Making Markets Work for Consumers – Recommendations for Competition Policy in the Digital Era

The rapid development of digital services and information technologies has profoundly transformed traditional consumption over the past two decades: with a few clicks one can order goods and groceries on Amazon to be delivered in a matter of hours. Booking a holiday trip has never been so easy thanks to sites like booking.com. Time is losing its meaning, with movie after movie and episode after episode of some series being fed in by Netflix - effortlessly from the perspective of the viewer. Not to mention that Google has become de facto the gate to the web or Facebook, with its various services like WhatsApp and Instagram having become the new norm in social interactions for millions.

While digital companies have improved conditions for consumers, at the same time their practices have raised serious concerns about the way they collect and use our data, how they shape our consumption preferences through information overload and dark patterns, personalised offers and even by setting prices according to our willingness to pay, all of which is unknown to us but which they are keenly aware of thanks to profiling and behaviour tracking. Moreover, the combination of big data, big analytics, network effects, controlled digital ecosystems and switching costs has created a digital environment which may appear dynamic, but is often characterised by increased concentration and market power.

EU competition law is aimed at enhancing consumer well-being and welfare. As highlighted in a report published by the BEUC in 2019, consumer welfare in Europe is multi-layered, as it encompasses not only price effects, but also how an undistorted competitive process should deliver to consumers in the form of free choice and better-quality products. In digital markets, key players are gatekeepers controlling consumers’ access to products, services and information. Consumers are therefore forced into personalised digital ecosystems due to the presence of lock-in strategies and a lack of consumer-friendly, well-functioning alternatives arguably caused by anti-competitive behaviour on the part of these gatekeepers.

The dilemma for competition law enforcement agencies is a familiar one: should we trust the market to fix itself free of intervention? Or should measured action be taken, with the aim being to protect consumers and ensure fair competition in present and future markets? The traditional enforcement of competition law applied to digital markets has run up against its limits. Therefore, one must consider how to ensure that the law and its enforcers are able to meet the purpose of making digital markets work for consumers.

In the following we provide a set of recommendations from a consumer perspective on how to optimise enforcement of competition law by building on past experience, while taking into account the specific characteristics of digital markets.

Recommendations to optimise enforcement of competition law

1. Taking a holistic approach towards digital markets

In digital markets, leveraging practices are becoming more relevant than ever before: a company that is dominant in one market might use its power in an adjacent market to push competitors out, as we have seen, for example, in the Google Shopping case involving a service for the comparison of shopping sites. Google used its market power as the dominant search engine to increase the market share of its comparison shopping site. In their report to the European Commission, Crémer et al. highlighted the need to put less emphasis on analysis of market definition, and more emphasis on theories of harm and identification of anti-competitive strategies. From a consumer perspective, this makes total sense. We need to adopt a holistic approach to digital markets. This means that agencies should not stop at the step of market definition, but consider how companies and consumers interact simultaneously in different markets. Agencies need to enquire about how companies that are dominant in one market can use their market power to engage in anti-competitive practices in another market in which they are not necessarily dominant.

2. Focusing on consumer-facing markets through the consumer lens

With markets becoming more complex due to the digitalisation of the economy, it is important to look at how these new market dynamics are impacting consumer-facing products. Enforcers cannot rely solely on the assumption that consumers are well-informed and circumspect. In the digital era, consumers have become a source of behavioural surplus for many companies who want to use their insight to their own benefit (e.g. by estimating consumers’ willingness to pay or to serve them with products and ads they are likely to buy according to profile details companies have generated). Due to seamless integration of data harvesting, sharing, and processing systems with behavioural analysis and influencing technology, consumers become locked in a vicious circle of monitoring, behavioural analysis and being pushed and drawn in the direction of commercially desired behaviour. Therefore, it is important to take a step back from economic theory and to consider how consumers behave in reality as a result of such business practices, which may be far from what is objectively in their own best interest. This is particularly important when the effectiveness of remedies depends on consumers changing certain consumption patterns.

