European Commission proposes to extend its toolkit to address structural market deficiencies

“Our rules have an inbuilt flexibility which allows us to deal with a broad range of anti-competitive conduct across markets. We see, however, that there are certain structural risks for competition, such as tipping markets, which are not addressed by the current rules.” - Commissioner Vestager

On 2 June 2020, with the launch of an impact assessment and a public consultation on the need for a potential new competition tool (NCT), the European Commission kicked-off a legislative process that could lead to an important new instrument in the Commission’s enforcement tool box. The NCT would allow the Commission to address structural market deficiencies which do not constitute competition law infringements-and which therefore cannot be tackled based on Articles 101 and 102. More specifically, the Commission’s proposal is to target markets with structural risks, in particular markets where network effects, scale economies, or data collection may easily lead to dominance but potentially also markets that, due to their structure, are not competitive (e.g. oligopolies with an increased risk of tacit collusion).

In parallel, the Commission has published its impact assessment for an envisaged ex ante regulation of large digital platforms-which is part of the Digital Services Act package to be adopted. Next to the existing competition rules and the envisaged ex ante regulation of digital platforms, the NCT has been identified as one of three pillars that are essential to ensure the contestability and fair functioning of markets in an increasingly digital world.

Proposed new powers under the NCT

The impact assessment for the NCT considers four different options. The NCT could be either dominance-based or market structure-based. It could either apply across all industries or be limited to specific sectors that are particularly prone to dominance / foreclosure concerns, such as digital or digitally-enabled markets. In the dominance-based scenarios, the Commission would only be entitled to intervene to prevent dominant companies abusing their market power. In the market structure-based scenarios, the Commission’s powers would be broader and allow intervention, even in the absence of dominance, in relation to structural competition problems that cannot be addressed based on existing competition rules.

Across all options, the Commission would be entitled to conduct market investigations aimed at identifying deficiencies in markets that may warrant intervention, and to impose behavioural or structural remedies. The Commission would, however, not make any finding of a competition law infringement, nor impose fines.

The investigative powers under the NCT could be viewed as extensions of the Commission’s current powers to conduct sector inquiries. Indeed, the Commission has conducted deep probes into several industries such as financial services, pharmaceuticals and e-commerce. The NCT, however, would in addition strengthen the Commission’s enforcement powers by affording the possibility to impose remedies.

Next steps

Stakeholders can submit their views on the impact assessment until 30 June 2020 and respond to the open public consultation until 8 September 2020. The Commission will also carry out targeted stakeholder workshops. A formal legislative proposal is scheduled for Q4/2020.