Antitrust

Breaking up Tech-Giants for Real?

Introduction

Big tech platforms possess characteristics that lead to entrenched structural power and a lack of competition. The existence of extreme economies-of-scale, arising from minimal marginal costs associated to additional business users or users, is a notable feature. These platforms also have strong network effects, and a unique ability to connect end users with business users. Other key characteristics include data advantages, lock-in, a limited capability for multi-homing and vertical integration. These features result in a winner-takes all (or most) outcome and allow firms leverage their market power to expand into adjacent and new marketplaces, further expanding their ecosystem. Another issue is that these companies’ power extends beyond the market to realms that are usually set apart from competition law. One example is their power in the political realm, such as by being able target individual users or by exerting power over narratives. Even without this additional concern, and staying within the classic competition law, there is a reason to consider the effectiveness of the current tools. The Digital Markets Act

was passed in recent years to complement competition laws and promote fairness and contestability of digital markets. We argue, however, these tools are not effective at countering the negative impacts of the entrenched structure of big tech power. This is due to either their inherent limitations or the way they are currently being implemented. We believe that the tools available to Commission should be rethought and strengthened to combat structural power. We believe that a greater emphasis on structural remedies (i.e. In the next section, we briefly outline the tools available to the Commission and explain their limitations in addressing the entrenched nature of power of large tech companies. Limitations of our current toolkit Article 102 TFEU Article 102 TFEU prohibits abusive behavior by firms in a dominant position. Abuse of dominance can be exploitative, but most cases involve practices that exclude actual or potential competitors. In the event of an infringement, pursuant to Article 7 in Regulation 1/2003

the Commission can impose “any behavioural or structure remedies” on the undertaking to put an end to the infringement. The ability to impose remedy is subject to the principles effectiveness and proportionality. When there is a choice to be made, the least burdensome remedy must be selected (Case T-111/08; Mastercard

). A structural remedy is only imposed if there are no other equally effective behavioral remedies or if any equally effective behaviour remedy would be more burdensome than the structural remedy. AG Kokott stated that behavioural remedies are preferred and structural remedies can only be applied in exceptional cases. (AG Opinion, Case C-449/21 Towercast

para 63). The reliance on behavioural remedies, however, is often not particularly effective in reintroducing competition, as in the Microsoft I

(Case COMP/C-3/37.792) and the Google Shopping

(Case AT.39740).The Commission could of course make use of the instrument of structural remedies, when finding an infringement under Article 102 TFEU. If a structural remedy is necessary to end an infringement, it is likely to be proportionate. (Joined cases C-241/91P & C-242/91P Magill para 91). In its press release regarding the Google AdTech case the Commission stated: “in this case, a behavioral remedy is unlikely to be effective to prevent the risk of Google continuing such self-preferring conducts or engaging in new ones. Google is active in both ends of the market, with its publisher ad servers and its ad-buying tools. It holds a dominant position at both ends. It also operates the largest advertising exchange. This creates a situation where Google is inherently conflicted. The Commission’s preliminary view is therefore that only the mandatory divestment by Google of part of its services would address its competition concerns”.However, using structural remedies also has inherent limitations. According to the case law, structural remedies must be tailored to the specific infringement. They do not address the powerful position that is the source of the anti-competitive behavior. In order to be proportionate, remedies must match the theory of harm cited in a particular case (Case T310/94, Gruber + Weber v Commission

). This raises the issue of whether the strict relation between case-specific injury and structural remedies that directly relate to that particular injury hinders their effectiveness. We will return to this issue when we discuss the future. In this context, structural remedies can also be imposed. The option of imposing structural remedy in a merger-control situation does not address the power of large tech corporations. First, and most importantly for our argument: intervening in mergers doesn’t solve the problem of entrenched structural power. Second, despite the Illumina v Commission judgment (Joined cases C-611/22P and C-625/22P), we do not yet have a clear method to review acquisitions by start-ups that fall below the notification thresholds. This would, at the very least, not strengthen entrenched positions. Thirdly, the merger regime has difficulty incorporating a proper assessment (of) innovation and how the trajectories for innovation can be incorporated into the ex-ante nature merger control. We also suggest a way to deal with innovation better. The first three methods focus on improving the use of existing tools. The other two are focused on creating new tools. We provide them as a set of distinct solutions, but of course, a combined use would be possible and – if entrenched structures of power are to be addressed as such – preferred.

Article 102 TFEU

Firstly, as to Article 102 TFEU, where the option of structural remedies is legally possible but narrow in scope, it would be possible to consider either an interpretation of the ‘proportionality’ requirement where it is possible to take into account a series of infringement-decisions against the same company, or for the same behaviour addressed at another company.The notion of proportionality is, in essence, that the punishment fits the crime: in such cases, akin to the option provided for by Article 18 DMA (see below), the Commission would consider the effectiveness of past remedies as element in the proportionality of imposing structural remedies. The Commission would consider the effectiveness of past remedies as an element in determining the proportionality of imposing structural remedies. This is similar to the option provided for by Article 18 DMA (see below). This might also lead to considering a ‘harsher’ remedy – for example one in which not merely one branch, or one business line is divested – than follows from the latest infringement-decision. The question is, of course, whether the legal basis for such a widening of the scope can be found in the notion of proportionality, which has been – and logically so – been interpreted restrictively by the Courts.

Conversely, it might also be possible to think of construing the same issue in a novel, but coherent theory of harm. In this case, one would accept that protecting ‘the structure of the market’ was an accepted goal of competition law. This goal was also mentioned in T-Mobile

as well as in Continental Can

. As a thought-experiment, the theory of harm might be ‘a continuous series of infringements arising from structures of entrenched power’. This would tie to the possibility of imposing a structural remedy that would be closer to ‘breaking up’ than a structural remedy that is limited to ‘divestiture of a specific part’ and thus, also, be closer to limiting a powerful market position directly.

