For years, the major platform providers such as Google, Facebook and Amazon were able to grow and accumulate power largely undisturbed. Now lawsuits and new laws are supposed to break their influence – in the USA authorities and politicians are even considering breaking up. This is how they want to prevent a handful of companies from permanently seizing control of competition on the Internet. Heike Schweitzer, antitrust law expert and professor at the HU Berlin, explains how large platforms could pose a threat to competition and what can be done about it.
SZ: Ms. Schweitzer, why did it take so long for the cartel guards to take action against the platforms?
The impression is deceptive. The competition authorities in many jurisdictions have been working on the platforms for a long time. The EU Commission’s proceedings against Google Shopping, for example, were initiated in 2010 before a decision was made in 2017. In fact, the discussion about the large platforms has come to a head in recent years. There is now consensus that they have a special kind of power, that this power has solidified in a special way and is at the same time designed to expand. We must act against this if we want to protect competition and enable innovation.
What does that mean in concrete terms?
If, for example, Google displays its own offers such as Google Shopping higher up in the search results, this displaces other competitors – and thus prevents their innovation. But on the part of the antitrust authorities, there was also the insight that they cannot react quickly enough to abusive behavior with competition law proceedings alone. When the EU found after seven years that Google had violated competition law by favoring Google Shopping, the damage to competition was already done.
In December, the EU presented its draft of the Digital Markets Act (DMA). In January, the 10th amendment to the Act against Restraints of Competition (GWB) came into force in Germany. How should these laws facilitate the work of the antitrust authorities?
With Section 19a GWB, the Federal Cartel Office can in future issue a outstanding, cross-market position determine and make their behavioral requirements. The EU’s Digital Markets Act takes a similar approach: the Commission determines what is known as gatekeeper status for platforms of a certain size, for which a long catalog of behavioral guidelines then automatically applies. So the goal is not to trace past violations. It’s about behavioral requirements for the future.
Why is that an advantage?
Up to now, the authorities have had to prove in individual cases in competition law proceedings that a dominant position exists and that abuse has taken place. Both can be extremely time-consuming. For example, the EU Commission not only demands that damage to the competitive process be proven, but also probable damage to consumers. With Paragraph 19a GWB and the DMA’s obligations of conduct, you save yourself this proof in individual cases. Certain behaviors of gatekeeper platforms are per se considered to be detrimental to competition, for example if they derive a competitive advantage from their dual role as provider of a marketplace and provider on this marketplace.
What effect will this have on the online market?
The big platforms will have to rethink their business models. Because DMA and GWB do not eliminate the competitive advantages that result from the size of the platforms, their network effects and access to the data. Many users will continue to choose Facebook in the future because so many other users are already there. But with both sets of rules it will be much more difficult for the platforms to transfer their competitive advantages to adjacent markets. When a new messenger comes onto the market, Facebook will not be the winner of the competition between the new messenger and its own messengers such as Whatsapp. Because both laws put the gatekeepers’ economies of scale into perspective, they will have to reckon with significantly more attacks from the fringes. For consumers, this means more innovation and more freedom of choice.
What makes online platforms a problem from an antitrust law perspective?
Platform markets have existed before. For example, shopping centers are platforms that mediate between retailers and buyers. But platforms have taken on a whole new meaning on the Internet. The competition economists and lawyers had to understand that first. Online platforms benefit from particularly strong network effects and extreme economies of scale. In this way, they can become gatekeepers on whom other companies are becoming increasingly dependent. A company that is not found on Google does not exist online. Many companies only find their customers through Amazon. This gives the platforms such great market power that they can control entire markets through their rules and behavior.
The dominance of some platforms also reduces the innovative strength of a market, which can be observed in Silicon Valley. At the same time, the major communication platforms such as Google and Facebook can also exercise political power. Both are being discussed very seriously in the USA at the moment. The two sets of rules – DMA in Europe and GWB in Germany – are intended to create free space around the platforms in which innovation can take place.
The American competition and consumer protection agency FTC has filed a lawsuit calling for Facebook to be broken up. EU competition commissioner Margrethe Vestager rejects such measures: “That will not happen.” What do you think of a break up?
In Europe we want to try clear rules of conduct as a milder means. Of course, there is also a political aspect to this: when the Americans disentangle their own companies, it is different from when the Europeans try. But it’s also not clear to me whether unbundling would help at all. For example, Facebook could launch a new messenger after splitting off WhatsApp and would be the winner immediately. On the other hand, a break-up could also lead to the loss of the so-called scope advantages that result from the interaction of various services on a platform. These bundled offers can also be attractive for consumers. That speaks in favor of a more cautious approach. We definitely need new and clear rules of conduct.
Basically, competition law should not destroy the big platforms. They provide services that are very useful to all of us without us having to pay any money. But we have to ensure that the platforms’ positions of power can still be challenged. Competition law maintains the pressure to innovate and the freedom of choice that we all benefit from.