European Union: Two-Sided Markets, Platforms and Network Effects
Digital platforms are at the forefront of innovation and disruption in various industries across the globe. Some of the most valuable companies in the world – Google, Amazon, Facebook and Apple – all embraced a platform business model for some or all of their activities. Ride-hailing apps like Uber and Lyft have revolutionised the taxi business model. Hotel and restaurant booking platforms like Booking.com and OpenTable changed the way in which we plan holidays and evenings out. While most consumers embrace the ‘free’ services that many of these companies offer, concerns have been expressed by traditional media and retail businesses that face disruption from, and others whose market access is increasingly routed through, digital platforms.
These developments have not gone unnoticed by governments and competition authorities around the world. Investigations by the European Commission into Google’s behaviour in search, advertising and mobile operating systems have resulted in fines of more than €8.2 billion. It is also investigating business practices of Amazon relating to the use data from independent retailers, and has opened multiple probes into Apple regarding its operation of platforms such as the App Store and Apple Pay while simultaneously competing against customers such as Spotify and common card issuers. National competition authorities in the European Union have also been active in this space; for example, the French Competition Authority has recently made efforts to empower the agency to impose quicker interim measures on its own volition. Led by Isabelle de Silva, the authority has issued several high-profile fines against big tech companies, such as a €220 million fine imposed on Google for abuse in online advertising. In addition to public enforcement, private companies such as Epic have taken competition law in their own hands and created headlines by filing complaints against both Apple and Google. Furthermore, in the UK, prospective collective consumer actions have been filed at the Competition Appeal Tribunal relating to consumer harm arising from conduct relating to the app stores operated by Apple and Google respectively.
Nevertheless, policymakers clearly believe that competition authorities are not doing enough to contain the market power of digital platforms. Reports on the future of competition law in a digital age have been published in Australia, Germany, the United Kingdom (followed up by a market study) and the United States, as well as at the EU level. While the proposals differed, ranging from swifter implementation of existing competition law to the development of ex ante regulation, there were some common themes that are gradually translating into concrete legislative action. A proposal to regulate the behaviour of some platforms across the European Union has already been adopted in 2019 and the Commission published a first draft of its Digital Services Act package in December 2020. The UK Competition and Markets Authority (CMA) has recently launched its Digital Markets Unit to oversee the competitive practices of firms designated with ‘Strategic Market Status’ (SMS); and the German parliament, with the 10th amendment to its Competition Act passed in 2021, continues to build on the 2017 additions to further strengthen the Federal Cartel Office’s power to regulate the behaviour of digital platforms.
This Chapter is an overview of the key economic features of digital platforms, which is crucial to the assessment of the proposals for reform noted above. Starting with a definition of different platform models and explaining why so many of them have surfaced in recent years, we then describe some of the potential implications for competition arising from these business models. Finally, we summarise the proposals put forward by experts and competition authorities to address the resulting competition concerns and highlight some potential unintended consequences of these proposals.
What is a digital platform? What is a multisided market?
Platforms operate in markets with (at least) two sides. These are markets ‘in which [a platform] sells different products to different groups of consumers, while recognising that the demand from one group of customers depends on the demand from the other group’. This interdependence of demand between the different sides of the market represents an indirect network externality (INE). This means that platforms need to attract one group of customers to attract the other, and that they need to keep both happy to thrive.
The platform business model is by no means new. Newspapers have long sold the attention of their readers to advertisers; payment cards, which allow shoppers and merchants to complete transactions, have been in circulation for decades.
There are two types of platforms that can be separated based on the role of INEs. For advertising-supported platforms (attention platforms), INEs are only one-sided: advertisers care about the number of readers, but readers do not care about the number of advertisers. In the case of ‘transaction platforms’ or ‘matching platforms’, INEs are positive for both sides: shoppers prefer cards that are accepted by many merchants and merchants like to accept cards that shoppers want to use.
Digital platforms share these features. The definition proposed by Harold Feld describes digital platforms as companies:
- that operate in two or multisided markets, where at least one side is open to the public (e.g., as content creators or consumers);
- whose services are accessed via the internet; and
- that, as a consequence, enjoy particular types of powerful network effects.
How do business models of digital platforms vary?
