Enforcing digital fairness!

by Finanzplatz München Initiative

More and more transactions are intermediated through platforms that profit from network effects and that lead to the “tipping” of markets due to the “winner takes it all”-principle. Consumers make their choices for private consumption with the help of search engines and comparison platforms – if their decision has not yet been taken by digital assistants such as Amazon’s Alexa. The real suppliers, i.e. the companies providing the goods and services that the consumer ultimately seeks to have, lose access to the consumer. The competition of these suppliers, traditionally seen as a central driver of the market economy, is pushed to the periphery of the platform. The expert opinion at hand provides impulses for the current attempts in the European Union to create a regulatory framework for digital marketplaces.

The proposals build on the author’s expert opinion “Innovation, Variety & Fair Choice: New Rules for the Digital Economy”. In that opinion, the focus was on the shift in competition where competition is pushed to the periphery, in particular through competition for the market (with the tendency to monopoly); the emergence of ecosystems favouring vertically integrated products; the loss of the customer-interface to platforms with a high potential of abuse; and the emergence of data power. In such “tipping” or “tipped” markets it is essential to ensure innovation, variety and fair choice for consumers. In the 2017 opinion high level principles were suggested, i.a. strengthening of merger control, interoperability obligations and data access rules.

Competition law alone is not sufficient to capture the potential harm to competition and fairness. Cases on abuse of market power by dominant platforms and merger control cases serve as important landmark decisions to develop competitive principles for the digital economy. Such sporadic, lengthy proceedings however do “too little too late” for the markets. The European law on unfair commercial practices lacks a central enforcement agency that can keep up with so-called super platforms. National enforcement mechanisms, notably the private enforcement regime in Germany, cannot make up for this deficit. Some market actors thus can profit limitlessly from the violations of the law.

The current European Commission’s initiatives for regulating online intermediation services are an important first step to increase transparency in e-commerce and online search. Minimum standards that need to be established in this framework are (i) the obligation to make criteria of displaying search results transparent; (ii) the obligation to disclose payments for the display of search results; (iii) the obligation to disclose self-preferencing (i.e. the privileging of own services of the platform); (iv) the disclosure of practices limiting the freedom of businesses to offer better conditions outside the platform; and (v) a compensation mechanism for consumers in the form of a right to withdraw and seek damages.

A mere transparency regime with fragmented enforcement powers will not prevent such platforms that are in a gatekeeping position from defining the “rules of the game”. Transparency is a too weak remedy if players are not at arm’s length. On the P2C side it does not capture the digital reality in which consumers simply “click away” and accept information, terms and conditions.

The EU should thus stipulate clear market conduct and competition rules for B2P2C platforms embracing the following principles:
- Ban of nudging consumers by pretending to deliver neutral comparisons while rankings are effectively influenced by remuneration received (neutrality).
- The obligation to provide upfront transparency on criteria for listings including regular updates plus a ban on self-preferencing (ban on self-preferencing)
- The limitation of exclusivity clauses and best price regimes (MFN clauses) in B2P contracts for identical distribution channels, in order to keep up competition across distribution channels, portals and services (ban on exclusivity).

The EU should establish a supervisory authority at EU level with enforcement powers for such platform conduct rules, potentially including the power to hand down fines. Such powers should be vested with the EU Commission’s Directorate General for Competition. This body is an experienced and renowned authority with a clear understanding of markets and competition and with the necessary experience for procedures to handle cross-border cases.

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