Abuse of Dominant Position in Digital Markets – What does Change?

Research output: Contribution to journalArticleScientificpeer-review

Abstract

The aim of this article is to analyse the application of Article 102 TFEU to digital markets. So far, most important cases have dealt with digital platforms that act as intermediaries. As the markets concerned are normally two- or multisided, the antitrust analysis becomes more complicated than in “traditional” abuse cases. According to a standard economic definition a market is two or multisided if the platform can affect the volume of transactions by charging more to one side of the market and reducing the price paid to the other side by an equal amount; in other words the price structure matters, and platforms must design it so as to bring both sides on board. Digital platforms aim to create value by bringing two or more different types of economic agents together and facilitating interactions between them that, so the theory goes make all agents better off.

Typically digital platforms display substantial economies of scale arising from large fixed costs in developing and maintaining a platform and relatively low marginal costs in serving both sets of customers. Where substantial economies of scale exist, platforms with more customers on one side are more valuable to customers on the other side and become more valuable as the demand from each side grows. In a digital platform unit costs often fall as demand grows. This creates a natural advantage for first-movers, which, combined with economies of scale, means that competition may turn a race for the market (“winner takes it all”). Buyers (users) will tend to prefer (all other things equal) the platform that offers access to the most sellers (service providers), and sellers (service providers) will tend to prefer the platform that offers access to the most buyers (users). Such network effects can tip the market towards being served by just one or two platforms.

The article first analyses the evolving new case law, in particular the European Commission’s decisions in the Google comparison shopping case and the Android case, the Intel decision of the Court of Justice of the European Communities as well as the pending Facebook case in Germany. The article aims at shedding light on the pertinent problems behind these cases. Thereafter broader policy options are discussed, including the standards for intervention under Article 102 TFEU in digital markets and the relationship to regulation. While the earlier literature largely concentrated on the efficiency gains brought by the digital platforms, the new literature has brought more problematic situations to daylight. Specific characteristics of a digital platform have always to be analysed and understood in depth. If these elements are disregarded it could lead to the wrong conclusion that there is an abuse even though we are dealing with a normal characteristic of the market (type I mistake, “false positives”). On the other hand, the two-sidedness of the market does not lead to immunity from competition laws. A laissez-faire approach would lead to a serious under-enforcement of competition rules (type II mistake, “false negatives”). In this context, successful market foreclosure resulting from exclusionary conduct of the dominant player can have serious anti-competitive effects, with little hope that the market will self-correct within a reasonable period. Harm can occur, for instance, through informational abuses or through contractual practices that hinder market access. Hence, while caution is, needed, there is a need to apply antitrust law to harmful practices of digital platforms.
Translated title of the contributionAbuse of Dominant Position in Digital Markets – What does Change?
Original languageFinnish
Pages (from-to)996–1023
JournalLakimies
Volume2018
Issue number7-8
Publication statusPublished - 10 Dec 2018
MoE publication typeA1 Journal article-refereed

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