Giovanni Caccavello // 15 January 2019

On the 26^th April 2018, the European Commission adopted a proposal for regulating the relationships between online platforms and their business consumers. The initiative focuses on the fairness of platform-to-business (P2B) trading practices in the online platform economy and calls for increased transparency in the relationships between online platforms (e.g. Search, YouTube, Play) and their business users.

Whilst the original text, drafted by the Commission, focused almost exclusively on the practices of platforms and access to redress, the more recent amendments tabled by European Members of Parliament de facto attempt to rewrite competition law ex-ante to cover any harm or abuse having been identified. For example, some of the amendments, in reference to Article 6 of the regulation on the differential treatment of own services by online intermediation services and search engines, put a strong emphasis on creating “new unfair trading practices” standards. The EP amendments mark a striking difference from the initial aims of the Commission’s proposal and do not take into proper consideration the existing powers that European antitrust authorities have to address abuses of dominance.

On top of this, the proposal, which is now being debated in the European Parliament and European Council, risks to harm consumers by introducing severe limitations on the services that platforms could offer them. The de facto ban on vertical integration can also lead, in the longer term, to less competition and innovation. Such a move could, for example, force search engines to offer only links rather than answers. Furthermore, the idea of banning vertical integration does not take into account the growing importance of “between-platform” competition over “within-platform” competition. In fact, it is important to recognise that large platforms like Google, Facebook, Apple and Amazon are simultaneously competing and cooperating in multiple fronts — a phenomenon called “interlocking ecosystems.” Despite their dominance, those companies have to fight on different organisational layers and they have to offer their customers a great “within-platform” experience to outshine its several competitors. In this situation, “within-platform” competition is much less important than “between-platform” competition. As such, any analysis of competitive dynamics must be done across ecosystems, keeping into account the entire “mobile industry stack”. Neither the European Commission, nor the European Parliament has performed such a theoretical exercise.

As it happened with previous Commission probes (namely, the cases against Microsoft in 2004 and Intel in 2009), the European Parliament is, once again, opting for protecting some agents (small and medium businesses) at the expense of others (large platforms). In putting the interests of some companies first, the current proposal does not go through a thorough dynamic analysis of the relevant markets. Instead, the European Parliament is opting for a static mind-set, one that barely addresses the particularities of the digital economy. Thus, the analysis of the digital market behind the proposal is meagre at best.

However, as the Commission itself reports on its own website, online platforms are strong drivers of innovation and play an important role in Europe’s digital society and economy. They increase consumer choice, improve the efficiency and competitiveness of industry and can enhance civil participation in society.

According to recent data, more than 1 million EU businesses were selling goods and services via online platforms, and more than 50% of EU small and medium enterprises selling through online marketplaces sell cross-border. For 2017, the European Business-to-Consumer (B2C) e-commerce turnover was forecasted to reach around €602 billion, at a growth rate of nearly 14%. This is one of the best performing sectors of the EU economy. New restrictive regulations are likely to hinder this impressive growth, hamper innovation and reduce flexibility within the EU digital market.