ACING

THE
LABYRINTH

A Paper On
Implementing
Competition Law
In Today’s Digital
Economy.

By Eunice Mensah

Key words: Competition,

Technology, Policy, Law.
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Introduction: Back to the old drawing board 1

The time has come to think again. Ushered into an era of innovation, with massive
implications and complications, we are forced to re-evaluate all we once knew. With
particular focus on emerging business models, competition authorities are faced with a
new paradigm where applying the erstwhile economic principles and legal
rationalisations are like hunting down an invisible target through a complex labyrinth
with paper darts.

In this digital age such concepts as “what is a market?”, “which type of behavior is considered
anti-competitive?” have had to be re-examined vis-à-vis new concepts such as data
partnerships, personalised pricing, tying and bundling strategies, hybridized platform
and pipeline business models and structuralist approaches like the Blue Ocean Strategy.1
It is against the backdrop of this labyrinthine new reality that the following discussion
sheds a nuanced light on how competition authorities have tried to balance the
interconnected web of competing interests.

Shifting paradigms
Competition law has presumptively been in favour of protecting the interests of the
consumer from the underhanded strategies by players on the market while prescribing
rules to ensure a fair playground between competitors. As such competition authorities
have fought against the abuse of dominant position by firms, exclusionary practice and
other such anti-competitive strategies by a firms either alone or in concert with others.

In the aftermath of World War II, the doctrine of restraint of trade as applied in Britain was
only a residual limitation on the freedom of commercial operators. This led to the
enactment of laws that were tentative, partial and under-enforced. However, with the
coming into force of the English Competition Act of 1998 as well as the Enterprise Act of
2002, competition law was revised to incorporate considerations geared towards
economic efficiency.2

1 Looney Tunes, Marvin the Martian: oft-quoted statement alluding to the consistent struggle of the problem-solving process.
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A similar phenomenon occurred in the USA where the courts initially adopted a purely
legal analysis of the market. Thus, in the case of USA v. Champion International
Corporation 3, competition authorities relied on circumstantial evidence to uncover anti-
competitive bid-rigging schemes by the defendants. By applying principles from the
doctrine of the restraint of trade, the court concluded that,

Whether or not anyone ever agreed at those meetings to bid or to refrain from bidding in

any way, there was no doubt that the defendants "had an understanding" about bidding .4

Essentially, the court applied exclusively legal methodology and factual analysis to find
that the timber merchants involved were engaged in collusive practices. Such a strictly
legal approach resulted in a high number of under-enforced decisions with no practical
effect on dealing with anti-competitive strategies.

Competition authorities have since recognised that there is the need to balance consumer
welfare with the total welfare. This led to considerations geared towards the overall
efficiency of the market. The necessity for an economics-based approach in analysing
competition law issues, thus emerged. Thus in the case of Flat Glass Antitrust Litigation
5, the U.S. Department of Justice relied on economic evidence to infer anti-competitive
behavior. However, the court still maintained that non-economic evidence ‘that there was
an actual, manifest agreement not to compete’ will carry more weight.

Similarly, in a 2005 report issued by the Economic Advisory Group on Competition

Policy (EAGCP) of the EU, an economics-based approach was expressly recognised as
necessary to guarantee that statutory provisions do not unduly thwart pro-competitive
strategies. As a result, deliberate attempts were made at incorporating economic
considerations into competition policies.

MENSAH, Eunice | June, 2020

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For example, the As Efficient Competitor Test as applied in the Continental Can case 6

where the court referring to Article 102 of the TFEU stated that,

"[It] is not only aimed at practices which may cause prejudice to consumers directly but
also at those which are detrimental to them through their impact on an effective
competition structure.7

This shift in perspective from a purely legal analysis to include economic considerations
still seeks to protect the consumer at the end of the day. It recognises that by disrupting
the efficiency of the market, the consumer ultimately suffers.

A labyrinthine new reality

Traditional industries are characterized by multi-plant and multi-firm production with
limited economies of scale with average total costs are rising at relatively modest output
levels. This led to stable markets and heavy capital investment. 8 With modest rates of
innovation, slow and infrequent entry and exit and linear business models, such an
understanding of the market place has shaped economic rationalisations and legal
thought for centuries.

However, the digital economy does not fit into this traditional structure. Instead, it is
characterized instead by falling average costs per product over a broad range of output,
modest capital requirements, high rates of innovation, quick and frequent entry and exit,
and “network externalities” that create an incumbency advantage. 9

Furthermore, while vertical integration is a common feature of the traditional systems, it

tends to be even more common in the digital economy. This has created an unusually
large number of firms that are customers of their competitors. 10

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As such, though the incorporation of economic concepts into competition law was a step
in the right direction, the current systems still remain inadequate to deal with the
emerging issues. As observed by Richard Posner,

“The real problem lies on the institutional side: the enforcement agencies and the courts
do not have adequate technical resources, and do not move fast enough, to cope effectively
with a very complex business sector that changes very rapidly. This problem will be

extremely difficult to solve; indeed, I cannot even glimpse the solution” 11

The following use cases reveal the struggle for balance faced by European competition
authorities illustrating how they have applied, expanded and extended competition law
to emerging digital trends.

