Posted by Social Science Research Network
By Damien Geradin
This short paper, which takes the form of observations submitted to the European Commission in the context of its decision to host a conference in Brussels in January 2019 on “Shaping competition policy in the era of digitisation”, seeks to make the following points. First, while caution must be taken when analysing digital platform markets, there is no reason to believe that the Commission cannot properly assess such markets and that the risk of type-II errors should necessarily prevent intervention. To the contrary, type-I (under-enforcement) errors may be particularly damaging considering that these platforms not only control access to their own products and services, but also – and this is a critical observation – to third-parties’ products and services given their intermediation functions. Second, while the focus of Commission investigations in digital platform markets has thus been focused on vertical foreclosure, including efforts by digital platforms to extend their market power in one market (e.g., general search) to one or several other markets, there are reasons to believe that digital platforms can also engage in anticompetitive forms of abuse that do not necessarily fit within the vertical foreclosure box. One such concern is exploitation. Another concern can be referred to innovation-suppressing conduct, i.e. dominant platform conduct that has the effect of making it harder for other companies to innovate. Third, although the competitive issues raised by digital platforms are multi-fold and complex, the goal of competition authorities should be to protect innovation understood in a broad sense. This is the case for two related reasons. In the first place, in a digital space where services are offered for free, competition is based on quality, but also very largely on innovation. Thus, consumer welfare is served by making sure that innovation is allowed to prosper. In the second place, even those who are hostile to enforcement of competition rules in the digital space – on the ground that market power is temporary, and that intervention creates risks of errors that outweigh any benefits it may generate – recognize that incumbents are eventually displaced by more innovative rivals. Thus, protecting the innovative process is central to Schumpeterian creative destruction.