Biennial Report XXIII of the Monopolies Commission under § 44(1) ARC, 29 July 2020

The EU Council Presidency offers Germany an opportunity to contribute to the further development of the European regulatory framework for digital markets, as has been envisaged by the European Commission. The political objective of taking more effective action against competition problems in these markets has been formulated both at national and at EU level. Abuses of market power by online platform companies should be sanctioned more effectively and rapidly, enforcement procedures should be facilitated or accelerated and, where appropriate, regulatory instruments should be developed to protect platform users. In view of the above-mentioned objectives, several expert reports have developed potential solutions, which the Monopolies Commission supplements with its own considerations and recommendations in this Report.

With regard to competition problems related to market power, the Monopolies Commission is concerned with several issues, namely the criteria for determining market power in the case of digital platforms, the necessary procedure in the case of conduct by which the market permanently tips in favour of a platform or by which more or less unassailable “ecosystems” are created, and the procedure in cases where the market structure has solidified permanently in favour of a platform. With regard to the criteria for determining market power in the case of digital platforms, the existing principles of Article 102 TFEU appear to be sufficient, notwithstanding the reforms currently underway at national level.

With regard to the problem of tipping markets, a provision has been proposed in Germany (Section 20 (3a) ARC-E), pursuant to which the cartel authorities would be empowered to take action already when competition is endangered and independently of proof of concrete effects of the conduct in question. The provision in question could also be used to take action against European platform companies operating in Germany whose conduct may contribute to the collapse of markets. The Monopolies Commission therefore recommends that the German application practice be observed first and, if necessary, regulations for European law be considered on this basis.

With regard to the problem of “ecosystems”, the prohibition of abuse in Article 102 TFEU seems to be sufficient in principle. The new abuse regulation proposed in Germany for companies of “paramount cross-market significance” for competition (Section 19a GWB-E) departs from Article 102 TFEU in several respects. However, from the perspective of EU law, experience with this new provision can be revealing under two aspects: In cases where the competition authorities of the Member States or national courts are obliged to apply Article 102 TFEU in parallel to national competition law (Art. 3 (1) sentence 2 of Regulation 1/2003), it remains to be seen whether the new German provision will facilitate or burden abuse control. Where the scope of application of the provision goes beyond Article 102 TFEU, it will be revealed whether it is suitable to effectively close any previously unrecognised regulatory gaps at EU level. Against this background, the Monopolies Commission considers it sensible to first gather practical experience in this respect as well before introducing a corresponding supplement to the European regulatory framework.

In view of the fact that the market position of large platforms can become permanently entrenched after a tipping of the market or as a result of the formation of ecosystems, proposals have been made in several expert reports. One proposal is to oblige dominant platform companies to prove that they do not commit any abuse within the meaning of Article 102 TFEU. Another approach is to subject dominant online platform companies to additional obligations and stricter monitoring. The Monopolies Commission considers the second approach to be particularly effective and makes proposals for a new Platform Regulation. This Platform Regulation should contain rules of conduct for dominant platforms. For example, it could provide for a ban on self-preferencing and for more stringent interoperability and portability obligations, which should be aligned with the experience in data protection law. The Regulation could also include remedies for abuses of market power with lasting effects on the market structure, and for breaches of the additional obligations of dominant platform companies laid down in the Platform Regulation. The remedies should then also specify the conditions under which the divestiture of parts of the business (including forced access to algorithms or data) may be proportionate and the necessary characteristics of those parts of the business (e.g., viability and competitiveness).

In addition to the market power-related problems described above, information-related problems may arise in platform markets, making effective protection of competition more difficult in practice. First, an information asymmetry exists between platform companies and outsiders (public authorities or commercial/non-commercial platform users). Second, online marketplaces (e.g., trading/booking portals) have information problems in the relationship between traders and consumers.

In the relationship between platform companies and outsiders, the Monopolies Commission sees a need for additional regulation, particularly with regard to the information asymmetry between platform companies and the authorities investigating the case. Although the authorities have extensive powers to collect information, they may encounter considerable difficulties when using their investigative powers in proceedings. The Monopolies Commission therefore recommends the tightening of the procedural obligations to cooperate in cases where the authorities have made all reasonable efforts to investigate. Companies can prevent the investigation of factual evidence – without the prohibition of self-incrimination under EU law coming into play – if they do not disclose information on their own initiative in such cases. In those cases, the authorities should be empowered to draw conclusions from a lack of cooperation in the context of their free assessment of the evidence.

With regard to the relationship between merchants and consumers in online marketplaces, it appears desirable to clarify the assessment criteria for automated pricing of online traders using pricing algorithms. The Monopolies Commission is in favour of focusing on the guidelines concerning the market definition in online marketplaces when the Commission notice on the definition of the relevant market is revised, in so far as price differentiation by dealers indicates that relevant markets are becoming fragmented. Furthermore, it recommends the introduction of a statutory presumption of damage in order to effectively protect consumers against harm caused by automatically fixed and unreasonably excessive prices within the meaning of Article 102 TFEU.