[MUSIC] In earlier lectures, you learn that multi sided digital platforms such as Google, Amazon, eBay, Facebook and others deliver numerous benefits to consumers and businesses around the world through innovative services and products. The success of the multi sided platform model used by these companies has also provided some of them with unprecedented levels of market value and power. This accumulation of power has led to concerns that on some of these digital markets, competition is no longer effective in delivering the best market outcomes in terms of quality choice, innovation and so. In this lecture, you will learn about some of the challenges of applying competition law in digital markets. As a result, you will understand the limitations of existing competition laws and how they may need to be revised or re conceptualized in order to ensure digital markets remain competitive. In an earlier lecture, we explained the three pillars of competition law. These comprise a prohibition of anti-competitive agreements, a prohibition of abuse of dominance or monopolization and merger control. Digital markets pose challenges for all three pillars. We will consider each pillar in turn and discuss some challenges of applying competition law to multi sided platforms, under each rule. First, we'll consider how digital markets pose a challenge for the prohibition of anti-competitive agreements. One challenge in this context is paused by algorithms and data, both of which are central to the digital platform business model. Have you heard about the biology book about flies that was on sale on Amazon for over $23 million? The price resulted from a battle of algorithms. The two sellers of the book used automated pricing software where the algorithm adjusted price, taking into account the competitor's price. Unbeknownst the either seller, no upper limit was called into the software and the price went up. As you can imagine, the book didn't sell. Digital markets and online platforms make it very easy and cheap to monitor competitors prices. Sellers can automate pricing decisions using artificial intelligence and data and employ algorithms to fix prices of competing products instead of competing on price. As you know from an earlier lecture, existing competition rules against price fixing can apply to these situations, but their application to algorithm driven decisions is unclear. This is because in some cases the algorithms may be self learning and figure out without human involvement how to fix prices. Depending on the algorithms and the behavior of the firm's, competition law may or may not apply in such scenarios. Even where competition law is applicable, there can be formidable challenges regarding evidence and proving a violation. Because the line between lawful independent conduct by individual firms and unlawful collusion between firms becomes blurred. Digital platforms cause a challenge for competition law, also, in the context of vertical agreements. An example is the difficulty of assessing where there's certain agreements between platforms such as Amazon and booking.com and they're contracting partners such as sellers or hotels violate competition law. For example, recently in Europe, many competition authorities reached contradictory outcomes in investigations concerning booking.com's most favorite customer closes in its agreements with hotels. These clauses required booking.com's hotel partners to offer booking.com at least as good rates and availability conditions as the hotel offered on other platforms and on the hotel website. Competition authorities came to different conclusions on when such clauses would infringe competition law. This meant that the same platform was subject to different rules for the same conduct within Europe, despite all of the authorities applying the same rule. Digital markets with multi sided platforms raise several challenges in the area of abuse of dominance or monopolization too. One challenge relates to defining the relevant market, which is a necessary step before assessing market power and dominance of the company, under investigation and unilateral conduct cases. Dominance can only be established in relation to a particular relevant markets. Market definition determines the substitutes that are alternatives to and thus exert competitive pressure on the products or services of the investigated company. Regarding digital platforms, one difficulty is deciding whether the two sides of the platform are in the same market and in which circumstances. Another question concerns whether and when online and offline markets, for example, in advertising should be considered part of the same market. Yet another difficulty arises because competition law uses the ability of a firm profitably to increase price as the measure of market power and has the means to define the relevant market. How do you then define the market and established market power, when many digital platforms such as Google and Facebook charge no monetary price to consumers for their services? Although there are many unanswered questions regarding the application of competition law and digital markets. There have been several recent high profile competition cases concerning digital platforms. The European Union and its member states notably Germany, have been particularly active in enforcing unilateral conduct prohibitions. Did you know that three decisions taken against Google within three years by the European commission alone led to fines of over $9 billion for violating competition law? Whereas some decisions concerning unilateral conduct and digital markets implement established legal and economic theories of harm, some others sail into uncharted waters. Some controversial issues include, questions around the legality of a platform such as Facebook combining data that it receives from different platforms that it owns, such as what's up and the Facebook Social Network. And Google's prominent display of Google affiliated results on top of the search engine results page. A final challenge that we will touch upon concerns merger control. In the last decade, Google, Amazon, Facebook, Microsoft and Apple combined have reportedly made over 400 acquisitions globally. Many mergers, raise no concerns and most acquisitions by large digital companies have likely been benign or beneficial to consumers. However, some have expressed concern about kill zones around big tech firms. The idea that these firms acquire startups that they regard as feature competitors in order to stifle potential competition. Mergers such as Facebook Instagram, Facebook WhatsApp, Google DoubleClick,Google Waze, have attracted particular attention in retrospect. Acquisitions of startups by established companies do not always meet revenue based thresholds that trigger merger review add or notification requirements. Because the startups do not generate significant turnover at the time of acquisition. For example, when Facebook paid $19 billion to purchase WhatsApp in 2014, WhatsApp was a five year old startup with around 50 employees and around $130 million net loss. So the transaction value of some acquisitions suggest that the turnover of the required startups may not reflect their competitive value. The difficulty is that to assess mergers involving incumbents and digital markets enforces must predict the evolution of the target firm without the merger, which is particularly difficult when the targets are young firms. Further being acquired by a large company, including a big tech firm, is an important exit strategy for startups, which provides an incentive for private financing of high risk innovations. Thus a complex and revised the method of assessment is necessary correctly to establish the competitive effects of such mergers. In this lecture, you learned about some of the challenges of applying competition law in digital markets. As you can see, there are some difficult questions to answer in the process of configuring the implication of competition law in these markets. This does not mean that competition law cannot continue to be an effective means of ensuring that digital markets remain competitive. The challenges suggest that some aspects of the law needs to be rethought and re conceptualized and fine tuned for digital markets. This is a challenge that many policymakers are currently tackling, including by adopting new regulations to supplement competition laws in digital markets. And competition law and policy will continue to be an important aspect of digital governance in the years ahead. [MUSIC]