Applying The Law: Algorithms and the Google Shopping case

Advanced algorithms are increasingly becoming a key factor on the digital markets. They
are often attached to search engines to influence the display of product results and
product ads. Algorithms can be used in shopping robots also called 'shopbots" to provide
a wide range of assistance including finding great deals such as affordable flight tickets.
They can also be combined with personalised pricing strategies to create a dynamic
experience on the online market where different consumers are offered different prices
for the same good.

Google, a key player in the digital market, makes use of such algorithms in its search
engine to provide customised alternatives to its vast user base. In the Google Shopping
case,12 the use of these algorithms by Google was re-examined by the European
Commission under the auspices of Margrethe Vestager.

This probe by the European Commission was in response to an allegation of anti-trust

violations against Google. In the end, the Commission fined Google €2.42 billion for
abuse of dominance by using its flagship product, the Google search engine to give an

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illegal advantage to own comparison shopping service.13 According to Margrethe
Vestager,

“Google has given its own comparison shopping service an illegal advantage by abusing
its dominance in general Internet search. It has promoted its own service, and demoted
rival services. It has harmed competition and consumers. That’s illegal under EU antitrust

rules’ 14

However, this case is not without a significant amount of controversy. Apart from the
exorbitant nature of the fine, the decision has been criticised as posing a threat to the
future of vertically integrated market leaders because Google provides a free search
service to consumers which it monetizes via advertisements. Given Google's dominance
in general internet search, its search engine is an important source of traffic for
comparison shopping services.

Yet, if Google cannot favour its own product ads over those of competitors, how will it
continue to provide this free service to consumers? In a sense, the Commission may have
been equating Google’s competitive advantage with anticompetitive effects. 15 Whether
or not this decision will stand the test of time is still an ongoing debate as the
Commissioner noted,

We have an intense debate about competition enforcement in the digital era [and] we need
to change for the times we’re in because the market dynamics are different, they are faster,
you have marginal prices approaching zero, you have network effects, you have the data-
driven economy. So of course we need to change with the times that we’re in… 16

Adding that,

But we will not negotiate and we will not compromise on this being built on the rule of
law and the responsibility for the courts in order to make sure that we have equal treatment
between businesses.”

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Nonetheless, the case still remains relevant in appreciating the dynamic nature of
the challenges that confront competition authorities in dealing with anti-
competitive strategy.

Expanding The Law: Rethinking the SSNIP Test

The Small but Significant and Non-Transitory Increase in Price (SSNIP) Test is a cross-side
price elasticity test. It aims to examine whether a hypothetical monopolist would
profitably and permanently increase prices by 5 to 10 % in a given market by assessing
the degree with which consumers will switch to a substitute.17 In order to achieve this, it
defines the scope of what it considers a relevant market and assesses the availability of
close-enough substitute to the product.18

Initially, the SSNIP test was applied in a context of a linear market. However, the advent
of multilinear platforms has caused competition authorities to recalibrate their
evaluations in this regard. This is not without significant challenges in analysing these
complex market structures such as multi-sided platforms with different but
interconnected dynamics. Competition authorities also face the challenge of analysing
prices and costs in the face of the economics of free which creates the illusion of zero costs.

Furthermore, the primary indicators such as market shareholding used by competition

authorities in assessing the market power are no longer useful in today’s digital market.
While others, such as the direct evidence criteria, - where the absence of entry attempts
combined with a significant reduction in product quality which does not lead to a
corresponding decrease in demand - remain useful.19.

Competition authorities must in applying the SSNIP Test to digital markets must expand
the scope of their considerations.

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As noted by the OECD Report in 20182,

“Traditional antitrust tools for market definition can still be useful, provided they are

implemented taking into account the two -sided nature of the market.” 20

The Report further recommends that,

• In a two-sided non-transaction market, one should check the overall profitability of a

rise in price on each side of the market.
• In a two-sided transaction market, one should instead check the profitability of an
increase in the price level (i.e. the sum of the prices paid for the transaction by the two
sides), the changes in overall profits (i.e. the sum of the profits on both sides of the market)
and all feedback between the two sides of the market when judging the profitability of a

price increase. 21 [emphasis added]

In doing so, it not only recognises the existence of a two sided market but distinguishes
it to incorporate the notion of a non-transactional market as seen on social media
platforms like Instagram. This takes into account positive but indirect network effects
between the different sides of the platform created by the increasing number of active
users on the platform. Such contextual distinctions and in-depth analysis reveal attempts
to adapt the existing standards to the emerging trends.

