Recent Developments in Abuse of Dominance Concerning Online Platforms

December 2018 Can Yıldız
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Introduction

As we delve deeper into the cyber era, we observe that vast online platforms, such as Amazon, Booking.com, and Google have a strong – and ever-increasing – presence throughout the globe. Indeed, we tend to utilize different online platforms in our daily lives, and there is a wide set of different businesses commonly categorized as online platforms, from marketplaces/online retailers (e.g., Amazon) to transportation intermediaries (e.g., Uber), from hotel reservation services (e.g., Booking.com) to search engines (e.g., Google), and from online advertising platforms (e.g., Google’s AdSense) to accommodation systems (e.g., Airbnb).

Although general competition law principles apply to such online platforms without any doubt, cases concerning online platforms give rise to many novel questions, especially in regard to the application of Article 102 of the Treaty on the Functioning of the European Union (“TFEU”) in Europe, as well as the corresponding rules in local competition law regimes.

Compared to traditional markets, or “analog markets” as some refer to them, the definition of the relevant market and the assessment of market power in online platforms differ considerably, and are fraught with uncertainties. Despite these uncertainties in the competitive assessment, competition authorities worldwide are increasingly focusing on online platforms. In this article, a more recent example of abuse of dominance allegation against Amazon will be examined, and the general principles of determination of dominance and abuse in online platforms will be briefly discussed.

Bundeskartellamt’s Recent Investigation of Amazon

One of the latest rings in the chain of interest of competition authorities in online platforms is the recent proceeding initiated by the German competition authority, Bundeskartellamt, against the online marketplace, Amazon, that commenced on November 29th, 2018. Bundeskartellamt claimed that Amazon is the largest online retailer and operates, by far, the largest online marketplace in Germany. Furthermore, in the press release for the investigation, it alleges that many retailers and manufacturers depend on the reach of Amazon’s marketplace for their online sales, and that Amazon functions as a kind of “gatekeeper” for customers[1].

Andreas Mundt, the president of Bundeskartellamt, emphasized that Amazon’s double role as the largest retailer and largest marketplace has the potential to hinder other sellers on its platform, and highlighted that they have received numerous complaints and, as a result, they have decided to thoroughly examine whether Amazon is abusing its market position to the detriment of sellers who are active on its marketplace. To that end, Bundeskartellamt will scrutinize Amazon’s terms of business and practices towards sellers.

This proceeding is not the first step that has been taken by competition authorities against Amazon on abuse of dominance allegations. The European Commission (“Commission”) has previously begun investigations based on European competition law into Amazon’s European marketplaces and, in particular, into Amazon’s collection and use of transaction data. In the summer of 2018, the Commission sent out extensive questionnaires to several hundred retailers throughout Europe to this effect. Bundeskartellamt’s proceedings appear to be a supplementary additional step taken in Germany, in addition to the Commission’s overall proceedings. That said, whereas the Commission’s investigations focus on Amazon’s use of data to the possible disadvantage of marketplace sellers, the Bundeskartellamt appears to be specifically examining Amazon’s terms of business and practices towards sellers in its German Amazon marketplace.

Although the outcome of the scrutiny will demonstrate whether Amazon’s practices, in fact, constitute abuse of dominance, the terms of business of Amazon that might be considered abusive appear to be the liability provisions to the disadvantage of sellers, in combination with the allegedly non-transparent termination and blocking of sellers’ accounts, and the withholding or delaying of payment[2].

It should be stated that although many online platforms have been scrutinized in Europe, such as Google and Booking.com based on abuse of dominance, 2018 has been the first year in which Amazon’s retail marketplace is facing serious abuse of dominance accusations.

Determination of the Relevant Market, Dominance, and Abuse in Online Platforms

In order to provide a glimpse of what should be expected from the process in the months to come, a brief overview of different aspects in determination of market definition and dominance is noted, below.

Firstly, in its investigation, Bundeskartellamt will first assess whether Amazon is dominant, and establishing dominance requires defining the relevant market as a prerequisite to the finding of dominance. However, this will be challenging, since in the case of online platforms, the defining of the relevant product market is rather complex, as online platforms are two-sided (or rather multi-sided) markets[3]. Indeed, online platforms interact with two or more separate customer groups, and meet the demands of these groups by acting as an intermediary between them. Accordingly, demand-side substitutability for the platform can be assessed based on more than just one customer group, which would mean that the market definition assessment might result in multiple relevant markets. Consequently, in order to define the relevant market for online platforms, it must be established how many markets are required to be defined. Generally, the choice comes down to defining a single relevant market for the platform itself, or separate relevant markets with regard to the customer groups participating on the platform. The choice between these possibilities has significant consequences in terms of the scope of the relevant market. In the case of Amazon, given that it acts both as a marketplace and a direct online retailer, the market definition will be more difficult than it appears at first glance.

