Guillaume Loriot, Directorate General for Competition, European Commission

This is an extract from the second edition of the E-Commerce Competition Enforcement Guide - published by Global Competition Review. The whole publication is available here.

Digital markets have increasingly come into the focus of European competition authorities as profound changes for businesses and consumers are under way in these markets. Markets are developing fast, and new, often platform-based, business models are emerging. Specific features encountered in digital markets such as the multisided nature of platforms, network effects, zero-price markets, big data and the increased use of algorithms require competition authorities to adapt or refine their existing tools and concepts to capture competitive dynamics and the particularities of the practices and markets concerned.

Two areas of the digital economy have particularly attracted the attention of the Directorate General for Competition of the European Commission in recent years: e-commerce and online platforms, the two being sometimes closely connected.

E-commerce

E-commerce has grown strongly in the past 20 years and more than every second European consumer now purchases goods or services online. Few products cannot be found and bought on the internet. Retailing has moved away from a brick-and-mortar world to a multiple channel approach in which many retailers sell offline and online via two or more channels. Increasingly, they provide customers an integrated shopping experience across these channels. Sales via mobile devices (m-commerce) such as smartphones are a primary driver of the market growth and account already for more than half of e-commerce sales worldwide – a trend that will continue in the future.

Competition concerns in Europe in e-commerce markets have first of all been raised in relation to distribution and licence agreements that include restrictions that lead to market segmentation. Those vertical restraints limit the potential of e-commerce to foster market integration in the EU. They prevent retailers and consumers from taking full advantage of the single market and of cross-border competition. A focus of the e-commerce sector inquiry, complementing the European Commission’s broader Digital Single Market (DSM) strategy,  was therefore on contractual restrictions that require distributors to apply geo-blocking measures and limit the ability of customers to purchase goods or content online across borders. The findings of the sector inquiry, published in May 2017,suggest that some manufacturers increasingly turn to vertical restraints to limit competition on price and cross-border sales. The specific features of e-commerce markets such as a high transparency of prices and easy monitoring make online retailing particularly prone to those interventions by manufacturers. The Commission opened a number of investigations in 2017 in relation to vertical restraints that concern territorial sales restrictions or resale price maintenance (RPM). The first of these investigations was concluded in July 2018, when the Commission adopted separate decisions against four manufacturers of consumer electronics products (namely Asus, Denon & Marantz, Philips and Pioneer) and imposed fines exceeding €100 million for RPM practices infringing Article 101 TFEU and, in the case of Pioneer, for territorial sales restrictions. In addition, the Commission’s view that platform bans in selective distribution agreements benefit from the Vertical Block Exemption Regulation was confirmed by the judgment of the Court of Justice of the European Union in Coty in December 2017.

Vertical restraints in e-commerce markets will continue to be in focus over the next few years as the Vertical Block Exemption Regulation, which expires in 2022, is reviewed. The experience gained by the Commission in its recent cases provide it with valuable insights into the prevalence of and reasons for specific vertical restraints, which will feed into this review.

Online platforms

In view of the significant market power that some online platforms have gained, it is not surprising that the conduct of big online platforms has come increasingly into the focus of the Commission, whether in sectors closely related to e-commerce or beyond.

In June 2017, the Commission adopted a decision against Google for abusing its dominant market position in general internet search by positioning and displaying its own comparison shopping service in its general search results more favourably than competing comparison shopping services. The Commission found that Google had leveraged its dominant position in the market for general search to confer an artificial advantage on its own product in an adjacent market (comparison shopping), thereby foreclosing rivals and causing consumer harm with respect to quality, choice and innovation in comparative shopping services.

Another important case dealt with parity provisions (MFN clauses) used by Amazon in its e-book distribution contracts with publishers. The clauses required publishers to inform Amazon when offering more favourable terms and conditions to competitors and to grant the same terms to Amazon. The MFN clauses involved not only pricing, but also many other aspects that a competitor could use to differentiate itself from Amazon, such as other business or distribution models. The Commission considered that Amazon may have abused its dominant market position under Article 102 TFEU. After two years of investigation, Amazon committed in May 2017 not to enforce the respective clauses for a period of five years across Europe and the Commission declared these commitments binding. The objective of the Commission’s intervention was to increase inter-platform competition in the Digital Single Market and foster innovation and consumer choice in this other important area of e-commerce.

Furthermore, in July 2018, the Commission adopted a decision finding that Google had breached Article 102 TFEU by imposing illegal restrictions on Android device manufacturers and mobile network operators in order to cement its dominant position in general internet search. More specifically, these restrictions consisted of:

  • requiring manufacturers to pre-install the Google Search app and browser app (Chrome), as a condition for licensing Google’s app store (the Play Store);
  • making payments to certain large manufacturers and mobile network operators on condition that they exclusively pre-installed the Google Search app on their devices; and
  • preventing manufacturers wishing to pre-install Google apps from selling even a single smart mobile device running an alternative version of Android that was not approved by Google (Android fork).

By means of this conduct, Google protected and strengthened its dominant position in general search at a key time when mobile internet was developing and taking over desktop traffic. The Commission found that this prevented competing search engines (but also browsers and operating systems) from taking advantage of the mobile internet revolution to increase their market presence and innovate in competition with Google.

Online platforms are also in a unique position to reap the benefits of big data. Big data played a role in a number of merger and antitrust cases. For example, the Commission looked at big data in the context of the merger investigations into the acquisition of WhatsApp by Facebook in 2014 and of the professional social network LinkedIn by Microsoft. In addition, in the Google Android case, the Commission concluded that Google’s conduct limited the opportunities for competing search engines to collect valuable user data, thereby preventing them from using such data to improve their services. In view of the increasing ability of companies to accumulate and process huge data sets and the importance of this ability for new business models, more cases will likely arise.

Digitisation, the growth of e-commerce, the rise of online platforms as well as the increasing ability of companies to collect and process huge amounts of data will continue to substantially affect markets.

While the overall aim of the Commission – as an enforcer of EU competition rules – is to make sure that digital markets remain open and contestable, to bring tangible benefits for business customers and ultimately consumers, this has called, and will continue to call, for different types of intervention under antitrust and merger rules. Many new issues and questions have been raised, and will be raised, in the context of these competition investigations in the digital economy, and a comprehensive Guide on these topics is therefore particularly welcome and valuable for competition practitioners.

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