Digital platforms employ various operating models. Both Google and Facebook have traditionally been ‘attention platforms’. Consumers can use their search or social media services for free (i.e., they ‘pay’ with their attention and data). The platforms monetise their services on the other side of the market through targeted advertising services (i.e., selling users’ attention). In these cases, INEs are positive on the advertiser-side only and any potential transactions between users and advertisers tend to take place outside the platform.
Amazon and Booking.com are examples of ‘transaction platforms’. They match shoppers or travellers with vendors or hotels, respectively, who both prefer platforms that are more popular on the other side of the market. They further facilitate the transaction on the platform through the development of rules and governance structures.
A separation along the attention versus transaction platform line is not always possible, particularly for large platforms that have evolved into ecosystems. For example, YouTube (owned by Google’s parent, Alphabet) and TikTok both operate in a three-sided market (viewers, content creators and advertisers) with INEs between viewers and content creators that go each way, and single-sided INEs between viewers and advertisers. Facebook’s Marketplace matches people who want to get rid of things with those who need them and live nearby. This transaction model differs from Facebook’s original business model, which was a pure attention platform.
Why are there so many big digital platforms?
Platforms are not a new phenomenon. Marketplaces in medieval towns already matched shoppers and merchants long before the founders of eBay or Amazon were born, while newspapers and television stations sold eyeballs to advertisers long before the advent of social media. However, the unprecedented growth experiences by some digital platforms may raise new issues concerning the use of data and the potential for market power to be exploited. Some of the key factors that contributed to the swift development of large global digital platforms are the following:
- the internet reduced the cost of communication to almost zero, allowing companies to gain a global reach at limited cost and to maximise network effects;
- the replacement of hardware through software created substantial economies of scale – reducing the marginal cost of serving additional customers – and scope – allowing businesses to roll out complementary services at limited cost; and
- the ability to harvest and process large data sets using more and more sophisticated techniques allowed companies to get better by getting bigger.
These factors generated significant consumer benefits. Consumers can reach a global network of friends or merchants for free and receive recommendations about products that they would never have known about in a world without digital platforms. At the same time, these factors may have the potential to increase barriers to entry and generate substantial market power, as explored further below.
Business strategies and outcomes in digital platform markets
Digital platforms may adopt different models than other businesses due the factors listed above. For example, the presence of INEs may mean that companies maximise their profits by offering their services for free (or even for a negative price) to one side of the market. Facebook does not charge for its social network services because the additional revenue would be outweighed by the loss in advertising revenues resulting from the loss in usage. Property portals charge estate agents rather than property seekers as the latter are more likely to respond to price increases.
Interestingly, stronger competition between platforms may not necessarily lead to lower prices on one side of the market. For example, Graeme Guthrie and Julian Wright (2007) show that competition between payment platforms can lead to higher rather than lower charges for merchants. However, the overall price of the service – the combined price paid by merchants and cardholders – can be expected to decrease as a result of competition.
The presence of INEs also has implications for companies’ growth trajectories and their willingness to make losses upfront. Marketplaces need to attract a critical mass of merchants to be of interest for shoppers, but they must also attract a critical mass of shoppers to attract merchants. This is the ‘chicken-and-egg’ problem. Loss-leading strategies may be adopted, and some platforms have achieved high valuations before earning significant (or any) profits.
These strategies can be further rationalised by the presence of economies of scale and scope, and the value of data. Platforms can enter a virtuous circle of growth once they exceed a critical mass. The cost of writing new code can be shared across a larger user base. The customer relationship allows for the roll-out of complementary services. The availability of large amounts of data harvested from the user base and ability to process it allows larger platforms to be better than the smaller competition. Rational firms, therefore, have strong incentives to sacrifice short-term profits for long-term gains.
While there are many examples of digital markets in which multiple operators may flourish, the factors noted above can in some circumstances lead to greater concentration than might be observed in other markets. Some of the potential competition concerns identified in the context of digital markets are discussed below.
What competition concerns may arise in digital markets?
