Enforcers tackle e-commerce at OECD roundtable. Nikolay Voznesenskiy comments for Global Competition Review
Competition authorities have highlighted concerns about the collection of data in online markets, as well as barriers to entry and territorial restrictions, in a series of submissions ahead of the OECD’s roundtable on the implications of e-commerce for competition policy.
The Organisation for Economic Cooperation and Development’s roundtable takes place this week in Paris to tackle competitive dynamics and recurrent competition problems within e-commerce markets. The US, EU, Russia and Singapore are among 26 jurisdictions to submit reports about competition developments and roadblocks in online markets.
The Department of Justice and the Federal Trade Commission have jointly submitted a report, which reiterated that traditional competition law tools are adequate to address e-commerce competition concerns.
The report states that competition authorities need “to be aware of more than just online/e-commerce versus offline/bricks and mortar competition” and consider the “increasingly blurred lines between online and offline competition”.
US enforcers must continue to consider the effects of both online and offline sales when assessing mergers, the report said, especially in industries where technology is integrating into traditional items and consumers’ “ever-increasing demand for innovation” fuels competition. For example, the market for smart-home devices is “robust” and “creating an ever-growing sector of commerce in areas not traditionally centered on technology”.
Despite these blurred lines, the US report was confident that authorities can apply existing competition law analysis to emerging markets – particularly when reviewing mergers. It noted that the FTC considered online sales when it challenged retailer Staples’ acquisition of Office Depot in 2015. The FTC also used a traditional merger analysis when it approved property selling website Zillow’s acquisition of rival Trulia.
The authorities added that the US will bring competition law challenges to the e-commerce market “in the right circumstance”, despite bringing relatively few cases thus far. The report cited the investigation against Microsoft, which concluded that the company abused its dominance when it bundled its web browser and operating system software.
Although the US acknowledged the “hypothetical potential for collusion” using algorithms, it concluded that antitrust laws do not have a role to play in regulating pricing algorithms absent evidence of a traditional collusive agreement among competitors.
The report also warned against using privacy as a “proxy for price”, even though privacy can be a “dimension of competition”. It said privacy should be considered a consumer protection concern, not a potential competition concern.
The EU highlighted the challenges territorial restrictions place on the European Commission’s policy goal of creating a single digital market within the EU. It also expressed concerns about data collection and entrenched market power within the e-commerce sector.
The report drew heavily on the commission’s 2017 e-commerce sector inquiry. Although the inquiry recognised that online trading had a positive effect on price competition, it highlighted that quality, brand and innovation competition suffered.
Territorial restrictions in vertical distribution and licensing agreements is a “particular concern” for EU enforcers as they “limit the potential” of market integration, the report said. Retailers apply geo-blocking measures to their goods, which restricts consumers’ ability to purchase products from another member state online.
Although active sales restrictions are allowed “insofar as they concern sales into an exclusive territory reserved for the supplier”, the report notes that a blanket territorial restriction generally violates EU competition law. The commission is currently investigating clothing retailers Guess and Nike and entertainment company Universal for restricting online sales to consumers in certain EU states.
The EU report linked e-commerce competition to the availability of licensing rights, which it said is “one of the key determinants” of competition in digital content markets. Bundling digital content rights is a common practice, but may create barriers to entry, particularly when combined with territorial restrictions.
The report noted that 74% of TV series, 66% of films and 63% of sporting events broadcast in the EU are subject to geo-blocking. In 2017, the commission initiated proceedings against video games distributors who prevented consumers from purchasing computer games because of their country of residence.
Another concern is that digital markets can be characterised by “entrenched market power”, the EU’s report said. It noted the Amazon ebooks and Google shopping cases – where the digital platforms “stifled competition” by depriving consumers of genuince choice – and urged enforcers to “ensure that companies with a dominant position do not abuse such a position”.
Enforcing competition law is part of the European Commission’s “broader policy toolkit” to create a single digital marketplace, and the authority will set up an EU Observatory to monitor current and emerging issues in the digital economy, the report concluded.
Singapore’s submission found that the country’s current competition law is “largely adequate” to address e-commerce concerns, but urged enforcers to “stay abreast of the latest development[s]” in light of the sector's “dynamic nature”.
