i.e. cost of potentially getting it wrong outweigh potential benefits to
competition)
- Undefined nature of competition makes it difficult for authorities to form opinions &
consensus on whether certain actions are harmful to competition
- In absence of consensus that a specific behavior is detrimental to competition, intervention may
thus be limited due to potential error-cost outweighing benefits to competition cause companies are
afraid of infringing
Importance:
● The more uncertain & unpredictable competition law and its infringements are, the more likely companies
may refrain from engaging in certain activities due to fearing potential fines + chilling effect (i.e. competing
less intensely because companies are afraid of infringing competition law) → certainty of competition law is
needed
Error-costs in digital market
Costs of getting competition wrong in a digital market can be significant:
1. Consumer harm
a. Reduced innovation and variety
b. Higher prices and reduced affordability
c. Limited consumer privacy and control
2. Limited market competition & market consolidation
a. Barriers to entry and market concentration
b. Potential for abuse of market power
3. Negative impact on digital ecosystems & economic impact
a. If online retailing dominates due to limited competition, it can lead to the closure of physical shops
and traditional retail establishments → job losses & decline of local businesses and communities
Example(s): Cartes Bancaires
● Error costs would relate to the consequences of either wrongly finding an abuse of dominance or failing to
identify and address anticompetitive conduct
○ If the competition authorities had wrongly found an abuse of dominance in the Cartes Bancaires
case, it could have resulted in unnecessary intervention in the market, potentially imposing costs on
the dominant firm, CB, and affecting the functioning of the payment card system
■ False positives = authorities incorrectly concluding that CB had engaged in exclusionary
practices when, in fact, there was no actual abuse
○ If the competition authorities had failed to identify and address the anticompetitive conduct in the
Cartes Bancaires case, it could have perpetuated anticompetitive behavior and hindered the entry
of new competitors in the payment card system.
■ False negatives = authorities failing to detect and address an actual abuse of dominance
To address these costs and ensure effective competition in (digital markets), competition authorities and policymakers
need to adapt competition law frameworks and enforcement mechanisms → new regulations, guidelines, or
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