European Digital Platform Research Network: Policy Panel Discussion
Digital Innovation and Regulation – Friends or Foe?
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Written by Verity Egerton-Doyle and James Hunter, Linklaters LLP.
On 27-28 June 2024, the European Digital Platform Research Network (EU-DPRN) convened its second Annual Summit, this year hosted by the UCL School of Management in London. This year’s conference was bookended with a regulatory policy panel to discuss the growing importance of competition regulation in digital platforms and the intersection between academic discourse and policy / regulatory practice. The panel was chaired by Verity Egerton-Doyle (Partner and Co-Head of the UK Tech Sector at Linklaters LLP), who introduced Michael Jacobides (Professor of Strategy at London Business School), Tom Smith (Partner at Geradin Partners, a competition law specialist firm), Kristina Barbov (Director of UK Competition at Microsoft, formerly at Ofcom) and Oliver Latham (Vice President at economic consultancy, Charles River Associates).
The discussion started with an overview of the big debates in about digital platforms and competition policy over the last decade, focusing on the key tools regulators have had at their disposal to control platform power – i.e. enforcement for “abuse of dominance” and control of acquisitions by platform businesses. The discussion then moved to look at the new regulatory regimes developed specifically to regulate platform power, and considered how both old and new tools might be used by regulators going forward, in particular in relation to AI.
The big debates over the past 5 years in digital platform regulation
Abuse of dominance enforcement – The panellists explained that historically, abuse of dominance enforcement has been predominantly focused on conduct that has the potential to exclude competitors (e.g. through leveraging market power from one market into another, as Google was fined for doing in the Google Shopping case). These cases were challenging and time consuming for authorities to bring as the law required that an “as efficient competitor” would be excluded by the conduct. This required complex economic analysis and was in practice a high bar to meet. More recently, some authorities have begun to pursue dominant firms for exploiting users, for example through charging excessive prices.
The panellists discussed the challenges with abuse of dominance enforcement in relation to platforms. Key among these is the slow-moving nature of abuse of dominance enforcement – cases typically take many years in the administrative phase alone and appeals can last many years. Another challenge is that abuse of dominance enforcement is inherently retrospective in that an antitrust authority can only sanction conduct that has occurred (albeit ending an infringement may require changes to business practices). There was debate among the panellists about whether antitrust enforcement could be said to have been effective, but consensus that these concerns are particularly acute in relation to digital platforms because of the pace of technological evolution.
Merger control – Merger control is an area in which practice has rapidly evolved in the last five years in response to a consensus among authorities that in the 2000s and 2010s, the largest digital platforms were allowed to acquire too many businesses with insufficient scrutiny. The panellists reflected on historic static approaches to digital platform mergers, informed by traditional academic analysis, which circled around the value of economic integration and relied heavily on a framework for analysis based on whether the merged entity would have the ability and incentive to foreclose rivals. These approaches arguably led to greater leniency in the assessment of mergers by vertically integrated complementary players, such as Google / DoubleClick. There was debate amongst the panel on whether these kinds of mergers could be said to promote innovation and dynamism or if the historical approach reflected underenforcement that had entrenched positions of some digital platforms today.
The panellists discussed authorities move away from traditional static approaches to assessing closeness of competition (e.g. relying on market definition and market shares) towards ensuring assessments capture the dynamic nature of platform markets. Today, authorities will actively question whether a merger might be a so-called ‘killer acquisition’, i.e. where today’s complement could be tomorrow’s competitor. Last year the European Commission and the CMA were lined up to prohibit Adobe’s acquisition of Figma on that basis, and the transaction was abandoned. Another area of concern for authorities is the possibility an acquisition could further entrench platform power through adjacent add-ons – i.e. strengthening the overall “ecosystem”. A key recent example of this is the European Commission’s decision to prohibit Booking.com from acquiring eTraveli, currently on appeal.
New tools and the challenges ahead
The day’s discussions took place at an interesting inflection point, as governments around the world introduce new regulatory regimes specifically aimed at curtailing the market power of the largest digital platforms. The rules in the EU’s Digital Markets Act have applied since March this year and the first enforcement cases have already been launched. Elsewhere, new regimes are already on the statute books in the UK and Japan (the latter relating to smartphones only) with a long line of further regimes expected to come behind them (including in India, Australia and South Korea).
While each new regime has its own architecture, to a greater or lesser extent, all significantly curtail regulated platforms’ ability to pursue common platform envelopment strategies, for example through restricting the way in which a powerful platform can move into adjacent markets.
There was a lively debate about the impact this could have on innovation, investment and growth.
AI was highlighted as an obvious area in which the panel expect to see these issues play out and one in which regulatory attitudes appear to have shifted swiftly over the last year, with multiple cases now live around the world looking (with various tools) at relationships between the largest digital platforms and makers of AI foundation models. While some panellists called for vigilant scrutiny and swift intervention, another warned against over-corrections in applying experiences from the last wave of technical innovations to AI, as foundation models in particular bear very different economic characteristics to other markets which are perceived to have “tipped” to one or two large incumbents.
One key challenge regulators need to grapple with is that many platform strategies might bring short-term benefits to users, but if an incumbent’s position is entrenched this could potentially lead to worse outcomes for users over the long term. This is a key area where further theoretical and empirical work is critical in getting the balance right and the panel were in vigorous agreement that there is a significant role for academia to play as platform regulation evolves.
The next annual EU-DPRN summit will take place June 26 & 27 (2025) at IE Business School in Madrid!
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