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Should the European Commission add Market Investigations to its Competition Toolkit to Monitor Digital Markets? – Have your say

  • Europe
  • Competition, EU and Trade

10-06-2020

On 2 June 2020, the European Commission (“Commission”) launched public consultations on two work strands relating to the Digital Services Act, as part of the Commission’s key priority to create “a Europe fit for the digital age”. The Commission is seeking views from stakeholders on a new competition tool which would enable it to undertake market investigations into perceived structural competition concerns and impose market-wide remedies on businesses. The second consultation relates to a possible ex-ante regulation of digital platforms to update the 20-year old e-Commerce Directive.  This briefing considers the proposal for a “new competition tool”.

Background

The Commission and other competition authorities worldwide are considering whether their powers are sufficient to address potential competition concerns in digital markets.  Last year, the Commission published a report, “Competition policy for the digital era” (the “Report”), which was prepared by three special advisors appointed by EU Competition Commissioner Margrethe Vestager[1]. The Report explored how EU Competition policy must evolve to promote pro-consumer practices in the digital age (our briefing on the Report is available here).

The current EU competition rules, namely, Article 101 of the Treaty on the Functioning of the European Union (“TFEU”), which prohibits anti-competitive agreements, and Article 102 TFEU which prohibits the abuse of a dominant position, allow the Commission to investigate a broad range of anti-competitive conduct.  However, Commissioner Vestager considers that “there are certain structural risks for competition, such as tipping markets, which are not addressed by the current rules.”

The Commission already has the power to conduct inquiries into particular sectors or types of agreements across various sectors, when it believes that a market is not working as well as it should, and that breaches of the competition rules might be a contributory factor.  If it finds grounds for doing so, the Commission may subsequently decide to open specific antitrust investigations targeting specific businesses.  For example, the Commission’s E-commerce sector inquiry led to a number of antitrust investigations, for example, against several consumer electronics manufacturers[2]. However, the Commission’s sector inquiry tool does not enable it to impose any remedies to address any sector-wide concerns.

Proposed New Competition Tool

To address this gap, the Commission is proposing a supplementary competition tool, namely the power to undertake market investigations.  This would enable it to intervene  in markets which, at present, could be difficult to regulate effectively under the current competition regime. Markets of interest include:

  • those heavily dependent on digitisation that could potentially “tip” towards one company and create powerful market players with an entrenched position; and
  • markets which may not be benefitting the consumer due to potential inherent problems with market structure.

Therefore, the new tool could be used in all markets (and not just digital markets). 

The public consultation takes the form of a questionnaire which seeks to assess what procedures, powers and rights should be afforded to the new competition tool. The questionnaire covers a broad range of options, a number of the key suggestions include:

  • the power to require companies to respond to information requests and impose fines if they do not respond or provide misleading information;
  • the power to interview company management and personnel, and impose penalties on those who do not submit to interviews;
  • the power to carry out inspections at company premises and impose penalties on those who obstruct those inspections;
  • the imposition of legal deadlines, and
  • the imposition of interim measures to “pre-empt irreparable harm”.

Under the proposal, the new competition tool would allow the Commission to impose behavioural and structural remedies within a given market when it is deemed appropriate to do so. Interestingly however, there would be no finding of an infringement of the competition rules, nor would there be an imposition of fines on relevant market participants if this tool was deployed. This leads to the slightly unusual situation in which a competition authority could intervene to restructure a market sector through active regulation despite there being no evidence of a breach of any competition rules. This should be viewed as a significant extension of the Commission’s powers and arguably a substantial swing in favour of consumer protection. It will be interesting to see how market participants respond to this proposal.

The exact form of the new tool has not been decided.  In the Commission’s impact assessment[3] of the new tool, it explains that the Commission is considering four different options:

Option 1: A dominance-based competition tool with a horizontal scope: this would address competition concerns arising from unilateral conduct by dominant companies without any prior finding of an infringement under Article 102 TFEU.

Option 2: A dominance-based competition tool with a limited scope: this would be the same as option 1, but its use would be limited to specific sectors that are especially prone to entrenched dominance and high entry barriers such as digital or digitally-enabled markets.

Option 3: A market structure-based competition tool with a horizontal scope: this would enable the Commission to identify and remedy structural competition problems which cannot be adequately addressed under the EU competition rules.

Option 4: A market structure-based competition tool with a limited scope: this would be the same as option 4 but limited in scope to specific sectors like option 2.

Stakeholders can submit their views on the proposed competition tool by completing the questionnaire (which is available from here) by 8 September 2020.

Comment

It is not a surprise that the Commission is considering new competition tools to enable it to investigate markets, in particular those in the digital sector.  Although it has the ability to conduct sector inquiries, the Commission cannot impose remedies to address any market-wide concerns. 

Unlike the Commission, the UK Competition and Markets Authority (“CMA”) has the power to undertake market investigations[4] where it considers a feature or a combination of features in a relevant market restrict or distort competition.  This has proven to be a powerful tool for the CMA.  Since June 2003, the CMA has investigated a broad range of markets including energy, funerals, car insurance, retail and personal current accounts and, most recently, online platforms and digital advertising.

Eversheds Sutherland has acted on a significant number of market investigations.  From our experience, they can have a significant impact on affected businesses.  Market investigations involve significant personnel and data resources, as well as substantial scrutiny of the businesses involved.  Furthermore, in most cases, some form of remedy has been imposed on the affected businesses including structural remedies. Consequently, the extension of the Commission’s enforcement powers would be a substantial change to the existing competition regime and could have substantial consequences for businesses in all sectors.


[1] Since 1 December 2019, Margrethe Vestager has also been Executive Vice President of the Commission for A Europe Fit for the Digital Age.

[2] See, for example, the Commission’s press release dated 2 February 2017, which is available here.

[3] Available from https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12416-New-competition-tool.

[4] In the UK, these are conducted in two phases: phase 1 are called market studies and phase 2 are called market investigation references.