According to the authors of the Furman Report, the features identified above mean that digital platform markets ‘show a tendency to tip towards a single winner’. The Vestager Report links the features to high levels of concentration, incumbency advantages and argues that this ‘changes the principles of enforcement of competition policy’. The authors find that rivals may be unable to attract a critical mass of consumers and that competition ‘for’ the market could be ineffective. Competition could be further weakened by the conduct of platforms, such as the introduction of most favoured nation (MFN) clauses or other actions that limit the ability of consumers to switch or ‘multi-home’ (i.e., use different platforms for the same purpose). These concerns resurface in the Commission’s
Digital Services Act (DSA) proposal, which explicitly references concerns of strong network effects and the anticompetitive practices that prohibit multi-homing.
A word of caution with regard to these findings seems appropriate. First, there is no certainty that markets tip towards a single supplier. Most platform markets count more than one competitor. Limited switching costs and the ability to multi-home at low cost to the consumer means that incumbents may need to continue to innovate and offer good service to maintain their customer base.
Further, platforms in one market may face competition from those in other markets and thus remain restrained – at least to some degree. While Facebook does not compete with YouTube in the social media market, they both compete to attract the attention of consumers. Facebook cannot rely on the existence of network effects alone – a lack of engaging features would translate into a lack of user attention and thus lack of advertising revenue. The incentives to innovate may thus remain strong even for platforms that have reached a large scale.
A view commonly expressed in the various reports including in the DSA’s proposal is that the data collected by large platforms may yield market power. However, any assessment of the role of data in yielding market power should recognise the varying forms of data that may be collected, whether individual or aggregated; whether it can be replicated or otherwise collected by rivals; and how much data may be required to profitably enter a market. For example, if the value of additional data decreases when data becomes abundant, this may reduce the extent to which greater access to data for large user bases yields competitive advantage. Geoffrey Manne and Joshua Wright (2011) argue that search engines such as Google, but also Yahoo and Bing, already have more data than they can profitably use to refine their search results. This suggests access to data alone cannot explain the significant market shares enjoyed by Google.
Further, the authors of the Vestager Report express concerns about the way in which platforms manage competition on the platform. For example, e-commerce or booking platforms may sell preferential search results or ‘monopoly positions’ to vendors, leading to competitive distortions. Platforms could even leverage their market power to promote their own products and extend their digital ecosystems (self-preferencing). The authors find that these concerns may not only apply to dominant platforms with significant market shares. They consider that platforms with ‘intermediation power’ – those that have a set of unique customers that can only be reached through them – may not be sufficiently disciplined by competition in their role as regulators. Again, these concerns have found their way into the Commission’s proposal, as they explicitly cite concerns that platforms may engage in self-preferential treatment, favouring their own services or products over competitors at the expense of consumers. The role of intermediation power is also prominent in the German legislative proposals. The 2021 amendment to the German Act against Restraints of Competition (the Digitalisation Act) extends the German concept of ‘relative market power’, which currently only applies to large companies that deal with small- and medium-sized ones, to cover all instances of intermediation power. Intermediators would thus be subject to additional competition rules even before they reach the dominance threshold.
However, these concerns should not be generalised but instead considered in light of the facts of each case. In relation to the potential competitive effects of self-preferencing or concerns that platforms such as travel booking platforms may provide links of lesser value to consumers to obtain higher commissions, one would need to consider the potential impact of a ‘consumer backlash’. Provided that a sufficiently large proportion of consumers compares prices across booking portals, a perception that choice or quality on one platform is reduced by such policies could lead to reputational damage and a loss of support from consumers on one side of the market. In this sense, digital platforms may be no different than traditional intermediators such as insurance brokers, travel agencies and supermarkets: competition with rivals on other platforms encourages policies that offer good service on the consumer side of the market. In other words, ‘intermediation power’ is not a binary concept that can be established by looking at one side of the market alone.
Similarly, concerns about self-preferencing by platforms should not undermine the realisation of efficiencies. Vertical integration, including the provision of complementary services by platform operators, can generate substantial consumer benefits. Further, one needs to be careful regarding the view that intermediation power may lead to competition concerns. It is likely that many platforms have intermediation power insofar as some consumers may tend to use a single platform to book their holidays or restaurants. This does not mean that those platforms truly have market power – consumers may well start to look elsewhere if they are unhappy about the platform’s self-promotion. In other words, the ability and incentive to consider other platforms may be important even in relation to consumers who currently tend to single-home.
