Protecting competition in a digital world

By Andreas Mundt

DIGITAL technology continues to transform much of the global economy. The combination of big data, increases in computing power and cloud-based systems has generated new services, and is rapidly changing existing industries. Platforms connecting different user groups have brought online search, social media and e-commerce to consumers around the world.

Owing to their reach, scale and enormous growth, some of these platforms have become digital gatekeepers for the services they offer, and this has afforded them exclusive access to certain user groups. The payoffs from such practices are clear: The five largest companies in the world by market value – Microsoft, Amazon, Apple, Alphabet (Google) and Facebook – are all digital firms.

Competition law entrusts antitrust authorities with the task of keeping markets open to competition. It seeks to limit the economic power of individual companies in order to ensure choice for consumers. If a dominant company acts as a digital gatekeeper and abuses its power, competition authorities should intervene to ensure contestability and protect consumers.

But how can competition authorities fulfil their proper function when digitalisation is progressing so fast? First, we need to understand how the digital world works. The links between big data, privacy and competition are becoming more apparent by the day. Because gathering, processing and monetising data is key to the digital economy, the new business models are strongly data-driven. Personal data play a major role in the delivery of services such as search engines, social networks or those offered by “smart home” devices. As such, it has significant economic and competitive value.

Value of personal data

There is no such thing as a free lunch, even in the digital age. Access to personal data is highly valuable for many companies, and is one of the key factors contributing to market power in data-driven economic sectors. How companies collect and process personal data is becoming increasingly relevant to their competitiveness and market performance. It is thus essential for competition authorities to assess the data-processing activities of dominant companies in these markets. And in this context, it is particularly important to account for potential overlaps with other areas of policy and law, not least consumer protection and privacy law.

At the beginning of this year, the Bundeskartellamt (Germany’s competition authority) introduced far-reaching restrictions on how Facebook can process German user data. Under Facebook’s terms and conditions, use of the social network requires one to agree to allow the company to collect one’s data even beyond the Facebook website. Data from one’s activities anywhere on the internet or through smartphone apps can be assigned to one’s internal profile with the company. And Facebook’s access to these data sources contributes substantially to its market power.

The Bundeskartellamt’s goal was to ensure that Facebook can no longer force its users to agree to the near-unrestricted collection and assignment of non-Facebook data. But Facebook appealed our decision, and the Düsseldorf Higher Regional Court suspended the new rules in a preliminary assessment, taking a different view of the key legal issues. Yet, given the importance of ensuring competition in the future digital economy, the Bundeskartellamt has appealed to the German Federal Court of Justice for further clarification.

Role of hybrid platforms

In recent years, the Bundeskartellamt has dealt with several other digital cases, ranging from mergers to vertical agreements, and these have increased our awareness of new and emerging business models, and of potential areas for cooperation. One issue that we are focusing on is the role of hybrid platforms in e-commerce.

Platforms such as Amazon enable third-party sellers to reach potential customers with their products and services. But these platforms also offer products and services of their own, which means they are providing their infrastructure to third parties that are also their competitors. Given the increasing market power of some of these hybrid platforms, the potential for conflicts of interest and abusive business practices is obvious.

Fortunately, the Bundeskartellamt recently secured far-reaching improvements for sellers active on Amazon marketplaces worldwide. In response to our competition concerns, Amazon has amended its terms to address many of the complaints that we have received from sellers. Among the issues addressed were Amazon’s unilateral exclusion of liability, the termination and blocking of sellers’ accounts, the court of jurisdiction in case of a dispute and Amazon’s handling of product information. Amazon’s amendments were sufficient to allow us to terminate our proceedings against the company. But in a parallel case, the European Commission is now investigating Amazon’s collection and use of transaction data.

As we’ve seen, the digital economy raises many new issues with respect to competition law and related policy areas. For our part, we are approaching these challenges with a solid economic and legal background, as outlined in reports such as “Competition Law and Data”, which we co-authored with the French competition authority (L’Autorité de la Concurrence). With the experience we have gained from cases like those mentioned above, we are trying to give companies indications of what is and is not allowed under competition law.

Moreover, in 2017, the Bundestag amended the German Competition Act to clarify several important questions regarding the digital economy. And this fall, the German Federal Ministry for Economic Affairs and Energy suggested further amendments that would make it easier to act against possible abuses by dominant digital platforms.

Consumer welfare, consumer choice and the freedom to compete are intertwined. The Bundeskartellamt will continue to follow developments in the digital economy and enforce competition law, so that we can keep these markets open and free from abuse by the new gatekeepers. – Jan 9, 2020, Project Syndicate

Andreas Mundt is president of the Bundeskartellamt, Germany’s competition authority

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