The European Model

European authorities are leading the regulation of online platforms. Both at a national level and at the European Union level, different initiatives are maturing, from the application of antitrust rules to the definition of the first examples of sector-specific regulation.

It is perhaps no coincidence that France is leading and putting pressure on the regulation of platforms. It was in France where the first structured economic analysis of platforms in multi-sided markets was made back in 2003 by Nobel Laureate Jean Tirole. At the same time, France, like the rest of Europe, has not been able to develop large native platforms. The large US platforms dominate the European market: Google has a market share of more than 90 percent in search, Facebook is the leading social network, Airbnb and Uber dominate the market, and so on. Not having produced such platforms by itself, Europe definitely has the ambition to regulate the US platforms.

The French Digital Council (Conseil National du Numérique) is an advisory body of the French Government set up in 2011. In its first report in 2013, the Council identified the central role of platforms in the digital transformation. It initiated the first organized, systematic analysis of online platforms for the introduction of regulation. In 2013 a working group of ten members held four workshops and, subsequently, a series of meetings were organized with economic and legal experts to develop a proposal for the regulation of online platforms. The result was an opinion published in 2014 under the title “Platform Neutrality. Building an open and sustainable digital environment.”17

The French Digital Council made various proposals to achieve a more open internet. Some proposals were related to data sharing as well as the transparency in algorithms. Nevertheless, the most ambitious proposal was to adopt a platform neutrality regulation; that is, to extend to platforms the principles defined for telecom operators under the net neutrality principles. The position of the Council was further refined in a report published in 2015.18

Parallel exercises were developed at national levels. The French and the German competition authorities published a joint report on competition law and data in May 2016, with particular attention devoted to platforms. They identified the relevance of algorithmic network effects: “The relevance of data as a strategic input and the opportunities for foreclosure depend in part on the volume levels: (i) at which a firm can reap the economic benefits of data; (ii) beyond which these benefits decline or cease to exist altogether. These levels will vary, depending on the type and purpose of the data.”19

After the diagnosis, implementation moved from France and the member-states to the European Union. Platform regulation cannot take place at a national level. Most states are too small to impose effective obligations on global platforms. However, the European Union comprises a significant portion of the global economy and is in a position to effectively influence the strategy of the global platforms.

The European Union launched the Digital Agenda for Europe in May 2010 to complete the so-called digital single market.20 However, this agenda did not include a reference to the regulation of online platforms. It was only after the work of the French Digital Council in 2014 that the European Union introduced platform regulation in the digital single market strategy.21

On one hand, the European Commission reinvigorated some pending antitrust cases involving online platforms. A complaint was filed against Google by some European companies for abuse of dominant position in the form of discrimination in search results. A parallel complaint against Google was filed in 2014 for abusive practices related to the mobile operating system Android.

In June 2017, the European Commission imposed upon Google a fine of €2.42 billion for abuse of dominant position in the search market by giving illegal advantage to another Google service, its comparison shopping service.22 Google Shopping allows consumers to compare products and prices and find deals from digital retailers of all types, including digital shops of manufacturers, platforms (such as Amazon and eBay), as well as other resellers. The Commission underlined the relevance of direct, indirect, and algorithmic network effects. The Commission found that Google had systematically given prominent placement to its own comparison shopping service and had demoted rival comparison shopping services in its search results.23

In July 2018 the Commission fined Google €4.34 billion in the Google Android Case.24 The Commission concluded that Google committed an abuse in the markets for general internet search services, licensable smart mobile operating systems, and app stores for the Android mobile operating system to reinforce its dominant position in such markets. Firstly, it imposed an illegal tying of Google’s search and browser apps. Secondly, it granted illegal payments conditional on exclusive pre-installation of Google Search. Finally, Google imposed an illegal obstruction of development and distribution of competing Android operating systems.

In March 2019 the Commission also fined Google €1.49 billion for abusing its market dominance by imposing a number of restrictive clauses in contracts with third-party websites, which prevented Google’s rivals from placing their search adverts on these websites.25 Google first imposed an exclusive supply obligation, which prevented competitors from placing any search adverts on the most commercially significant websites. Google then introduced what it called its “relaxed exclusivity” strategy, aimed at reserving for its own search adverts the most valuable positions and controlling the performance of competing adverts.

These cases are particularly remarkable because similar practices were common in the US, but the US authorities had decided not to file actions against Google. It seems clear that a divergence exists across the Atlantic in the application of antitrust rules to digital platforms.

The European Parliament went even further, voting in favor of a non-enforceable declaration to “unbundle search engines from commercial services.” Even if Google was not specifically mentioned, the divestiture of Google was in the mind of the members of Parliament.

On the other hand, the European Commission initiated the procedure to adopt legislation on platforms. In 2016 the Commission launched a consultation on the regulatory environment for platforms.26 As a result, the Commission proposed the adoption of a regulation on fairness in platform-to-business relations, which in 2019 became Regulation 2019/1150 for the promotion of fairness and transparency for business users of online intermediation services.27

The new Commission, appointed by the end of 2019, had ambitious plans for the regulation of the digital platforms. Commissioner Vestager, in charge not only of competition but also of digital affairs, asked for a report for the evolution of the digital regulation.28 The report set the main lines for the regulation of the digital platforms. Competition law would always be fundamental to blocking anticompetitive strategies and it would be reviewed so that it was adapted to the new digital markets. However, it was concluded that competition law would have to be complemented with ex-ante regulation. The regulatory measures under consideration are inspired by the pro-competition asymmetric regulation enacted for the liberalization of the traditional network industries, particularly telecommunications. Digital platforms with market power would be subject to regulatory obligations with the objective to reduce barriers to entry in the form of data portability and the promotion of multi-homing, but in particular by eliminating the competitive advantage of network effects. Platform interoperability would share direct and indirect network effects among all players. Data sharing would share algorithmic network effects. But it still remains to be confirmed whether some kind of FRAND regime will be imposed upon platforms with market power to ensure fairness.

 
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