Some of the reports examining digital platforms have also expressed more wide-ranging concerns about the implications of the platforms business model for consumers. The Stigler Report highlights the incentives of platforms to develop addictive content resulting from the necessity to sell eyeballs to advertisers. The ACCC Report looks at wider societal implications such as media diversity. However, these concerns are too complex to be assessed in this Chapter.
Promoting competition for the market – contestability
In response to the concerns about tipping and ineffective competition between platforms, the Vestager Report proposed changes to current competition law and enforcement. The authors advocated for a strengthening of merger control to prevent ‘killer acquisitions’; stricter intervention against MFNs and other practices that may prevent multi-homing; and obligations for data portability and interoperability. Some of the proposals outlined by the Commission under the ‘new competition tool’ would have gone even further. It proposed that a new mechanism should be added to its enforcement toolbox to deal more effectively with situation where there is a ‘structural risk for competition’ (where a market is likely to tip) or a ‘structural lack of competition’ (where a market has already tipped). The proposed ‘market structure-based’ – as opposed to the ‘dominance-based’ competition tool – would have allowed the Commission to intervene in markets without dominant companies to prevent tipping from occurring in the first place; and impose behavioural or structural remedies to reinvigorate competition if it has been lost. This tool appears to have had similar objectives as the German concept of relative market power, which imposes additional prohibitions on platforms before they reach the dominance threshold. However, while the German concept would also allow for private enforcement and lead to liability for damages, the European tool would have been controlled by the Commission and would not lead to infringement findings. In the end, only a ‘watered down’ version of the tool found its way into the DMA in the form of a market investigation tool. That said, the Commission does have the ability to identify gatekeepers that are ‘likely to enjoy an entrenched and durable position in the near future’ and can impose obligations that would prevent them from achieving an entrenched and durable position (i.e., becoming a true gatekeeper).
Even if the tool comes without fines or liability for damages, this does not mean that companies should not be concerned. The ability to impose behavioural and structural remedies without a properly tested infringement finding could have unintended consequences. Consider, for example, the impact of increased data related remedies. The General Data Protection Regulation already introduced requirements regarding data portability – allowing users to transfer their data to other platforms and thus potentially lowering switching costs. The extension of these requirements to include data interoperability – giving competitors real-time access to standardised data through application program interfaces – could create more competition in complementary services. However, it could also dilute the incentives of platforms to gather the data in the first place. The value of a platform operator such as Google in offering free search, navigation and email services, may well be reduced if it is less able to monetise these services in the most efficient way.
Our colleagues already raised these concerns with regard to similar data sharing proposals made in the Furman Report. They point out that this approach suffers from ‘static bias’ – namely it attaches too much weight to the number of competitors ‘in the market’ at the expense of the drivers of dynamic competition ‘for the market’. Given the importance of the latter in terms of explaining economic growth over time, the authors argued that this bias may be detrimental for consumers.
Finally, businesses that advocate for greater inter-platform competition should be careful what they wish for. As discussed above, greater inter-platform competition does not necessarily lead to lower prices on all sides of the market. On the contrary, it may further increase prices charged to merchants as platforms need to extract more revenue to compete successfully on the consumer side of the market.
Safeguarding competition in the market
In response to the concerns about the regulatory role of platforms, the Vestager Report set out various proposals to safeguard fair competition on the platform. The authors argued that a ‘dominant platform that sets up a marketplace must ensure a level playing field on this marketplace and must not use its rule-setting power to determine the outcome of the competition’. They also found that a lack of transparency by platforms about their regulation – such as how they rank results – could reinforce competition concerns. To address this, they argued that dominant platforms could be required to be transparent about their market design under Article 102. The Platform-to-Business Regulation, which was adopted on 20 June 2019, already provides for such transparency obligations on the business side of the market.
The Commission’s current proposals for ex ante regulation of digital platforms under the Digital Services Act package go beyond that. One proposal is to revise the Platform-to-Business Regulation with the aim replacing transparency requirements with prescriptive rules and strengthening the oversight. Another proposal is to equip regulators with additional powers to collect data from ‘gatekeeper’ platforms.
