Competition in digital markets has become a hot topic well beyond the competition policy community. Concerns are growing about the conduct of large digital firms, and their impact on markets. OECD’s James Mancini looks at what competition authorities should do about these concerns in a new paper on abuse of dominance in digital markets.
The idea that “big is not bad” is an established principle of competition policy. A firm’s size may be the result of innovation, a novel business model, or simply more efficient operations. In other words, it can be the reward for aggressive competition – something that is beneficial for consumers, and economic productivity more broadly.
However, competition policy has identified some anticompetitive strategies that can be used by dominant firms in a market in order to enhance or protect their market power. In contrast to innovation, for example, these strategies can harm consumers, and lead to broader economic damage. In competition law terms, they are referred to as abuses of dominance, or monopolisation strategies.
Digital markets pose a fundamental challenge for abuse of dominance enforcement. On the one hand, they may be more likely to manifest the kind of harm that this law enforcement instrument was designed to prevent (due, among other things, to large economies of scale and network effects). On the other hand, the analysis of this harm can be potentially complex, giving rise to the risk of error which results in either over or under-enforcement. This is reflected in the statistics: 30 out of 39 competition authorities responding to a recent International Competition Network survey reported opening abuse of dominance investigations in digital markets, although only 17 of these led to enforcement action.
If competition authorities are unable to apply abuse of dominance frameworks to digital business models, this may lead to questions about the broader relevance of abuse of dominance cases as a competition enforcement tool. As a result, some have called for more extensive enforcement in this area. Conversely, aggressive enforcement that is not founded in economic theories of harm, or that does not address the risk of over-enforcement, may end up harming the consumers it was meant to protect, thereby undermining support for competition enforcement more generally. Balancing these risks requires both an openness to abuse of dominance theories of harm, and great care in selecting which cases to bring.
Different jurisdictions make different assessments of where the balance of under and over-enforcement risks lies. These assessments cannot be separated from the underlying legislative, historical, and philosophical context of competition law in each jurisdiction. Enforcement approaches may also be updated in response to ex-post assessments of past interventions, evidence about trends in market power. However, there are areas of convergence in terms of the need for effects-based analysis in most cases, and the need to avoid action that creates disincentives for innovation.
While the unique combination of characteristics in digital markets can require some adaptation, and may raise the stakes for abuse of dominance cases, they do not require a fundamental rethink of abuse of dominance theories. At the same time, there are cases in which alternative competition policy tools could be either more justified, more timely, or more resource-efficient. Competition authorities may wish to advocate for the introduction of sector-specific regulatory frameworks, particularly when the alternative is stretching abuse of dominance theories to address competition problems to which they are not well suited, or when the remedies would require detailed rules regarding access to a difficult-to-define input. Thus, competition authorities have many options, and abuse of dominance cases can be a helpful tool, but not a multi-purpose tool.
Competition authorities attending the OECD Global Forum for Competition on 8 December 2020 will explore the challenges associated with abuse of dominance cases in digital markets.
2020 OECD Global Forum on Competition Blog Series