3. Designing effective and restorative remedies

The nature of digital markets may undermine the effectiveness of ex-post remedies resulting from competition law proceedings, particularly in cases in which abuse has led to the market tipping in favour of the incumbent. In the case of abuse, one effective remedy may be to put an end to the abuse, but this rarely reinstates the original market conditions, as competitors, which in the digital world are often start-ups, have already been pushed out of business. Competition agencies should therefore seek to design remedies that consider the likely tipping of markets, the role of data and networks and the effects on market entry and growth. In cases involving user’s interfaces, authorities should incorporate behavioural insight in remedies to address control over the interface and the ability to create friction and undermine consumer switching and multi-homing. The European Commission’s Competition Directorate General could for example benefit from the expertise on behavioural testing possessed by the Joint Research Centre or even establish a behavioural unit on the team of the Chief Economist.

4. Monitoring remedies and learning from past experience

Only through the appropriate monitoring and ex post implementation assessment of remedies can we be able to establish the success of an intervention. It is therefore important to regularly monitor the evolution of markets and of consumer behaviour in order to learn from past mistakes as well as to identify effective remedies that can serve as a source of inspiration in tackling similar practices, but taking place in different contexts and markets. Consumer organisations are in this regard natural allies of competition agencies since the monitoring of markets and consumer satisfaction is one of their core activities.

5. Resourcing and widening the toolbox of competition agencies

Whilst existing competition rules laid down in the Treaty must be actively used to tackle illegal behaviour by market players, additional market investigation powers are needed to ensure competition agencies have all the tools they need to tackle structural market failures. This is particularly important in digital markets given their structural characteristics, which demonstrates that competition rules are sometimes ill-suited to effectively address problems caused by, for example, monopolisation strategies of non-dominant companies or parallel leveraging strategies of dominant companies moving into multiple adjacent markets. Furthermore, antitrust investigations under the current rules may be too slow to prevent irreparable harm to the market. In the light of this, the European Commission is exploring the possibility to intervene before it is too late with a New Competition Tool, as suggested in the Commission’s Inception Impact Assessment. This instrument would allow the Commission to identify and remedy structural competition problems that cannot be addressed effectively under EU competition law. Inspired by the UK’s Competition and Market Authority’s market investigation powers, the New Competition Tool reduces the risks of consumers being permanently harmed by anti-competitive practices.

​​​​​​​6. Engaging with consumer organisations

Consumer organisations can show and direct competition authorities ‘where to dig’​​​​​​​. Consumer organisations can provide competition agencies insight into problems faced by consumers in certain markets, which could be related to a lack of competition or the presence of anti-competitive behaviours leading to an increase in prices or a reduction in choice or the quality of products. In several countries, there are already good examples of co-operation between consumer groups and competition agencies. For example, in the Netherlands and Greece memorandums of understanding have been concluded by competition agencies and consumer organisations to create formal channels of communication. However, more is needed to stimulate co-operation between consumer organisations and agencies by concentrating the expertise and efforts of both stakeholders more tightly, for example in the context of joint meetings by the European Competition Network and consumer organisations. This will contribute to creating a culture of compliance in which the interests of agencies, consumers and companies are more closely aligned.

The complementary role of regulation

Competition law enforcement may be insufficient to cope with the features of digital markets. It is important to appreciate the complementary role played by regulation, which can provide a more effective instrument to target practices that harm our markets. Regulation and competition enforcement can work in tandem, which is something we have seen across markets, from liberalisation of energy and telecommunications to financial services. Regulation has often followed competition cases by introducing rules aimed at creating the conditions for competitive markets to flourish. The EU has sufficient experience in dealing with monopolistic behaviour. The upcoming Digital Services Act can offer an opportunity to complement competition law enforcement in digital markets by, for example, prohibiting certain practices (e.g. self-favouring by a dominant platform under specific conditions) or imposing specific obligations in clearly defined circumstances (e.g. an obligation to allow access to application programming interfaces in the context of social media).

Conclusion

Extensive competition cases in Europe have shown that the assumption of ‘a self-correcting market’ is no longer credible, with this being even more true of digital markets. Very real threats to competition require enforcers to adapt through an informed evolution, and by adapting not only enforcement priorities, analytical capabilities and theories of harm but also of tools and resources to tackle these new challenges. An evolution which acknowledges the need to move beyond narrow price-centric antitrust enforcement and achieve the goals and objectives of EU competition law enshrined in the EU Treaties in actual cases.
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The views expressed in this article are not necessarily those of Friedrich-Ebert-Stiftung.