Again, these proposals are not without risks. The way in which platforms regulate their marketplaces is an important – potentially the most important – parameter of competition. Platforms set these rules with the aim of maximising the benefits or their users. As highlighted by David Evans (2012), platforms may be much better placed to govern interactions than a public regulator, because they can monitor behaviour more closely and deal with violations more expeditiously. The ability of platforms to exclude agents that behave badly should thus not be undermined by competition authorities that are eager to protect the rights of small businesses.
While increased transparency may not sound controversial, caution is advised as to how any transparency obligations are implemented in practice. For example, an obligation on platforms to reveal their search algorithm – a key parameter of competition – could be detrimental to innovation. Even if platforms were just required to provide detailed descriptions of their search algorithms, vendors may use this information to game the system.
The Vestager Report made further recommendations with regard to vertically integrated platforms (i.e., platforms that compete with the companies that use them as intermediators). While it acknowledges that self-preferencing by such platforms is not in general prohibited by Article 102 – unless the platform is an essential facility – it suggested that it could constitute an abuse below this threshold. To facilitate the application of these provisions, the authors argued for a shift in the burden of proof. Dominant vertically integrated platforms, which operate marketplaces and want to engage in self-preferencing, would need to demonstrate that there is no long-term exclusionary effect. The same recommendations were made with regard to platforms that provide privileged data access to their subsidiaries.
These proposals fell short of the type of ex ante regulation that the CMA requested in its market study or the draft legislation in Germany. In a bid to prevent regulatory fragmentation, the Commission’s proposals under the Digital Services Act package are thus clearly going beyond what was suggested in the Vestager Report. Platforms that benefit from network effects and that act as ‘gatekeepers’ will be placed under new regulatory obligations. Note that the concept of ‘gatekeepers’ is similar to the concept of ‘companies with strategic market status’ developed by the CMA or the concept of ‘undertakings with paramount significance for competition across markets’ put to the German legislators.
The Digital Services Act package proposes a variety of prescriptive obligations for platforms in general and gatekeepers in particular that would regulate how they can interact and compete with business users. For instance, the Digital Markets Act (DMA) proposal outlines obligations for gatekeepers in terms of data management and interoperability. Data related obligations mainly pertain to limitations on the usage of end-user data (gathered through business users), and whether gatekeepers can require business users to provide end-user data. The DMA also requires gatekeepers to allow end users to access services of businesses through the gatekeeper’s core platform where they have been purchased outside of the platform, and to allow business users to promote and sell such services outside the platform. Further, the DMA will prevent gatekeepers from treating their own services more favourably (e.g., in ranking) than similar services provided by third parties on the gatekeeper’s platform. Theoretically, these obligations limit the opportunities of gatekeepers to leverage a competitive advantage resulting from the extended network effects that business users bring. They also intend to limit the opportunity for gatekeepers to develop competitive advantages in downstream markets through self-preferential treatment.
In addition to the restrictions to competitive practices, gatekeepers are also likely to face greater oversight from the Commission. As stated in the DMA proposal, the Commission intends to make use of greater investigative, enforcement and monitoring powers on those designated as gatekeepers. These powers include a strengthened ability to access and request information, powers to conduct interviews, and powers to implement greater monitoring of obligations. If it sees fit, the Commission also reserves the right to appoint independent experts and auditors to assist in the monitoring process. Such proposals provide regulatory authorities with ample powers to monitor the compliance of gatekeepers and to act if necessary.
The development of such ex ante rules that prohibit self-preferencing and other potentially pro-competitive practices should be viewed cautiously lest it lead to a reduction in innovation. For example, preventing platforms from using their own data to develop complementary services could not only limit innovation, it could also muddle incentives to invest in the platform business model in the first place. Companies will not enter markets unless they can be sure that they will be able to monetise their investment. Amazon may not have invested in its marketplace to the same degree if it was not able to promote its own products. Taking account of these dynamic factors relating to innovation incentives are crucial to understand the likely overall consequences of a given business practice compared with the counterfactual.
