Quality considerations – BOTTA – November 2018 OECD discussion

This presentation by Marco BOTTA, Max Planck Institute, was made during the discussion “Quality considerations in the zero-price economy” held at the joint meeting of the OECD Competition Committee and the Committee on Consumer Policy on 28 November 2018. More papers and presentations on the topic can be found out at oe.cd/qcz.

1. COMPETITION POLICY IN ZERO-PRICE MARKETS
UPDATING THE ANALYTICAL TOOLKIT
MARCOBOTTA
Joint meeting of the OECD Competition and Consumer Policy Committees
Paris, 28
th
November 2018
Max Planck Institute for Innovation and Competition | Munich

2. Outline
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•Updating the competition analytical tools:
1)Relevant market.
2)Market power.
3)Anti-competitive conducts.
4)Potential remedies.
•Conclusions –questions for further debate.
Max Planck Institute for Innovation and Competition | Munich

3. Limits oftheSSNIP test
3
•The relevant market is traditionally defined via the SSNIP test.
•Problem: what is “small, but significant price increase” in a zero-price market?
•‘Free effect’ : when the reference price is zero, consumers will automatically
switch to any competing product in case of price increase ➢excessively broad
definition of the relevant market.
•Multi-sided markets: SSNIP test will limit market definition to one side of the
market.
Max Planck Institute for Innovation and Competition | Munich

4. Alternative toolstodefinetherelevantmarket
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•Alternative tools follow a similar logic as the SSNIP test:
1)SSNIC(i.e. increase consumers’ costs): + data / attention ➢+ consumers’ costs.
2)SSNDQ(i.e. decline product quality): + data / attention ➢-product quality.
•Limitsof the alternative tools in zero-price markets:
1)Quantification: +5% amount of personal data / attention?
2)Heterogeneous consumers’ preferences: what type of data/attention should we
take into consideration?
3)Positive effects: + data transferred can increase the product quality.
4)SSNIC and SSDQ do NOT catch multi-sided markets.
Max Planck Institute for Innovation and Competition | Munich

5. Market power in zero-pricemarkets
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•Market power within the relevant market: element to trigger enforcement
of competition policy (e.g. unilateral conducts, merger control, vertical
agreements).
•Traditional definition of market power: ability of the firm to raise prices
above the competitive level.
•‘Free effect’ : in zero-price markets firms can never raise prices above 0 ➢
consumers would always switch to other products = NO firm has market
power.
•The market share has limited relevance to assess market power in zero-
price markets.
Max Planck Institute for Innovation and Competition | Munich

6. Factorstoestimatemarketpower in zero-price
markets
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•A number of factors can be assessed to estimate the degree of market power
in zero-price markets:
1)Attention degree: users’ attention on the Internet is a ‘scarce’ resource.
2)Direct and indirect network effects: number of users; product quality.
3)Multi-homing and switching costs.
4)Access to data ➢possibility to purchase data from third parties.
5)Sunk investment costs.
6)Degree of innovation:
a)Relevance of innovation in the market;
b)Evidence of past radical innovations;
c)Evidence of past entry.
Max Planck Institute for Innovation and Competition | Munich

7. Updatinganti-competitiveconducts
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•Assessment of anti-competitive conducts based on ‘price’ should be
revisedin zero-price markets.
•Cartels fixing the price at zero: shift from a per se prohibition to an effect
analysis.
•Predatory pricing ➢what is ‘predatory’ in a zero-price market?
1)Fallacies in accordance with the current legal standards:
a)EU: presumption of predation when prices are below average marginal costs.
b)USA: requirement of likely recoupment in the same market.
2)Recoupment requirement should be always required, BUT extended to
other ‘sides’ of the market.
Max Planck Institute for Innovation and Competition | Munich

8. Updatinganti-competitiveconducts
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•Exploitative conducts in zero-price markets (EU):
1)Excessive pricing (i.e. asking ‘too much data’) ➢NOT relevant.
2)Discriminatory pricing ➢NOT relevant.
3)Unfair contractual clauses: relevant in zero-price markets
a)Clauses ‘unilaterally’ imposed by the dominant firms (e.g. social network
unilaterally modified the data protection terms).
b)’Unfair’: clauses ‘un-related’ to the product, and outside the ordinary
commercial business practices (e.g. users’ data are transferred to third parties
without the user’s consent).
c)Relationship with consumer and data protection law: open question.
Max Planck Institute for Innovation and Competition | Munich

9. Competitionlawremediesin zero-pricemarkets
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•Zero-price markets pose new challenges to the application of the traditional
antitrust toolkit ➢infringement decision + fine is NOT an effective remedy.
•Structural v. behavioural remedies:
1)Structural remedies (e.g. un-bundling; divestiture of a subsidiary): NOT
efficient ➢negative effect on direct network effects and product quality.
2)Behavioural remedies: the NCA ‘guides’ the firm in terms of competition law
compliance:
a)Tailor-made ➢designed in cooperation with the firm (i.e. commitments);
b)Possible periodic revision ➢adaptation to the market dynamics.
c)Need of monitoring.
d)Risk of market regulation ➢overlap with data protection and consumer law.
Max Planck Institute for Innovation and Competition | Munich

10. Behaviouralremediesin zero-pricemarkets
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•Examplesof behavioural remedies in zero-price markets:
1)Increase consumers’ awareness (e.g. increase transparency of the
contractual terms; info about the personal data collected);
2)Setting minimum standards of data protection terms (e.g. max. duration
of data storage);
3)Giving consumers the opportunity to periodically revise the consent to the
processing of their personal data;
4)Right to data portability.
Max Planck Institute for Innovation and Competition | Munich

11. Relationshipwithsector-regulation
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•Antitrust remedies can clarify unclear aspects in data/consumer law
protection.
•Cooperationbetween NCA and data protection /consumer law authorities:
1)Exchange of information during the investigations;
2)Joint sector-inquiries;
3)Consultation in designing behavioural remedies.
•Competition v. consumer / data protection remedies:
1)Advantage: antitrust remedies ensure higher degree of deterrence.
2)Disadvantage: definition relevant market and market power.
Max Planck Institute for Innovation and Competition | Munich

12. Conclusions –questions for further debate
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•Are SSNIC and SSNDQ effective tools to define the relevant market?
•What aspects should be taken into consideration to assess market power in
zero-price markets?
•How should the assessment of anti-competitive conducts be adjusted to the
peculiarities of zero-price markets?
•What type of competition law remedies could be introduced in zero-price
markets?
•What are the possible forms of cooperation between NCAs and sector
regulators when it comes to designing the remedies?
Max Planck Institute for Innovation and Competition | Munich

13. 13
Thank you very much for your attention!
[email protected]
Max Planck Institute for Innovation and Competition | Munich