Merger review

Secondly, as to merger control, several tweaks to the system are possible. First, it would be possible to introduce a merger control regime (or segment of it) that extends to mergers below the thresholds. Teresa Ribera, who has been charged with addressing the dangers of killer acquisitions, is currently looking into this. Second, we can consider theories of harm that go beyond current theories and focus on a ‘diversity in the innovation ecosystem’ theory. This is what Lisanne Humel argues for her forthcoming dissertation. This would increase the scrutiny of acquisitions that are centered on innovation by using economic theories like complexity theory or evolutionary economics. The Digital Markets Act

Thirdly the DMA was created to close gaps in the competition law in relation digital markets by creating ex-ante requirements for gatekeepers. The concept of gatekeeper is a key element of the issue that is at stake in this post: the entrenched power positions of big technology companies. The DMA can stop gatekeepers from leveraging their power by imposing unfair conditions and further decreasing the market’s contestability. The DMA, like Article 102 TFEU does not directly address powerful positions. Greater fairness and contestability in digital markets are pursued by controlling gatekeepers’ behaviour.

The Commission has the power to impose structural remedies under Article 18 DMA; it may do so following “a market investigation for the purpose of examining whether a gatekeeper has engaged in systematic non-compliance”. The Commission can impose “any structural or behavioural remedies that are proportionate and necessary in order to ensure effective compliance with the Regulation”, if it is found that a gatekeeper violated its obligations under DMA, and has “maintained or strengthened its gatekeeper position”. The term “systematic non-compliance” is used to describe gatekeepers who have received at least three noncompliance decisions within an eight-year period. Structural remedies are particularly appropriate when it comes obligations that regulate conflict-of-interest and access to infrastructure for vertically integrated gatekeepers. In these cases, imposing a structural remedy would remove gatekeepers’ incentive to benefit their own services. We argue, in particular, that structural remedies do not have to be tightly tied to the obligations previously violated by the gatekeeper in order to meet the criteria for proportionality and necessity. The significant market power of gatekeepers, and the guarantees of proportionality and necessity that are already embedded in Article 18 (i.e. The requirement for systematic noncompliance, and that the gatekeeper has maintained or further strengthened its gatekeeping position despite the enforcement measures taken by the Commission. It should be enough to show that the gatekeeper has obstructed the DMA’s objectives in a broader sense. contestability and fairness, to impose structural remedies to stop further infringements.

The New Competition Tool (NCT)

Fourthly, we strongly support the idea that undergirds the NCT. The NCT was a market-investigation tool that the European Commission proposed some years ago. It has been reformed and morphed into different ideas and recently picked up again by the Draghi

Report. Its purpose was to improve the ability to address structural issues of competition that cannot be adequately addressed under existing EU Competition Law. The NCT has several benefits that complement and expand current competition law. The NCT has the advantage that it doesn’t focus on individual wrongdoings but instead targets structural issues which hinder competition. The NCT focuses on broader market characteristics, such as high entry barriers and concentration of power. This helps to improve the overall competitive climate, rather than addressing isolated cases of anti-competitive behavior. This approach is designed to provide long-term solutions to market failures by addressing the underlying reasons for competition problems. The NCT also promises to make more timely interventions in order to prevent market distortions. The NCT is a solution to this problem, as it addresses deeper structural issues which create persistent challenges for competition, such a entrenched market power and systemic imbalances. The Commission will be able to impose structural remedies if they are necessary to correct the problems identified in specific markets. When it comes to big tech companies, it might very well be that structural remedies will be necessary, as experience has shown that behavioural remedies are often ineffective in restoring competition.Interestingly, Draghi suggests that one specific situation which calls for the use of the NCT is when past enforcement has been ineffective, both in terms of infringement decisions and merger review. He suggests that parties involved in competition decisions could be required to provide metrics used to evaluate ex post enforcement. This would allow for future assessments of the competition and possible intervention by the NCT if necessary. In this way, the NCT could be a good complement to traditional competition law enforcement, representing a safety net in case enforcement under Article 102 has been unsuccessful.

The notion of power

Finally, and fifthly, we propose to reconsider the notion of power more fundamentally. We draw attention here to the notion of the power of certain very large (technology companies) extending beyond the mere market. (As argued elsewhere

) This power also includes ((infrastructures of)) political power and discourse power, which impact plurality of media voices, quality and accessibility of digital public sphere and democratic structures. Platform users’ roles as consumers (or content creators) and citizens are not easily separable. Taking both these elements into account in merger control and the NCT would mean that also structural remedies that are necessary to protect plurality of media-voices, the digital public sphere, and democratic structures come more firmly into view.

Conclusion

The structural power wielded by big tech companies poses threats to our markets and society. These firms’ characteristics – economies-of-scale, network effects and data advantages – allow them to expand into adjacent markets and influence realms that are beyond traditional market competition. The tools at the disposal of the Commission, such as Article 102 TFEU and merger reviews, are a good starting point for addressing anticompetitive behavior, but they do not go far enough to curb the structural nature. This highlights the urgent need to rethink the regulatory framework and enhance it. We have argued a greater focus on structural remedies with the possibility to break up dominant firms may be a more effective way to restore competition and reduce the far-reaching powers of big tech. Our proposals do not only include a ‘better usage’ of structural remedies but also novel theories of harm and reconsider the notions of power to protect the EU constitutional values.

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