The idea that vertical integration, or vertical agreements between complementary producers in a supply chain, often have pro-competitive effects is consistent with economic theory. These benefits would also arise in the context of digital platforms. In fact, Andrea Amelio and Bruno Jullien (2012) show that there may be additional benefits from vertical integration in two-sided markets. This is the case where platforms wish to charge negative prices on one side of the market and where this would be welfare enhancing, but where platforms are unable to do so as they cannot pay consumers for the use of their platform. Tying of free products to platform usage allows for de facto negative prices that could enhance consumer welfare. Independently of where the burden of proof may lie in relation to the assessment of exclusionary effects, it would be important to take account of these factors in any competition assessment.
How might regulation of digital platforms operate?
Ex ante regulation may be required where the market power of incumbents is immutable and where there is little prospect that markets will self-correct. While an assessment of the case for regulation is beyond the scope of this Chapter, on the assumption that the Commission will adopt it in one form or another, it is useful to consider what form regulation could take.
One option would be to look to sectors where economic regulation has been applied for decades, such as utility sectors on the basis that fixed costs are a feature in both cases. However, digital platforms differ in many ways from infrastructure networks. They have limited physical infrastructure that could be clearly defined as being part of a regulated entity, evolve constantly and continue to add new services. It is unclear whether Amazon’s own logistics service would be considered as a separate business or part of the marketplace, or whether Facebook’s Marketplace would be part of its social media business. A sensible delineation of platform and non-platform business parts may, therefore, be impossible. This makes regulation significantly harder to implement and may explain why the Commission’s current regulatory proposals are of a more behavioural nature.
In addition to their complexity, platform business models are also diverse. This means that no easy one-size-fits-all solution is available. Any regulatory intervention would need to take these differences into account, which would be difficult, costly and unpredictable for operators. The Commission’s approach of developing a list of ‘blacklisted’ practices may thus prove to be very difficult in practice. Tailor-made remedies could be more appropriate, yet even these would need to take account of the constantly evolving nature of digital platforms. The DMA appears to have addressed this issue by providing the Commission with investigative powers that would allow it to add to the list of do’s and don’ts.
As discussed, policymakers need to be aware of unintended consequences of regulation. Any regulation of marketplaces could lead to distortions of dynamic competition. If potential entrants knew that they would be subject to regulation and unable to self-preference, they may not try to compete for the development of alternative marketplaces, but content themselves with the provision of complementary services. Who would want to develop Facebook 2.0 in a regulated platform market?
The suggestion that regulation can and almost always has unintended consequences should be uncontroversial. Price regulation of natural monopolies such as utilities did limit their monopoly power. However, it has also led to concerns regarding quality and overinvestment. Digital platforms are no different in that respect – the preceding discussion highlights a range of potential unintended consequences.
This does not mean that regulation is bad per se – in some cases, the unintended consequences may be more than offset by the benefits of regulation. However, any regulatory proposal must critically assess the trade-off between market failure and regulatory failure. This must be based on a careful evidence-based case-by-case analysis. Given the stakes of the game – digital platforms are likely to transform markets for years to come – we believe that a proper analysis is particularly important in this context.
Digital platforms play an increasingly important role in social and economic life. The large scale and rapid growth of many of these platforms has given rise to a wide range of consumer benefits but has also generated concerns on the part of traditional media and retail businesses, businesses using those platforms to reach their consumers, and policymakers. Digital markets, while often sharing economic features such as the presence of indirect network effects across multiple markets, operate a variety of business models. It will be crucial to take these features into account when assessing the likely effects of any competition or regulatory interventions, and to reduce the risk of adverse unintended consequences for consumers.
As Europe continues to update its regulatory frameworks to address the competition assessment in the digital age, legislators should be wary of the potential ramifications of newer, unproven regulatory frameworks. The Commission’s proposed Digital Services Act package provides it with substantial new powers that it can use to restrict the behaviour of gatekeepers. The DMU’s designation of platforms with Strategic Market Status follows a similar path. Although these new regimes and tools provide regulators with the capabilities to intervene before the market has tipped, there may not have been enough discussion about the risks of unnecessary intervention. It is true that platform competition is volatile, and that healthy competition can be undermined quickly. However, without consideration as to whether market intervention is appropriate, regulators run the risk of both damaging effective dynamic competition, as well as the inefficient allocation of oversight efforts. While it is necessary to adapt regulation to modern business, authorities should be mindful of unintended consequences.
