Digital platforms continue to be a hot topic for competition policy. Both the Commission and the CMA have been active over the last year in proposing and consulting on ways to ensure the effective competition in digital markets (a ‘helicopter overview’ is available here).

As part of those efforts, there have been calls to impose an ex ante regime on large platforms, with the Commission consulting on a proposal for a regulation until April 2021. This month’s CLIP is a paper (published just before the Commission’s proposal for a regulation) from Meredith Pickford QC that presents his views on the merits of ex ante regulation.

Mr Pickford QC considers three oft-cited justifications for such regulation:

  • The speed of intervention;
  • The degree of market power held by digital platform owners; and
  • Overcoming constraints on the ability of competition law to address particular competition problems effectively.

He concludes that these justifications “do not justify a radical departure from established principles enshrined in orthodox ex post competition law in the context of digital platforms”. Competition law has long evolved through case law in a way that is adaptable to new forms of economic conduct and can continue to do so.

Nevertheless, he considers that there are measures that could help competition in digital platforms and competition-based interventions more effective, and goes on to reflect on how new rules could be formulated within the context of established regulation and policy.

The paper focuses on “self-preferencing” in particular, something that has also received a great deal of attention from rule makers and enforcement agencies.* The Commission has approached self-preferencing practices as warranting outright prohibition, but the paper highlights that “self-preferencing in the form of developing assets and retaining the use of them for oneself has long been regarded in competition law as generally pro-competitive”. After walking through the potential implications of an outright prohibition using existing case law around refusal to supply, Mr Pickford concludes that rigid per se rules would be a backwards step from the current economics-based, case-by-case determination of conduct.

The paper considers two further alternatives to an outright prohibition – a reversal of the burden of proof, and a code of conduct for digital platforms. Whilst both are preferable to outright prohibition, they are still problematic. It is therefore a fourth solution that is favoured: a competition law-based approach, with a rule against deliberate or negligent degradation as part of a strategy to frustrate rivals. Existing case law on product degradation can be drawn together with jurisprudence on predatory pricing, refusal to supply, margin squeeze and tying to provide a proportionate way of tackling self-preferencing concerns.

Such an approach, in Mr Pickford QC’s view, would:

  • Place primacy on consumer welfare through focus on product quality;
  • Be apt for markets where goods are provided at zero or negative prices, and so changes in quality are core to consumer impact; and
  • Avoid bold and difficult assumptions, allowing for more nuanced and fact-specific assessments.

It remains to be seen whether the Commission’s proposal will be adopted and how national regulators’ proposals, which remain at different stages, will develop. It is notable that while the recent review of UK competition policy conducted by Sir John Penrose supported the UK’s creation of a ‘digital markets unit’ situated within the CMA, it also warned against the temptation of over-regulation, adding red tape, cost and the risk of mission-creep.

Mr Pickford QC’s paper goes one step further, and provides a thoughtful and detailed analysis on whether ex ante regulation really is the best way forward, when existing principles may be sufficient to ensure that innovation in the technology sector is not stifled.

* As Mr Pickford notes, he acts for Google in EU and UK litigation involving this issue. Bristows also act for Google in UK litigation on this topic.