Introduction and Synopsis

Considering the emerging consensus that traditional antitrust enforcement tools may not be fully successful in addressing concerns raised by the development of the digital economy, key stakeholders across the world are making great efforts to address the issue. In particular, the legislative initiatives of the European Union (EU) have been prominent in this area. The United States has belatedly shown signs that there are concerns about concentrated economic power in digital markets and antitrust is being portrayed as an effective means to address the adverse consequences on competition. In China, regulators have recently expanded their remit on competition enforcement in digital markets. The strengthening of regulatory actions against digital platforms has also echoed across the globe, including in jurisdictions such as Australia and Brazil. Yet, even if all these efforts are remarkable, it is still yet unclear whether the variety of the proposed interventions would tackle the competition enforcement challenges posed by digital platforms and whether there is disparity of enforcement approaches that creates its own challenges for the companies involved in the digital sector.

In the EU, after months of stakeholder consultations and internal debate, in December 2020 the European Commission (EC) presented the Digital Markets Act (DMA), which is aimed to control a range of anticompetitive conducts of large online platforms (LoPs) and to ensure the expansion of European platforms in fair and contestable markets. In other words, the DMA is intended to create a level playing field on which European tech firms can compete against America’s tech giants. Recently, on July 18, 2022, the DMA was approved by the Council of the EU and is expected to inspire regulatory intervention in other jurisdictions. Hence, the DMA constitutes an ex ante regulatory regime that places the EC as the digital regulator and includes an exhaustive list of rigid obligations and prohibitions that need to be observed by designated gatekeepers. A company is presumed to be a gatekeeper if it meets the qualitative and quantitative criteria set out in the provision.

According to Margrethe Vestager, the Commissioner for Competition, without these rules “others will not get room to grow.” ¹ Perhaps, but it may also happen that firms would feel discouraged to expand to the point where they may be subject to the DMA. Paradoxically, an instrument that has been created with the intention of spurring growth and innovation could lead to having an adverse impact on both. An additional enforcement challenge is that the strict list of obligations and prohibitions included in the DMA comprises conducts that have proven to be or are likely to be anticompetitive, but in a dynamic and fast-evolving sector such as the digital one, it does not capture those shaped by future developments.

In the United States, a set of legislative bills that contain antitrust reforms have been filed with Congress in the last couple of years. These bills seek to retain control not just over competition but also over broader social and political concerns. Briefly, the initiatives aim at increasing antitrust enforcement resources, limiting the ability of online platforms to favor their own products over competitors’ ones, issuing structural separation orders when a designated covered platform’s ownership or control of a line of business creates unreconcilable conflicts of interest, making it difficult for dominant platforms to end competitive threats through killer acquisitions, lowering barriers to entry, and switching costs for businesses and consumers through interoperability and data portability requirements, among others. The introduction of these bills by both Democrats and Republicans is a milestone considering that for decades the United States has shown a lenient approach toward dominance. Despite this enthusiastic resurgence of antitrust interventionism, it remains to be seen whether politicians have a real intention to weaken their own tech giants. Also, it seems that more deliberation is required to avoid an inadvertent impact on the competitive processes and consumers’ preferences by addressing the excessive market power that some online platforms enjoy.

In China, the domestic tech giants had two decades of significant leeway in their business activities until recently when the Chinese government decided to intervene. This intervention has introduced new laws and regulations designed to sharpen the country’s technological edge while boosting competition and benefiting consumers. It has also meant a significant number of regulatory actions against domestic tech firms for alleged anticompetitive practices, from potential abuses to gun jumping. These regulatory actions were grounded on the new “Platform Economy Guidelines” adopted as a response to concerns that large online platforms had built market power and stifled competition. In the aftermath, several Internet companies were fined for failing to comply with merger notification rules, and China’s largest online marketplace operator, Alibaba, was found liable for its alleged exclusive dealing behavior, known as “choosing one from two.” It seems that the attempt to reshape Chinese tech will continue. Yet the policy carries some difficulties. Local entrepreneurs could limit their innovative efforts by becoming more risk-averse and investors may be less willing to support technological initiatives. Whether these potential scenarios would have a negative impact on innovation in China as well as abroad remains much in doubt.