1 Derek Holt is a managing director and Felix Hammeke is a director at AlixPartners UK LLP. The authors would like to thank Darrell Lim of AlixPartners UK LLP for his research assistance. The opinions expressed are those of the authors and do not necessarily reflect the view of AlixPartners UK LLP, its affiliates or any of its or their respective other professionals or clients.
3 See European Commission press releases for Case Nos. 39740, 40099 and 40411.
4 See European Commission press releases for Case No. 40462.
5 See European Commission press releases for Case Nos. 40437, 40452.
9 See https://www.catribunal.org.uk/cases/14037721-dr-rachael-kent and https://www.catribunal.org.uk/cases/14087721-elizabeth-helen-coll. Mr Holt acts as an economic expert on behalf of the prospective applicants in these matters.
10 Australian Competition and Consumer Commission, Digital Platforms Inquiry Final Report (the ACCC Report). June 2019.
11 Germany: Schweitzer, H, Haucap, J Kerber, W and Welker, R, ‘Modernisierung der Missbrauchsaufsicht für marktmächtige Unternehmen – Endbericht’, prepared for the Federal Ministry for Economic Affairs and Energy, available here: https://www.bmwi.de/Redaktion/DE/Publikationen/Wirtschaft/modernisierung-der-missbrauchsaufsicht-fuer-marktmaechtige-unternehmen.html.
12 ‘Unlocking digital competition, Report of the Digital Competition Expert Panel’ (the Furman Report), March 2019; CMA, ‘Online platforms and digital advertising market study’, July 2020.
13 Market Structure and Antitrust Subcommittee, Committee for the Study of Digital Platforms, George J Stigler Center for the Study of the Economy and the State. Report May 2019 (the Stigler Report).
14 ‘Competition policy for the digital era’. Report for European Commission Directorate-General for Competition by Crémer, Jacques, de Montjoye, Yves-Alexandre and Schweitzer, Heike, April 2019 (the Vestager Report).
15 Regulation (EU) 2019/1150 of the European Parliament and of the Council of 20 June 2019 on promoting fairness and transparency for business users of online intermediation services (the Platform to Business Regulation).
16 European Commission, ‘The Digital Services Act package’, available here: https://digital-strategy.ec.europa.eu/en/policies/digital-services-act-package (accessed 2 August 2021).
17 See CMA press release, ‘New watchdog to boost online competition launches’, April 2021, available here https://www.gov.uk/government/news/new-watchdog-to-boost-online-competition-launches--3.
18 The 9th amendment of the Act against restraints of competition entered into force in 2017. See http://knowledge.freshfields.com/m/Global/r/3511/germany__ninth_amendment_of_the_act_against_restraints_of#:~:text=1.-,Overview,different%20areas%20of%20competition%20law. The 10th amendment was put to the German parliament in 2020 and approved in 2021, see https://www.allenovery.com/en-gb/global/news-and-insights/publications/die-10-gwb-novelle.
19 OECD Roundtable, ‘Rethinking Antitrust Tools for Multi-Sided Platforms’, 2018, p. 10.
20 An indirect network externality exists when consumers’ willingness to pay for a product depends on the number of consumers (or quantity bought) of another product. See OECD Roudtable (2018), p. 49.
21 See the UK Cards Association, ‘History of cards’, available here: http://www.theukcardsassociation.org.uk/history_of_cards/index.asp.
22 In some cases, readers may even dislike advertising, such that there would be negative rather than positive INEs.
23 The markets are called ‘transaction markets’ because the transaction takes place on the platform – the platform facilitates and charges for the transaction. There are some non-transaction markets where INEs are positive for each side as well. For example, online property portals allow estate agents to list properties, but cannot observe whether the transaction takes place. Some commentators during the OECD roundtable discussion argued that they should be treated as transaction markets for the purpose of market definition (OECD Roundtable (2018), p. 13).
25 Facebook further benefits from strong direct network effects. The more social media users it has, the more attractive it becomes for other users. Because the beneficiaries are on the same side of the market, network effects are direct, not indirect.
