A New Competition Law 

for Big Tech?
Pablo Ibáñez Colomo
LL4AG Competition Law: Challenges and Prospects
Summary

• Overview
• Features of digital markets
• Proposed refinements
• Beyond competition law
Competition law in innovation‐intensive 
industries

• Innovation‐intensive industries are those in which competition is

driven by innovation (as opposed to price or output)
• As a result, the cycles of innovation are often very rapid – the shape of the
market (and market players) may change frequently
• A second consequence is that intellectual property protection (and in
particular patents) may be crucial in some markets
Competition law in innovation‐intensive 
industries
Microsoft/Skype (2011)
Competition law in innovation‐intensive 
industries
Competition law in innovation‐intensive 
industries
Competition law in innovation‐intensive 
industries

• The application of competition law to innovation‐intensive industries

gives rise to unique challenges:
• Should competition authorities intervene quickly to prevent dominant
positions, or should they trust innovation to address the concerns?
• Should competition authorities second‐guess, and interfere, competition
policy regimes
Summary

• Overview
• Features of digital markets
• Proposed refinements
• Beyond competition law
Features of digital markets

The peculiarities of digital markets

What is a two‐sided platform? Is ‘two‐sidedness’ unique to digital

markets? And network effects?

What are the other economic features identified in the Crémer, de

Montjoye and Schweitzer Report? Why would they lead to the
conclusion that there is something unique about digital markets?
Features of digital markets

‘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)
Features of digital markets

Input Sale

Input Sale

Traditional markets Two‐sided markets

 Features of digital markets

Advertisers Retailers Drivers

Readers Consumers Consumers

Features of digital markets
‘There are network effects if one agent’s adoption of a good (a)
benefits other adopters of the good (a “total effect”) and (b) increases
others’ incentives to adopt it (a “marginal effect”) [...]
Classic (or peer‐to‐peer) network effects arise when every adoption
thus complements every other, typically by giving each adopter more
prospective partners’
‘Indirect network effects’ arise where there are complementarities
between different categories of users and the adoption of a good by
category A users benefits category B users
(source: adaptation de Farrell & Klemperer)
Features of digital markets

Classic network 
effects

Indirect network 
effects
Features of digital markets

‘The first reason for which the new technologies of information are
incompatible with traditional modes of competition is that they show
very strong “returns to scale”: the cost of production is much less than
proportional to the number of customers served. While this has always
been true to some extent, as bigger factories or retailers are often
more efficient than smaller ones, the digital world pushes this
phenomenon to the extreme’
Crémer, de Montjoye and Schweitzer Report
Features of digital markets

Source: Baldwin and Cave, Understanding Regulation
Features of digital markets

‘The presence of large economies of scale also helps understand the

rise of free services. There is some evidence that consumers are
attracted by a zero price: there is an upward discontinuity in demand
when the price reaches zero. Now, consider the dilemma faced by a
firm who must choose whether to charge for its service or distribute it
at zero price, deriving its income from advertising. When both returns
to scale and the attraction of free are strong enough, it will choose the
second’
Crémer, de Montjoye and Schweitzer Report
Features of digital markets
Features of digital markets

Lessons from experience

Can we draw any lessons from the experience of enforcement over the
past decade or two in digital markets?
Features of digital markets

• The lessons of experience make it possible to draw some lessons

about two‐sided markets and network effects:
• From a static perspective (the short‐run):
• The fact that a market displays network effects and/or is two‐sided does not mean that it
necessarily has a tendency towards monopoly
• Several factors impact on a market’s tendency towards monopoly: users’ ability and
incentive to ‘multi‐home’ is one of them
• A super‐dominant position (even a monopoly) does not guarantee the ability to leverage
the position to neighbouring markets
• From a dynamic perspective: what look like insurmountable monopolies are
sometimes less vulnerable than assumed
Features of digital markets
Features of digital markets
‘76. It should be observed at the outset that the existence of network
effects does not necessarily procure a competitive advantage for the
new entity. On the segments of the consumer communications market
other than that of video calls on Windows‐based PCs, competing
operators have sufficiently large market shares to constitute alternative
networks. It is thus apparent from […] the contested decision, whose
content the applicants do not contest, that the user network of
Facebook’s instant messaging service is larger than that of the merged
entity. Similarly, it is apparent […] that, on the segment of voice
telephony, the concentration should not change the existing situation,
since WLM’s market share is very small in that segment’
Case T‐79/12, Cisco v Commission
Features of digital markets

