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Antimonopoly regulation of digital markets in a pandemic

Global digitalization poses new challenges to competition authorities around the world. Under the impact of pandemic digital platforms gain scale and increase rapidly their market shares. Large tech companies tend to take over all aspects of people’s lives, from daily purchases to social contacts. Under such circumstances we need the revision of competition law and the development of new approaches to regulation of digital markets more than ever. On December 18, 2020 a session in the format of BRICS+ regarding antimonopoly regulation of digital markets in a pandemic was held online as a part of VI International Conference: "Antimonopoly Policy: Science, Practice, Education" program, organized jointly by the FAS Russia and Skolkovo Foundation.

The event was moderated by Mr Andrey Tenishev, the Head of FAS Russia Anti-Cartel Department. He welcomed the panelists to discuss the trends in development of competition policy in the context of growing digital economy and the methods of agencies’ adjustment to the disruption, caused by the COVID-19 pandemic. Experts, agencies’ officials and the representatives of international organizations shared the BRICS and EU countries’ experience in digital market regulation and introduced the measures, targeted on the post-crisis economic recovery.

To open the discussion, the President of the Hellenic Competition Commission, the Professor of Global Competition Law and Public Policy at UCL Laws Mr Ioannis Lianos addressed new digital phenomena that never existed in the traditional economy and that were not covered by the existing regulations – digital ecosystems and so called gatekeepers, which “guarded” market gates. He mentioned two possible solutions: to add new tools to regulate relations with gatekeepers (which went beyond national level and required constant monitoring and control globally) or to be more flexible and determine key and most powerful actors in order to monitor their activity. Prof Lianos explained that the Digital Market Act, proposed recently by the European Commission, established a set of narrowly defined objective criteria for qualifying a large online platform as a gatekeeper as well as the obligations for gatekeepers, “do’s” and “don’ts” they had to comply with in their daily operations, implemented new control mechanisms and consequences of non-compliance. Once adopted, the Act will be directly applicable across the EU. He also emphasized that to achieve better efficiency we might need regulations not for certain companies but for the entire ecosystems and expressed hope to adopt new regulations before 2022.

The Director of the Institute of Law and Development and the BRICS Competition Centre (Moscow High School of Economics) Prof Alexey Ivanov referred to the choice Russia had to make as an actor of global digital economy. He defined two available models of further development in terms of the digital economy regulation – the Chinese one and the European one. The Chinese model implies the exclusion from global processes and thus relative freedom the implement independent domestic policies. The European model involves active participation in international activity and common antitrust regulation. In Prof Ivanov’s view, Russia followed the Europe’s way in the very beginning but then switched to the Chinese model – created its own digital platforms, favored national market “champions”. However, due to a huge disparity of economic scale between Russia and China (e.g. in 2020 China reached 67% internet penetration with 940 mil users), the European model is much more suitable for the Russian Federation: their initial conditions are similar and they face the same competition challenges. Alexey expressed his regret that in last two years no significant steps were made in the development of Russian competition law – he assumes that such “stagnation” was caused by the lack of understanding of future strategy. To sum up, Prof Ivanov mentioned that all attempts to find an alternative way of development only delayed the process, while the implementation of European experience would only benefit the establishment of sustainable mechanism of digital platform regulation in Russia.

The Deputy Commissioner of the Competition Commission of South Africa Mr Hardin Ratshisusu, responsible for the investigations and law enforcement, introduced the relevant experience of South Africa. He emphasized the significance of digital market regulation for BRICS countries and recognized the BRICS Competition Law and Policy Centre as a leading voice within the grouping, with its report “Digital Era Competition: A BRICS View”. The said report advocated facilitation of openness among global networks and value chains, human-centric approach to intellectual property rights, international cooperation to establish a global regime. Mr Ratshisusu claimed there was a need to rethink the scope and form of competition regulation in order to optimally respond to challenges in the digital economy. He informed that the SA Competition Commission has already published the draft Digital Strategy with focus on lagged regulatory response, rapid growth of digital markets, potential for market abuse by the large digital platforms and for killer acquisitions that remove maverick firms, consumer protection on use of personal data etc. As the Deputy Commissioner said, the future would bring the prioritization of digital markets. The SA Commission intended to adopt the Digital Strategy as soon as possible. Mr Ratshisusu also pointed out the need to strengthen cooperation within BRICS framework: in his view, BRICS countries did not really come together, while such discussion required more engagement and communication at the round table.