26 Guthrie, G and Wright, J, 2007 ‘Competing payment schemes’, Journal of Industrial Economics, 55, 37–67.
27 For example, Uber is valued at over US$60 billion even if it has consistently posted losses as it builds its user base in countries around the world. See https://www.nasdaq.com/market-activity/stocks/uber and https://www.theverge.com/2020/2/6/21126965/uber-q4-earnings-report-net-loss-revenue-profit-2019.
28 Furman Report (2019), Paragraph 2.13.
29 Vestager Report (2019), p. 54.
30 Vestager Report (2019), pp. 55–57.
31 See pp. 2 to 15 of the DSA proposal, available at https://ec.europa.eu/digital-single-market/en/news/proposal-regulation-european-parliament-and-council-single-market-digital-services-digital.
32 See pp. 2 to 15 of the DSA proposal.
33 See Furman Report (2019), p.23 and ACCC Report (2019), p. 84.
34 Manne, GA, Wright, JD (2011) ‘Google and the Limits of Antitrust: The Case Against the Case Against Google’. Harv J Law Public Policy 34:171–244
35 Vestager Report (2019), p. 60.
36 Vestager Report (2019), p. 66.
37 Vestager Report (2019), pp. 49, 69.
38 See pp. 2 to 15 of the DSA proposal.
40 For example, platforms can use their consumer data to offer more targeted complimentary services. See Furman Report (2019), p. 32. This concern is also once again raised by the European commission in its proposal to implement the Digital Services Act. See p. 15 of the DSA proposal.
41 Stigler Report (2019), p. 37.
42 ACCC Report (2019), Chapter 6.
43 Vestager Report (2019), pp. 55, 107, 121.
45 DMA, Paragraph 62.
46 Colley, Liam and Chardouveli, Ksenia, ‘Unlocking digital competition… but locking up innovation?’, April 2019, available here: www.alixpartners.com/insights-impact/insights/unlocking-digital-competition-locking-up-innovation.
47 Vestager Report (2019), p. 62.
48 Vestager Report (2019), p. 64.
49 Regulation (EU) 2019/1150 of the European Parliament and of the Council of 20 June 2019 on promoting fairness and transparency for business users of online intermediation services (the Platform to Business Regulation).
50 Evans, DS ‘Governing Bad Behavior by Users of Multisided Platforms’. Berkeley Technology Law Journal 27, 2 (2012).
51 The ACCC Report (2019), p. 252, identifies concerns with lack of transparency in algorithms and refers to recommendations that would enable it to investigate and address the consequences of a lack of transparency. For further detail on the risks of mandating algorithm transparency, see Bork, Robert H and Sidak, Gregory J (2012): ‘What Does the Chicago School Teach About Internet Search and the Antitrust Treatment of Google?’, Journal of Competition Law and Economics 8, 1–38 and Argenton, Cedric and Prüfer, Jens (2012): ‘Search Engine Competition with Network Externalities’, Journal of Competition Law and Economics 8 (1), 73–105.
52 Vestager Report (2019), pp. 66–68.
53 Vestager Report (2019), p. 66.
55 Vestager Report (2019), p. 69.
56 ‘Business user’ means any natural or legal person acting in a commercial or professional capacity using core platform services for the purpose of or in the course of providing goods or services to end-users.
57 See Chapter 3 and 5 of the proposal for regulation on contestable and fair markets in the digital sector (Digital Markets Act) 2020, available at https://eur-lex.europa.eu/legal-content/en/TXT/?qid=1608116887159&uri=COM%3A2020%3A842%3AFIN, Amendments to the proposal from June 2021 are available at https://www.europarl.europa.eu/doceo/document/IMCO-PR-692792_EN.pdf.
58 This is recognised in the European Commission’s Guidelines accompanying the Vertical Block Exemption Regulation, Paragraph 6.
59 For a summary discussion see Evans, David S, ‘Economics of Vertical Restraints for Multi-Sided Platforms’ (Coase-Sandor Institute for Law & Economics Working Paper No. 626, 2013).
60 Amelio, Andrea and Jullien, Bruno (2012). ‘Tying and Freebies in Two-Sided Markets’. International Journal of Industrial Organization, 30.5, pp. 436–446.
61 DMA, Chapter IV, Article 17.