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IEB Seminar, 15 February 2019 EU Competition Law and Multi-Sided Platforms Alfonso Lamadrid

This seminar explores the concept of multi-sided platforms in the context of EU competition law. It discusses the business models, network effects, and implications for competition enforcement. Key lessons from EU case law are also examined.

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IEB Seminar, 15 February 2019 EU Competition Law and Multi-Sided Platforms Alfonso Lamadrid

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  1. IEB Seminar, 15 February 2019EU Competition Law and Multi-Sided PlatformsAlfonso Lamadrid

  2. What is a platform? • IEB, Madrid • Spain • Alfonso Lamadrid

  3. What is a platform?

  4. Multi-sided platforms / markets /business models “A market is two-sided if the platform can afffect the volume of transactions by charging more to one side of the market and reducing the price paid by the other side by an equal amount; in other words, the pricing structure matters, and platforms must design it so as to bring both sides on board” (Rochet & Tirole) “Put simply, a two-sided market is a market in which a firm sells two distinct products or services to two different groups of consumers (the two ‘sides’) and knows that selling more to one group affects the demand from the other group, and possibly vice versa. Thus, it is often said that a firm in a two-sided market needs to ‘get both sides on board’ to do business.” (Filistrucchi, Geradin & van Damme)

  5. Two-sided business models Two-sided Traditional Sale Input Sale Input

  6. Two-sided business models Advertisers Merchants Drivers Readers Users Users

  7. Network effects Classic network effects Indirect network effects

  8. Network effects:A positive externality with very bad press • The doctrine and the application of the law in the face of network effects have tended to focus on their anticompetitive potential • E.g. Guidance Paper, ¶17, ¶20Guidelines horiz. mergers, ¶72Guidelines non-horiz mergers, ¶62 and ¶101 • Network effects are a most effective basis for legal arguments challenging allegedly anticompetitive conduct: • Prices too high(e.g. MIFs- card payment systems) • Prices too low(e.g. Google Maps -Bottincase- and Android complaint) • Prices too stiff(MFNs in online distribution) • Exclusivity(Android) • Tying / Bundling(Microsoft WMP and IE) • Competitive Bottlenecks / Gatekeepers(Search engines, GDSs, ISPs, Credit Cards, Supermarkets, etc.) • Mergers(e.g. MCI/Worldcom, Worldspan/Travelport, Google/DoubleClick, Microsoft/Skype?)

  9. Implications (I) • Platforms make users better off by harnessing indirect network effects • Advantages arise when platform manages to obtain a critical mass of users and balances and optimises the network • Identification of “platforms” / two-sided markets • Two-sidedness is a matter of degree, and is not exclusive to online settings • What matter are competitive constraints, not the competing business models • Online platforms might compete in same markets as non-platforms and offline platforms

  10. Implications (II) “This pattern of cross responses will generally affect each step of standard antitrust analysis, from product market definition, the competitive assessment, entry, efficiencies, etc.” (European Commission, OECD Roundtable 2009)

  11. Implications (III) The features of multi-sided platforms may lead to market power/foreclosure are precisely the same ones in which they may be welfare enhancing Competitive ambiguity derives from the existence of network externalities How should enforcers deal with the ambivalence of a practice? How review courts should engage with the conclusions drawn from this ambivalence?

  12. “Hey Siri, should we change competition law for online platforms?”

  13. Why don’t you try applying it properly instead?

  14. Multi-sided platforms Lessons from the EU case law

  15. Multi-sidedness: key lessons Competition law is business-model agnostic One cannot look at different sides of a multi-sided business model in isolation Multi-sidedness considerations are part of the legal and economic context to a given practice, not a side issue to examine in isolation as a last step in the analysis The importance of the counterfactual The real value and strength of network effects Vertical integration in principle pro-competitive- Cross-market effects require showing anticompetitive foreclosure Mere competitive advantages/disparity of treatment not enough The assessment of pro-competitive effects must consider the benefits flowing to all sides of a multi-sided system Non-competition issues are… well, not competition issues In the face of doubt…

  16. Lesson #1 Competition law isbusiness-model agnostic (e.g. Pronuptia, Coty)

  17. Lesson #2 One cannot look at different sides of a multi-sided business model in isolation (CartesBancaires, Mastercard)

  18. Lesson #3 Multi-sidedness considerations are part of the legal and economic context to a given practice, not a side issue to examine in isolation as a last step in the analysis (CartesBancaires, Mastercard)

  19. Lesson #4 The importance of the counterfactual (and of inter-brand/platform competition) (e.g. O2, ENS, Kali & Salz, E.ON,Nüngesser, Pronuptia, Krka)

  20. Lesson #5 The real value and strenght of network effects (Cisco - Microsoft/Skype)

  21. Lesson #6 Vertical integration in principle pro-competitive Cross-market effects require showing anticompetitive foreclosure (e.g. Bronner, Commercial Solvents, Télemarketing, Telefónica, TeliaSonera, Deutsche Telekom, Microsoft/Skype, GE/Honeywell, Tetra Laval)

  22. Lesson #7 Mere competitive advantages/disparityof treatment not enough (e.g. MEO, PD I, Bronner, TeliaSonera,Slovak Telecom, Deutsche Telekom)

  23. Lesson #8 The assessment of pro-competitive effects must consider the benefitsflowing to all sides of a multi-sided system (Mastercard)

  24. Lesson #9 Competition is not limited to price, but non-competition issues are… well, not competition issues (e.g. Asnef Equifax)

  25. Lesson #10 In the face of doubt… (e.g. Astra Zeneca, O2)

  26. Multi-sided platforms The us approach

  27. SCOTUS clarifies US law on multi-sided platforms (Amex, the American CartesBancaires) The U.S. Supreme Court has issued today its Opinion in the AMEX case. It is available here. This is likely to be the most discussed antitrust opinion in the decade. The lesson in a nutshell. Showing an apparent restriction on one side of a multi-sided platform is not sufficient to meet the burden of establishing prima facie anticompetitive effects. The plaintiffs’ argument “wrongly focusses on just one side of the market”. EU readers will wonder whether […]

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