The report noted that it expects e-commerce to grow in the Association of Southeast Asian Nations, although most consumers currently prefer traditional brick-and-mortar retail options. E-commerce growth raises particular concerns regarding data collection and consumer-to-consumer sales, the report said.
It advocated cooperation with domestic and regional authorities, as well as supranational research institutions, to study e-commerce’s implications on competition policy. A 2017 study by Singapore’s competition authority found that the online retail market among the six largest ASEAN economies was worth $7 billion in 2015, largely due to the 17% annual growth of internet users in the region.
To achieve e-commerce’s “full potential” in the ASEAN region, competition authorities should harmonise their regulations and competition law to improve technological infrastructure and bridge the “broadband divide”, the report said.
It also recommended better education over enforcement, especially as the digital marketplace is constantly evolving and attracting new entrants.
In 2014, Singapore’s competition authority declined to fine 14 power bank retailers despite the existence of a price-fixing agreement, choosing instead to “engage the platform administrator” to improve competition law understanding and “explore ways in which anticompetitive activities on the platform could be notified” to the enforcer in the future.
Singapore’s competition authority also noted in its report that the enforcer will conduct a study into online travel agents this year. This study will consider the competitive effects of bundling flights and accomodations, imposing false claims on limited promotions and flight availability, as well as price parity clauses in commercial contracts.
The authority has also published a joint paper with the Personal Data Protection Commission and the Intellectual Property Office of Singapore, which explored data sharing’s competitive implications. Although the paper raised concerns regarding pricing algorithms and personal data collection, the competition authority ultimately concluded that existing competition law frameworks are “sufficiently flexible and robust” to address these issues.
Russia’s report highlighted the government’s National Competition Development Plan for 2018 to 2020, which calls for a new competition law to address digital economy concerns. The competition authority plans to submit the draft law to Russia’s government this year.
The draft law prohibits anticompetitive agreements carried out with the help of digital algorithms and platforms. It also specifies prohibitions on using data and digital platforms to abuse a dominant market position, while introducing tools to control economic concentration in the digital economy.
Existing competition legislation in Russia does not account for multi-sided markets, the report said, which can “limit the protection of competition” when the enforcer conducts merger reviews. The report cited the enforcer’s concerns regarding the Bayer/Monsanto merger, which would have a “material impact on industry innovation and technological development dynamics in the agricultural sector”.
The Russian report found that computational algorithms were particularly important in forming anticompetitive agreements – in contrast to the US report, which was less concerned by pricing algorithms.
It is a “rare situation” when anticompetitive agreements are oral or written, and “often all agreements are reached through the use of computer technologies”, Russia’s report said. Currently, developers of unlawfully used price algorithms cannot be held liable under Russia’s competition law, the report said, which limits the enforcer’s ability to crack down on cartels.
However, Russia’s report noted that digital technologies can be helpful in identifying cartels. The competition authority has a “multiple-parameter system” for identifying and proving cartels, which uses an algorithm that compiles cartel indicators and predicts unlawful activity. In 2017, the system recorded signs of bid rigging in 42 Russian regions.
Evgeny Khokhlov, a partner at the Antitrust Advisory in Moscow, said the OECD may well “do what it always does” during its e-commerce roundtable, by analysing best practices and issuing guidelines, which could be helpful for national competition enforcers lacking experience in the area of e-commerce.
As the internet is a global market, Khokhlov said he believes e-commerce competition issues are best tackled at an international level. “[But] in reality, this could hardly be achieved due to the many controversies between the approaches of various countries to the antitrust aspects of e-commerce,” he admitted.
Bryan Cave Leighton Paisner partner Nikolay Voznesenskiy hopes the OECD will provide guidance regarding economic concentration and dominance in the e-commerce market, as it is a “topical yet controversial” area for every national authority.
Voznesenskiy added that competition authorities can combine their expertise to develop international competition policy regarding e-commerce. He suggested Russia’s competition authority could “play a key role”, as it has more experience in e-commerce cases than other enforcers.
Chong Kin Lim, a director at Drew and Napier in Singapore, said it is important for regional competition authorities to develop a “coherent set of competition policies” to deal with challenges, particularly in the ASEAN region where e-commerce is an area of growth.
“The OECD e-commerce roundtable discussion is an excellent initiative in shortening the learning curve for national competition authorities that have not dealt with e-commerce related competition issues extensively,” Lim said, although enforcement is ultimately in the hands of national enforcers.
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