‘81. In contrast to the applicant’s unsubstantiated assertions, the

Commission put forward in the contested decision specific items of
information indicating the existence of such a multi‐homing
phenomenon. The Commission did not only refer to such coexistence
between WLM and Skype before the concentration. The report cited in
[…] the contested decision mentions several other examples of
multi‐homing involving Skype and alternative providers such as Yahoo!,
AIM and Gmail. In addition, recital 93 […] refers to the recent arrival of
competitors such as Facebook, Viber, Fring and Tango, which tends to
show that network effects do not, in any event, impede market access’
Case T‐79/12, Cisco v Commission
Features of digital markets
Features of digital markets
Features of digital markets
Summary

• Overview
• Features of digital markets
• Proposed refinements
• Beyond competition law
Proposed refinements 

A new competition law?

Under what circumstances do the authors of the Crémer, de Montjoye

and Schweitzer Report justify shifting the burden of proof? What is the
rationale behind this move? Do you agree?
Proposed refinements

‘For EU competition law, as for US antitrust law, the specificities of

many digital markets have arguably changed the balance of error cost
and implementation costs, such that some modifications of the
established tests, including the allocation of the burden of proof and
the definition of the standard of proof, may be called for. In particular,
in the context of highly concentrated markets characterised by strong
network effects and subsequently high barriers to entry […], one may
want to err on the side of disallowing types of conduct that are
potentially anticompetitive, and to impose the burden of proof for
showing pro‐competitiveness on the incumbent’
Crémer, de Montjoye and Schweitzer Report, p. 51
Proposed refinements 

A new competition law?

The so‐called Furman et al Report discusses the issue of judicial review.

What is the take of the authors on this point? What is the justification
given?
Proposed refinements 

‘Instead the Panel has taken a forward‐looking view of what is needed

to optimise the competition framework for the new challenges of
digital markets. If it is to achieve this, the competition authority should
have an appropriate margin of appreciation to reach decisions on
digital cases that are likely to be particularly complex and may require
elements of expert judgement. A robust appeals process will be vital
but its role should be focused on ensuring decisions are founded on
procedural regularity, avoid material errors of fact or law, and are
reasonable in their exercise of judgement’
Furman et al Report, p. 106
Proposed refinements 

A new competition law?

The Crémer, de Montjoye and Schweitzer Report speak of ‘restorative

remedies’. What is a restorative remedy? How is it different from the
usual remedies?
Proposed refinements

‘Also, where self‐preferencing has significantly benefitted a platform’s

subsidiary in improving its market position vis‐à‐vis competitors, such
remedies might include a restitutive element (“restorative” remedies).
In order to enable formerly disadvantaged competitors to regain
strength, it may, for example, be necessary to give them access to the
dominant platform’s competitively relevant data resources or
otherwise compensate for their reduced visibility or lack of data access
in the past’
Crémer, de Montjoye and Schweitzer Report, p. 68
Summary

• Overview
• Features of digital markets
• Proposed refinements
• Beyond competition law
Beyond competition law

The limits of competition law

There are reasons to believe that the changes proposed are better
addressed via a sector‐specific regulatory regime, not via competition
law. Why?
Beyond competition law

’16. The third criterion serves to assess the adequacy of corrective

measures that can be imposed under competition law to tackle
identified persistent market failure(s), in particular given that ex ante
regulatory obligations may effectively prevent competition law
infringements. Competition law interventions are likely to be
insufficient where for instance the compliance requirements of an
intervention to redress persistent market failure(s) are extensive or
where frequent and/or timely intervention is indispensable’
Commission Recommendation on electronic communications markets 
Beyond competition law

The limits of sector‐specific regulation

What are the limits and potential drawbacks of such a sector‐specific

regime? How can these be addressed?
Beyond competition law

• The Regulatory Framework was conceived as a ‘future‐proof’ regime

(vs. US 1996 Act)
• The Framework and Access Directives set out objectives and
regulatory principles
• The need for intervention is to be established on a regular basis following an
analysis…
• …of the relevant market as defined in accordance with competition law
principles
Beyond competition law
Beyond competition law

The limits of sector‐specific regulation

What are the limits and potential drawbacks of such a sector‐specific

regime? How can these be addressed?