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A summer of big-tech trouble

Barely a day has gone by this summer without news of another competition investigation, market study or report involving one of the Big Four – Google, Amazon, Facebook or Apple (GAFA). Regulating the tide of big tech growth is firmly at the top of the to-do-lists of most competition authorities this year and will shape the way competition law operates in most jurisdictions. This has been evident in various reform proposals covering digital markets, including merger control assessment and digital advertising. As a result, going forward, online platforms and tech businesses will need to carefully examine their commercial relationships and future acquisition plans.

A stream of antitrust investigations into platforms

In the U.S., both the DOJ and the FTC have been taking steps to launch formal antitrust investigations into the large platform providers – most recently a rumoured investigation into a partnership between Apple and Amazon. The targets of the DOJ’s probe have not yet been named, described only as “market-leading online platforms” providing search, social media, and some retail services online. However, the implication is that this refers to Google, Facebook, and Amazon. Facebook has since publicly acknowledged open antitrust investigations by both the FTC and the DOJ.

Amazon is also facing scrutiny across the pond, with the EC launching an investigation on the grounds of both abuse of dominance and entering into anti-competitive agreements. It has at its heart Amazon’s dual role as (i) a marketplace that hosts sellers, and (ii) a retail business selling branded goods in competition with the same sellers. The EC aims to establish whether competitively sensitive data collected by Amazon from independent sellers on its marketplace is used for the benefit of its retail business and whether this in turn is in breach of EU competition rules.

The investigation follows Amazon’s recent settlement with antitrust authorities in Germany and Austria, agreeing to amend its business terms for online traders that use its Marketplace platform. Meanwhile, Italy’s competition authority continues to scrutinise whether Amazon’s e-commerce business unfairly favours its own delivery business.

These examples highlight an increasing trend of investigation and enforcement against digital platforms, in particular those that both host services and compete with them. Other cases to watch include the EC’s rumoured probe following Spotify’s complaint in respect of Apple’s policy of “penalising” users of rival content-streaming services earlier this summer and SAMR’s investigation into potential exclusionary conduct by electronic platforms.

Ads in the spotlight

Digital advertising is a key area of focus for authorities reviewing platforms’ conduct. The French Competition Authority has issued a report on online advertising and the CMA has recently launched a market study into digital advertising markets. In Australia, the ACCC published its final report following a study of digital platforms, which found that large platforms are able to squeeze out competitors in the advertising space. This general trend is underscored by Google’s €1.49 billion EU fine earlier this year for imposing a number of restrictive clauses in contracts with third-party websites, preventing rivals from placing their search adverts on those websites.

Addressing perceived missed opportunities to intervene in M&A

Authorities are looking to change the way they assess digital mergers. This comes against the backdrop of increasing concern about “killer acquisitions” – the alleged practice by big tech (and also pharma) of buying up small innovative players to prevent them from becoming effective competitors – and the perception that authorities have missed opportunities to robustly scrutinise GAFA acquisitions such as Facebook/WhatsApp and Facebook/Instagram.

Brazil’s CADE is working with competition authorities in the other BRICS countries on a digital markets report, which will study how the authorities should review mergers, acquisitions and conducts in digital markets. The U.S. platform investigations are also likely to involve a review of historical mergers – an exercise conducted in the UK as part of the CMA-commissioned Lear Report – to inform merger policy going forward. The EU’s report on competition policy in the era of digitisation also suggests changes to the approach for substantive assessment of mergers.

These initiatives will likely translate into closer scrutiny of tech mergers globally. They may also lead to increased intervention, particularly in jurisdictions like the UK that have jurisdictional tests that can be interpreted flexibly to catch smaller acquisitions or investments (see, for example, the CMA’s recent unexpected merger inquiry into Amazon’s investment in Deliveroo).

“Competition authorities are determined to get to grips with how digital markets work, especially in relation to digital platforms and the role of big data. Translating this better understanding into a more coherent and effective framework for intervention will be the real challenge going forward.”

- Christian Ahlborn

Rethinking the toolbox

Beyond enforcement under existing rules, the past year has involved a lot of soul-searching by competition authorities, with a plethora of reports, both completed and on-going, from the EU, U.S., India and beyond. These reports seek to make sense of the current competitive landscape in a digital world and to identify the appropriate toolkit to tackle it.

Digital markets exhibit a unique set of characteristics. For example, they often have significant barriers to entry, where access to vast amounts of data and a certain size are required to be profitable. Services are often offered for free, meaning the standard price-based competition analysis does not apply. They are also fast moving, meaning authorities must react fast to avoid anti-competitive behaviour damaging the market.

This raises the question whether competition authorities, applying their traditional framework and set of tools, are currently well equipped to understand these markets and intervene effectively. For example, in response to the fast moving nature of digital markets, there have been calls in the UK for greater use of interim measures, while the EC is set to impose interim measures on Broadcom.

Most competition authorities that have considered these issues in depth think that, while a major overhaul of competition rules is not required (as per the joint statement issued by competition authorities of G7 Member States), a sector-specific application is required in digital markets.

New specialist bodies to enforce competition rules in digital markets?

A common proposal across most reports is to create a specialist digital body or unit to develop expertise in digital markets and algorithms. This would help to overcome the information asymmetry that has so far left competition authorities following in the trail of big tech companies. The ACCC’s final report recommends the establishment of a specialised unit within the ACCC that could “build on and develop expertise in digital markets and the use of algorithms.” The UK Furman Report has proposed creating a new digital markets unit with specific powers including to set a code of conduct for companies with “strategic market status”. And in the U.S., the Stigler Report suggests creating a specialist agency for digital platforms that would apply different rules to companies with “bottleneck power”.