Extending The Law: Facebook’s data collection strategy

Social media giant, Facebook’s strategy of super-profiling has come under heavy scrutiny.
This strategy combines data collected about users across its different platforms, including
WhatsApp and Instagram, as well as from outside websites and third-party apps into one
profile thereby enhancing the network effects across platforms. The data collected is used
to offer more targeted advertising using tools like Facebook’s “like” and “share” buttons,
and an analytics service called Facebook Pixel.22

MENSAH, Eunice | June, 2020

2The Organisation for Economic Co-operation and Development (OECD) is an intergovernmental economic organisation with 37 member
countries, founded in 1961 to stimulate economic progress and world trade. Source : Wikipedia, at https://en.wikipedia.org/wiki/OECD
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In a ruling by the Federal Court of Justice in Germany, Facebook was found guilty of
abusing its dominant position in social media to illegally harvest data about its users.
Facebook has often been accused of offering consumers a false choice as evidenced in a
zero opt-out T&C conditions where they either provide Facebook with their personal data
or not be allowed to use their services at all. 23

Now as a result of this decision in Germany, Facebook must alter how it processes data
about its users and allow people to block the company from combining their Facebook
data with information about their activities on other apps and websites. 24

This closely-watched case is particularly interesting because it extends the scope of

competition law into data protection issues. It is likely to have a significant impact on
competition law especially since other countries are expected to be emboldened by this
decision to follow suit.

Concluding remarks
Evidently, the struggle to balance between the competing interests of the stakeholders in
the market continues unabated. Fortunately, competition authorities are starting to
appreciate the emerging paradigm and update their knowledge accordingly. They also
need to consider technological enhancements as counter-measures to deal with the
negative impacts of innovation. Targeted projects must be aimed at specifically creating
tools that will provide custom-made solutions to the emerging challenges in the scope of
competition law. This does not guarantee that competition authorities will make the best
decision in every circumstance, but it does give them a better shot at acing this labyrinth.

References
1 See. Chan Kim, W and Mauborgne, R. (2005) Blue Ocean Strategy, Harvard Business Press,
2 Scott, A. (2009) The Evolution of Competition Law and Policy in the United Kingdom, at
http://eprints.lse.ac.uk/24564/1/WPS2009-09_Scott.pdf
3 USA v. Champion International Corporation (557 F.2d 1270 1977-1 Trade Cases 61,442, 1 Fed. R. Evid. Serv. 716)
4 Jenny, F. (2016) Judging Competition Law Cases: The Role of Economic Evidence at http://www.fne.gob.cl/wp-

content/uploads/2016/11/Final-Economic-evidence-in-competition-cases.pdf
5 Flat Glass Antitrust Litigation, 385 F 3d 350, 359-60 (3d Cir. 2004)
6 Europemballage and Continental Can v, Commission, Case 6/72 [1973]

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7Davis, P (2019) As Efficient Competitor Test: An overview of EU and national case law at
https://www.cornerstone.com/Publications/Articles/As-Efficient-Competitor-Test-An-Overview-of-EU-and-National-Case-
Law/As-Efficient-Competitor-Test.pdf
8 Posner, R. (2000) Anti-Trust in the New Economy, University of Chicago Law School at

https://chicagounbound.uchicago.edu/cgi/viewcontent.cgi?article=1057&context=law_and_economics
9 ibid.
10ibid.
11ibid.
12European Commission decision dated June 27 relating to a proceeding under Article 102 of the Treaty on the Functioning of the

European Union and Article 54 of the EEA Agreement (Case AT.39740 — Google Search (Shopping), at
https://ec.europa.eu/competition/elojade/isef/case_details.cfm?proc_code=1_39740
13 Press release by European Commission dated 30 November 2010 at

https://ec.europa.eu/commission/presscorner/detail/en/IP_10_1624
14 Supra note 11
15 ChillingCompetition.com, at https://chillingcompetition.com/2017/06/27/google-shopping-decision-first-urgent-comments/
16 TechCrunch.com, Anti-trust case against Facebook’s super-profiling back on track after German federal court ruling,

https://techcrunch.com/2020/06/23/antitrust-case-against-facebooks-super-profiling-back-on-track-after-german-federal-court-
ruling
17 Europa, Definition of the SSNIP test : https://ec.europa.eu/dgs/competition/economist/merger_investigations.pdf
18 OECD (2018) Rethinking antitrust tools for multi-sided platforms at, https://www.oecd.org/daf/competition/Rethinking-antitrust-

tools-for-multi-sided-platforms-2018.pdf
19 Jens-Uwe Franck, Martin Peitz, report on market definition and market power, 2019, at https://www.law.ox.ac.uk/business-

law-blog/blog/2019/05/digital-platforms-market-definition-and-market-power
20 Supra note 18
21 ibid.
22 NewYorkTimes.com, Facebook Loses Antitrust Decision in Germany Over Data Collection at

https://www.nytimes.com/2020/06/23/technology/facebook-antitrust-germany.html
23 ibid.
24 ibid.

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