Mr Denis Gavrilov, the antitrust regulation counsel of Egorov Puginsky Afanasiev & Partners Law Offices, presented recent cases, reviewed by FAS Russia. He emphasized that in today’s Russia the enforcement went ahead of regulations: while the law still did not exist, there were already cases involving digital platforms, their abuse of dominant market position – the approaches were being developed right now. As key objectives of future digital market regulation, Mr Gavrilov mentioned the development of effective tools of antitrust analysis, the implementation of substitutability assessment (e.g. hypothetical monopolist test), the definition of additional factors in assessment of market share as well as of new entry barriers, the incorporation of restriction to use new anticompetitive practices into the current legislation and the agencies’ orders as main enforcement tool. The counsel of Egorov Puginsky Afanasiev & Partners Law Offices introduced two successfully reviewed showcases: Kaspersky vs Apple (on the abuse of dominant on the market of pre-installed application stores) and Headhunter/Superjob/Rabota.ru (on the abuse of dominant position on the market of services to ensure information interaction between applicants, employers and recruitment agencies in Internet). As Mr Gavrilov stated, FAS Russia showed an example of effective response and comprehensive approach. He expressed hope that the Russian antitrust legislation would be soon adjusted to the challenges of new markets.

The Professor of Information Law and Regulation at the law school of the Fundação Getulio Vargas Mr Nicolo Zingales illustrated Brazil’s experience in competition law enforcement by an emblematic case for digital markets: Rappi v iFood. Being a food delivery and takeout service, iFood gained a dominant market position and gradually created a closed ecosystem by the means of killer acquisitions, exclusivity contracts with restaurants, heavy discounts, vertical integration etc. It not only had a bad impact of the healthy development of market and competition but also affected delivery staff and citizens’ lives. The delivery workers even initiated anational protest to improve labor conditions and started a movement to create a cooperative and put together restaurants to exchange data. For citizens it became hard to get a bike, as all bike sharing vehicles were taken by delivery staff. As a possible recipe for effective enforcement in the digital age, Mr Zingales mentioned to identify and prevent/undo killer acquisitions, to limit the discretion and opacity of gatekeepers’ content moderation, to create a data sharing platform and to account for systematic effects.

The expert of BRICS Competition Law and Policy Centre Ms Anna Pozdnyakova addressed the concept of network neutrality, which was important for digital market regulation and its effective development. The principle of network neutrality was proposed by Professor Tim Wu from Columbia University and implied that internet service providers, including cable companies and wireless providers, should treat all internet traffic equally. The idea is based on the antitrust legislation, which prohibits any form of discrimination by the operators of key infrastructure. In the European Union the basic framework of net neutrality was already laid down by Article 3 of EU Regulation 2015/2120, and some of European countries then provided more detailed explanation in their domestic laws. However, under limited circumstances operators still might influence the traffic – to perform so called “reasonable traffic management” to comply with other laws, to preserve integrity and security or to prevent congestion. For example, during the lockdown, when all employees and students switched to online, network operators were able to redirect traffic to avoid the increased network load so that everyone could have access to Internet. The BRICS Competition Centre’s expert introduced the positions of different countries: for example, the discussion in USA was still ongoing, while Brazil and India had strict regulations on the matter. In regard to Russia, where the digital marker was growing and the relations between content owners, providers, consumers and producers became more complex, Ms Pozdnyakova pointed out the need for the legal implementation of network neutrality because, judging from the international experience, is would only benefit the development of digital markets.

The last panelist Mr Dmitry Gavrilenko provided his opinion on gatekeepers. Mr Gavrilenko is the Government Relations Director of CIAN Group, an online real estate market platform with over 1 mil unique users. He emphasized the significance of updated regulation for the development of small businesses and the enormous power, held by gatekeepers that controlled traffic and users’ attention. Gatekeepers are usually social media or search engines, they connect a user with a service provider. If such gatekeeper provides its own services, it might affect organic search results and promote its own ecosystem by harming competitors – such behavior causes the inevitable growth in popularity of gatekeeper’s services due to increased traffic. Speaking about available solutions, Dmitry quoted EU’s Competition commissioner Margrethe Vestager: “<…> serve one purpose: to make sure that <…> all businesses operating in Europe, that can be big ones, that can be small ones, that they can freely and fairly compete online, just as they do offline. Because this is one world. <…>. And of course, what is illegal offline is equally illegal online.” As an example, he addressed electricity market, where Russian legislation prohibited electricity manufactures to distribute the product: the same principle shall be implemented in the digital economy. Mr Gavrilenko noted that the digital company that controls massive element of Internet infrastructure possessed too much power and there was a significant risk of abuse. Europe had already proposed certain restrictions for gatekeepers, and Dmitry suggested to extend the principles of physical markets to digital economy for better and more effective regulation.