This special edition authored by leading legal practitioners, economists, and academics discusses these critiques and seeks to address an array of procedural, substantive, and other issues that are generating intense debate across the antitrust community, including the scope and objectives of digital regulation, whether the application of ex ante rules would result in fragmentation and inconsistencies, whether such regulatory regimes are an appropriate tool for substantive assessment, whether the application of these rules would effectively tackle the competition enforcement challenges seen under competition laws, whether they can be applied without undermining other rights such as privacy, and whether they are appropriate for this digital age as well as the new digital eras ahead of us.

John Davies, Valérie Meunier, Gianmarco Calanchi, and Angelos Stenimachitis discuss how the DMA is in fact a competition law statute despite all the claims made by the EC to the contrary. Drawing on the characteristics of platforms that were identified by the EC and that were used to support the adoption of the DMA, the authors suggest (1) that network effects do not always confer market power or dominance and that rather sometimes they can induce the disappearance of platforms; (2) that market tipping is better assessed as part of an investigation given the involved nuances, adding that any conclusion reached in this sense as part of an ex ante intervention involves a high risk of error; and (3) that leveraging strategies need to be assessed on a case-by-case basis considering that some business practices, such as self-preferencing, can occasionally be beneficial for customers. They also outline that the designation of a gatekeeper largely based on size can be a misleading proxy, suggesting that the ability to control a digital ecosystem is a more relevant alternative designator of potential power. They highlight that the application of per se rules is a wrong approach in an environment that evolves rapidly and requires a substantial amount of expertise, adding that it is very unlikely that one piece of legislation imposing the same rules to multiple platforms with distinctive features could effectively address the issues posed by each of them, especially when such rules do not evolve in line with technology. Finally, they explain why market investigations are a more suitable tool to deal with competition concerns in digital markets.

Athena Kontosakou retraces the reasons that paved the way to the adoption of the DMA. She then assesses the key features of this regulation. The article further examines the application of the referral mechanism set out in Article 22 of the European Union Merger Regulation (EUMR). It indicates that as many transactions escaped scrutiny because they did not meet the jurisdictional thresholds, and the DMA, beyond introducing an obligation to inform and possibly notify concentrations, did not provide any specific rules to substantively assess mergers in digital markets, the EC has provided new guidance under Article 22 to refer transactions in sectors such as the digital and pharma-biotech sectors that fall below national merger thresholds, affect trade between member states, and threaten to significantly affect competition within the territory of the member state or states making the request reviewable by the Commission. Similarly, a review of EU case law in particular, the Google Shopping case and Google Fitbit merger decision, has led her to conclude that in the former the standard of proof has been lowered for the Commission and that in the latter the foreclosure effects from a data point of view were insufficient to lead to the requirement for remedies. She concludes her article by examining the risks of non-coordinated approaches across EU in controlling the conduct of tech giants.

Diana Moss considers that the United States now confronts large digital business ecosystems (DBEs) that possess significant market power. The article indicates that these DBEs have been the result of unchallenged transactions involving a variety of markets. It also argues that some of these transactions were devised to neutralized nascent competitors that could become a threat. Furthermore, the DBEs have also been using other tactics to limit the competition from smaller competitors such as self-preferencing, lack of interoperability, or the use of trained algorithms that favor their products and services. She explains the many reasons why in the United States the current legislative initiatives to address competition concerns in the digital sector fall short. First, they do not consider the unique structural features of DBEs and the interaction between their different actors or components. Second, they ignore the real market power concerns DBEs raise, such as data, privacy, and algorithmic preference. Third, they do not address the growth-by-acquisition model. The article concludes by offering remedial approaches to addressing the explored competition concerns.

Maureen K. Ohlhausen and Ben Rossen observe that recent proposals in the US Congress put privacy and competition values in direct conflict. As an illustration, one proposal forces access to and interoperability without much regard to privacy and security protections. They note that although privacy and competition do not pursue the same goals, they can be synchronized under the right regulatory approach. Seeking the right regulatory approach, the authors indicate that the proposals fall into four categories: (1) the proper assessment of privacy in merger analysis; (2) the recognition that competition and consumer protection are intrinsically correlated; (3) that companies are accountable for data collection privacies if that helps them acquire or maintain market power; and (4) that regardless of the existence of a vertical or horizontal relationship between companies, if extensive databases of consumer data are involved, a merger should be automatically blocked. The article also examines how the courts have reviewed the role of competition laws and consumer protection laws. They conclude that Congress should enact a comprehensive consumer privacy law that protects consumers while leveling the playing field for all competitors.

