The new chief competition economist at the European Commission has predicted that the commission will offer additional theories of harm about data, but will be open to hearing efficiencies claims for mergers.
Pierre Régibeau recently began leading the economist team at the commission’s Directorate-General for Competition after being named to the role last July. He spoke on Saturday at GCR Live Miami, participating by videoconference.
In a discussion of advertising-supported businesses such as Facebook and Google that do not charge users money for their services, Régibeau said that zero prices can be important not only for market definition in merger review, but also for investigations of conduct.
He noted that the European Commission’s Android decision found that Google illegally tied its search and browser software to the Play Store on the Android mobile operating system, all of which are free to the user.
Google argued that it had to tie the search and browser apps so it could monetise its investment in the freely licensed operating system. But the commission said the company already made billions of dollars just on the Play Store and collected data useful to its advertising business from Android devices even without its browser and search apps.
Régibeau said an interesting aspect of this argument is that if you have a zero price, you cannot completely monetise monopoly power over one product – which has implications for the single monopoly profit theory, which states that a company with a monopoly in one product cannot increase its monopoly profits through tying.
“Zero price is special,” he said, not only in mergers but also “possibly in the context of some antitrust situations”.
With regard to issues of foreclosure, with theories of self-preferencing the “flavour of the day”, Régibeau said that if competition relies heavily on an algorithm, which is hard to monitor and understand, then it is harder both to detect foreclosure of rivals and to enforce remedies.
Economists tend to assume that if a company has incentive and ability to do something, it will do it, subject to some constraint if it fears being caught at illegal conduct, he said, but reiterated that foreclosure is hard to detect.
For partial foreclosure, if DG Comp had to do a more formal economic analysis, “we would essentially use an equilibrium framework”, a “simple workhorse model”, Régibeau said. Enforcers cannot simply put their models in front of a judge and say they are right; they have to persuade the judge.
A digital regulator might be better than a competition authority at monitoring remedies on a platform, Régibeau acknowledged.
He noted discussion about whether legal standards should be more lenient for what is required to prove a theory of harm, and whether governments should consider regulatory interventions beyond antitrust.
There are “other theories of harm you could think of, especially linked to data,” Régibeau said, and he forecast that in the coming years, the commission will offer such theories.
In an example similar to the German Facebook case, he said that collecting data about how customers operate on a company’s platform seems less likely to be subject to abuse of dominance, as compared to collecting data through tracking cookies about how users operate on third-party sites, or operate on businesses that run on the company’s platform.
Régibeau said that one of the things that “preoccupies” DG Comp regarding digital is market definition, as the agency begins to review its guidelines on that issue. Competition authorities’ usual “SSNIP” method identifies the smallest relevant market in which a hypothetical monopolist could impose a small but significant and non-transitory increase in price.
This method is hard to apply in some digital markets with different pricing models, Régibeau said, making it more important for economists to determine what happens to the competitive restraint where the set of goods offered to different consumers varies.
While economists might like to say that if an enforcer is uncertain about competitive effects, it would be prudent not to block the merger too easily, Régibeau said, “Unfortunately if you look at the legal standard in Europe for mergers, it’s a balance of probability.”
Credible efficiencies in EU and US
In that balance, he said that as competition authorities get tougher on the predicted price increase they will tolerate from a merger, they are required to be honestly open to the merging companies’ efficiencies claims.
“I like to hear a comforting bedtime story” about the procompetitive reasons for a deal, Régibeau said. He noted that the European Commission in recent years has paid special attention to innovation, which is usually negatively affected by a merger, but the set of efficiencies that can come from innovation is a little broader.
Régibeau said agency economists generally are not looking for run-of-the-mill economies of scale, which are hard to measure, but instead for efficiencies more specific to the merger under review.
For example, he said, if the companies claim that the deal will enable the transfer of the kind of know-how that cannot be licensed at arms-length, and can document this, that is a “first step” to convincing DG Comp.
It is “possible” to have “credible efficiencies”, Régibeau said.
The US Federal Trade Commission’s new chief economist spoke alongside Régibeau. Andrew Sweeting said that his agency also is thinking more about problems that might arise from small predicted price effects, which means the FTC has to take efficiencies seriously so it does not block procompetitive deals.
He recommended that merging companies claim efficiencies up front, not after the agency has stated its estimate of anticompetitive effects; and that they be clear about when efficiencies will reduce marginal or variable costs, rather than a fixed cost.
The panel also included Joshua Gans, a professor of management at the University of Toronto, and was moderated by Charles River Associates vice president Margaret Sanderson.