To rein in tech titans, Europe's regulators need new tools. But which ones?

10 October 2018 1:40pm
5 EU Flags

4 October 2018. By Victoria Ibitoye

With the dizzying growth of Amazon.com, Google and Facebook pointing to a long-term trend toward concentration among technology companies, calls have been growing for competition policy to keep pace. And in recent days, the needle has appeared to move a bit.

In the UK, Chancellor Philip Hammond called on Monday for domestic competition policy to be updated to ensure tech companies could be effectively scrutinized.

In Germany on the same day, Bundeskartellamt head Andreas Mundt said he expected his competition authority to press forward with an antitrust probe against Facebook for suspected data breaches.

And in Belgium on Tuesday, Finance Minister Johan Van Overtveldt said the country was more focused on battling tech monopolies than it was on taxing them.

These remarks all come in the wake of the European Commission’s decision in September to open preliminary competition probe over Amazon’s handling of the data it collects from merchants that use its platform to sell products.

The commission signaled the importance of tackling tech markets dominated by only a handful of players this time last year, when competition chief Margrethe Vestager set up a "panel of experts" to report, in 2019, on the consumer impact and how the EU regulator should respond to the challenges.

The pattern, then, is clear. Digital giants — once the darlings of 21st century innovation — are facing newfound scrutiny. But not answered yet is the core question: How does enforcement need to change to keep them in check?

— Market definition —

One challenge faced by antitrust regulators is defining the relevant market when probing tech companies, because they don’t typically make customers pay to use their service.

The principles of competition law have traditionally determined the relevant market by whether a product given a “small but significant and non-transitory increase in price” would be profitable for a monopolist in the particular market — known as the SSNIP test.

Because most tech platforms let consumers use many of their services for free, regulators lack the required pricing data to define the relevant markets.

Some authorities have sought to sidestep the requirement by adopting a less restrictive approach, but there’s no consensus.

In his remarks this week, Mundt said it might be necessary for Germany to look at what companies do to attract users, and where their users are coming from, when pricing data isn't available. He called for an effects-based approach to assessing the relevant market, but warned against abandoning market definition altogether — which was a “prerequisite for taking action,” he argued.

“If you look at what is happening in the digital world … it’s not easy to capture with data. The European Commission tried to do that with the Dow-DuPont [merger] and other cases, but it’s not easy to capture that,” Mundt told a conference in Berlin.

“Since there’s no money flowing, the SSNIP test is difficult to apply. The approach is to make it work, but I’m a bit skeptical if that will convince a judge at the very end, so we have to operate without data.”

To determine the proper market definition in its Facebook probe, the Bundeskartellamt conducted a large user survey that was “not data-based at all,” he added. “Qualitative assessment means that if you do not have the proper data at hand, you have to make use of what you have … you have to develop the instruments you need.”

But while this survey-based approach aims to tackle the problem of insufficient data, it raises tricky questions.

For example, should weight really be placed on the opinions of users, who might not have a holistic view of how their information or data is being used? How does one ensure views are proportionately represented, and where should the line be drawn?

— Other approaches —

Mike Walker, chief economist at the UK’s Competition and Markets Authority, has spoken up in favor of placing less weight on market definition altogether.

Speaking in a personal capacity at the same Berlin conference, he said: “Market definition is incredibly useful and helps to clarify your thinking, but whenever you get in the position where you’re really getting hung up on market definition, you should always ask: Is this actually clarifying my thinking and actually [helping me] understand competitively what is going on in this market?”

“I don’t feel that I have to get hung up on market definition to answer this question. I feel quite comfortable saying: Okay this is our market definition and there’s a bunch of external [factors]. I don’t think that’s the hardest thing.”

Meanwhile, the commission's approach to defining markets in its probe of Google's shopping business drew criticism for ignoring the reality of consumers' online habits.

In last year’s probe, the EU regulator concluded that there were two relevant product markets: the market for general search services, as provided by search engines such as Google and Microsoft’s Bing; and the market for shopping price-comparison services, as provided by websites that allow users to search for products and see their prices and characteristics side by side.

Google is challenging the fine of 2.42 billion euros ($2.8 billion) that the commission imposed on it for abusing its market power, precisely on the claim that EU investigators used the wrong legal theory in their assessment. It's wrong to define an online shopping market that excludes Amazon, the company argues.

Almost as clear as the need for overhauls to competition law to properly regulate digital markets, therefore, is the difference in opinion and unanswered questions over how it should be done.

With calls for clamps on tech giants only going to grow, though, regulators don’t have long to write a rulebook that works.

* “E.CA Competition Law and Economics Expert Forum,” Berlin, Oct. 1, 2018.