Once the market is defined, assessing the market power of the online platform is the next step. In relation to the assessment of market power, online platforms present some specific differences when compared to traditional markets that need to be taken into account. Firstly, possession of vast amounts of data by online platforms is a factor that might indicate market power, as pointed out for the first time in the Commission’s Facebook/WhatsApp decision[4]. On that front, the more detailed data that online platforms have, the more knowledge they will acquire about customers, thus enabling them to provide better services at a lower price, which in turn will increase their market power over time. Secondly, online platforms are usually the first movers[5] due to significant winner-takes-all effects[6], and this confers a certain degree of market power on them. Finally, market shares are a less reliable proxy of market power as compared to traditional markets, as market shares in these markets tend to shift greatly over a limited period. This is because the possibility of disruptive competition is possible and probable in the digital market space, and a very strong market position could be suddenly challenged if there are low barriers to entering the market, thus leading to dominant firms rapidly losing their ephemeral market power. All in all, there various nuances when determining dominance in a particular digital market concerning an online platform.

Finally, it will be assessed whether alleged practices constitute abuse in terms of Article 102 of the TFEU, which is a process requiring case-by-case evaluation. Various potential forms of abuse in regard to online platforms include pricing and ranking discriminations (the platform may charge different prices from trading parties within the same customer group, or alter the listings in a way that favors entries from a particular party) and price parities (commonly most-favored nation clauses where the trading parties that supply through the platform are required to provide the best conditions to the platform), amongst others.

In order to ascertain whether Amazon holds the dominant position in a given market, and whether its practices constitute abuse of dominance, we will have to wait for the decision of Bundeskartellamt in the coming months.

Conclusion

It is evident that dominant online platforms will be subject to the same scrutiny under Article 102 of the TFEU, as dominant non-platform undertakings, and perhaps even more so, due to the raising interest in online markets. Indeed, online platforms pose a number of interesting questions in relation to various aspects of competition law assessments. Competition authorities across Europe are still in search of an approach towards these issues, and such uncertainties raise criticism in light of the need for legal certainty. Significant caution will need to be taken when applying general principles to online platforms, also in light of the fast-moving nature of these businesses.

Bundeskartellamt’s investigation against Amazon has the potential to be an important milestone in modern competition law enforcement, as it will illustrate a prominent competition authority’s position in terms of many debated aspects concerning digital markets and online platforms.

As a concluding remark, the chairman of the Turkish Competition Board has emphasized on multiple occasions that they are closely observing Amazon’s activities in Turkey, as Amazon is now operating in the Turkish market, as well. The outcome of the current proceedings may loosely shape the future of competition law enforcement against Amazon in Turkey, among other jurisdictions.

[1] Official press release by Bundeskartellamt dated 29 November 2018; https://www.bundeskartellamt.de/SharedDocs/Meldung/DE/Pressemitteilungen/2018/29_11_2018_Verfahrenseinleitung_Amazon.html?nn=3591286 (Access date: December 2018)

[2] https://ecommercenews.eu/bundeskartellamt-investigates-abuse-of-dominance-by-amazon/ (Access date: December 2018)

[3] Two-sided (or, more generally, multi-sided) markets are roughly defined as markets in which one or several platforms enable interactions between end-users, and try to get the two (or multiple) sides “on board” by appropriately charging each side. (Rochet, Jean-Charles & Tirole, Jean. (2010). Two-Sided Markets: An Overview.)

[4] Case COMP/M.7217 - Facebook/Whatsapp.

[5] A market participant has first-mover advantage if it is the first entrant and gains a competitive advantage through control of resources. (Grant, Robert M. (2003). Cases in Contemporary strategy analysis.)

[6] A winner-take-all market is a market in which a product or service that is only slightly (1%) better than the competitors gets a disproportionately larger (90%-100%) share of or all revenues for that class of products or services. (Grant, Randy R.; Leadley, John C.; Zygmont, Zenon X. (2014). The Economics of Intercollegiate Sports.)

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