Xiaoye Wang and Yajie Gao describe how China’s rulers have been increasing the oversee of digital platforms. In 2021, a significant number of relevant guiding documents were enacted, and enforcement actions took place. In particular, the Competition and Big Data Centre was established, and the Guidelines on Online Platform’s Liabilities and the Guidelines on Online Platform’s Categorization were published. These two pieces of regulation mirror the DMA adopted in the EU. In terms of merger control, the new guidelines clarify that variable interest entity (VIE) transactions, an arrangement through which companies registered overseas control domestic operating companies through a series of agreements instead of shareholdings, would be reviewed by the Chinese competition authority. Similarly, the merger decisions in 2021 showed a more aggressive substantive competition analysis. Nevertheless, this reshape has been confronted with some challenges such as how to ensure data interconnectivity between platforms and data portability without undermining privacy rights. To this end, the authors indicate that China is willing to cooperate with other jurisdictions to find a practical solution to these common issues.

Ken Dai and Jet Deng discuss the antitrust enforcement in the digital economy in China. First, they summarize the different pieces of regulation that have been introduced to control digital platforms. Second, they present the institutional changes that have been implemented to deliver the expected antitrust supervision. Third, they examine some merger control decisions in digital markets involving VIE transactions, including gun-jumping sanctions, remedial conditions, and prohibition decisions. Fourth, they examine four abuse of dominant cases in which the “choose one from two” was at the center of the debate, showing the complexity of the analysis in terms of market definition. Fifth, they discuss the developments in the determination of market definition and dominance in the court’s decisions. Based on the above, the authors consider that in China a consensus has been reached that on establishing dominance, market share is not the only indicator. They add that the “choose one from two” is currently the most common conduct expected to be investigated and sanctioned. Finally, they anticipate stronger competition enforcement efforts in the digital markets.

Rhonda L. Smith and Deborah Healey examine the methodology of Australian courts in applying the likely substantial lessening of competition test in relation to mergers in digital markets. They acknowledge that the current issue refers to the application of the test and the level of evidence required to satisfy it. In addition, they shed light on the difficulties the Australian Competition and Consumer Commission (ACCC) face in successfully establishing that a proposed merger will contravene section 50 of the Competition and Consumer Act 2010. In particular, they discuss to what extent the term “likely” has been incorrectly interpreted by the courts, and therefore, the level of evidence required to support a claim that a merger is likely to substantially lessen competition when that merger has yet to occur is insuperable. This becomes more relevant considering that courts have stated that claimed effects of a merger cannot be merely speculative. Aiming to address the issue, the authors propose a more holistic approach in which it is important to review previous transactions approved to the intended acquirer, to define only the market in which the acquirer operates, to carefully analyze the entry barriers, to treat data as another asset, and to critically assess whether consumers have real switching alternatives.

Caio Mário S. Pereira Neto, Ricardo Ferreira Pastore, and Raíssa Paixão provide an overview of some unilateral conduct cases in the digital economy decided by the Brazil’s National Competition Authority, the Administrative Council for Economic Defense (CADE). Considering CADE’s recent enforcement experience in this field, the authors identified the theories of harm applied by the authority, the tools used to deal with them, and the enforcement challenges. The authors have recognized a trend to avoid overenforcement albeit the investigative periods are prolonged and the amount of obtained information sufficient. Hence, the competition authority seems to be inclined not to declare a violation in the presence of potential positive effects and unclear negative ones. They have also established that CADE has used its powers to impose interim measures in few cases, all of them requested by third parties and often hearing the investigated parties before taking a decision. The imposed measures have sought to prevent the foreclosure of the markets, the raise of rivals’ costs, and the increase of barriers to entry. A good example has been the removal of exclusivity clauses or contracts. The use of settlements has also been explored, which in the opinion of the authors has proven to be a good tool to overcome informational asymmetries and to effectively address some issues that the imposition of penalties would not remedy. Finally, the authors predict further enforcement activity accompanied by the frequent use of settlements and interim measures.

Garry Gabison looks at the role of the “white label” model in the digital markets and the competition law implications. The author explains that “white label” is a form of outsourcing or subcontracting that has been used to circumvent competition regulations. To assess the effectiveness of this strategy, the article first discusses how the delegation of tasks dilutes the liability of the contracting parties. The discussion then turns to the difficulties in defining the markets for merger control purposes. While labels can blur the line between generics and branded services, they can also affect the functions of trademarks and affect goodwill and perceived reputation. The last part of the article discusses the competition concerns raised with the use of white label in vertical relationships.