Are market investigations a suitable tool for the analysis of digital markets?" - Forword l Concurrences N 1 2021 - COFECE
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Concurrences REVUE DES DROITS DE LA CONCURRENCE | COMPETITION LAW REVIEW “Are market investigations a suitable tool for the analysis of digital markets?” Forword l Concurrences N° 1-2021 www.concurrences.com Alejandra Palacios Prieto apalacios@cofece.mx Chairwoman Mexican Competition Authority (COFECE), Mexico City
Foreword
“Are market
constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment and up to a € 300 000 fine (Art. L. 335-2 Code de la Propriété Intellectuelle). Personal use of this document is authorised within the limits of Art. L 122-5 Code de la Propriété Intellectuelle and DRM protection.
Ce document est protégé au titre du droit d'auteur par les conventions internationales en vigueur et le Code de la propriété intellectuelle du 1er juillet 1992. Toute utilisation non autorisée constitue une contrefaçon, délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art.
L. 335-2 CPI). L’utilisation personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures techniques de protection pouvant accompagner ce document. This document is protected by copyright laws and international copyright treaties. Non-authorised use of this document
investigations
a suitable tool for
the analysis of digital
markets?”
Alejandra Palacios Prieto
apalacios@cofece.mx
Chairwoman
Mexican Competition Authority (COFECE), Mexico City
This is a question that many competition authorities In Mexico, market investigations are established in
from different jurisdictions around the world and some Article 94 of the Competition Law. Drawing from
competition experts are currently trying to answer. In COFECE’s experiences conducting market investiga-
fact, a salient discussion within the antitrust commu- tions, an exhaustive analysis of this tool was carried out
nity around this question is related to the proposal to by a small task force within the Commission to answer
create the “new competition tool” by the European this specific question. My conclusion is that market
Commission (according to the European Commission, investigations indeed could be effective in addressing the
the new competition tool constitutes one of the three competition challenges that the digital era has brought
pillars through which more effective competition in the to competition authorities, albeit with some challenges.
digital ecosystem is sought. When this text was being
elaborated, the tool was in process of being issued. See This affirmation derives from three reasons. First,
https://ec.europa.eu/competition/consultations/2020_ because of the intrinsic characteristics of our market
new_comp_tool/index_en.html), as part of the search for investigations, it is possible to address structural compe-
a market analysis tool that allows an effective and timely tition problems that prevent a market from functioning
enforcement intervention against the structural problems properly. Second, this tool effectively allows for more
that the digital economy presents (As has been widely holistic analyses, taking into account that the functioning
discussed, digital markets are often characterized by strong of the market is explained not only by the behavior of
economies of scale and scope due to low production cost of the market players but also by other factors such as the
digital services and the large number of customers served. behavior of consumers, as well as regulatory aspects.
Moreover, they are often multiple-sided and have strong And third, the specific circumstances of digital markets
network externalities, meaning that a digital technology will that facilitate a dynamic that derives in market concen-
become more popular and convenient as more individuals tration, as well as a rapid decrease in competition, could
use it. In addition, data collection and processing capabili- be addressed with the type of remedies that this enforce-
ties of a digital technology provide a digital supplier with a ment tool enables.
substantial competitive advantage).
Concurrences N°1-2021 I Foreword I Alejandra Palacios Prieto I “Are market investigations a suitable tool for the analysis of digital markets?” 1Article 94 of the Competition Law Of these, three cases were closed by the
constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment and up to a € 300 000 fine (Art. L. 335-2 Code de la Propriété Intellectuelle). Personal use of this document is authorised within the limits of Art. L 122-5 Code de la Propriété Intellectuelle and DRM protection.
Commission (barley, norms and standards, and
Ce document est protégé au titre du droit d'auteur par les conventions internationales en vigueur et le Code de la propriété intellectuelle du 1er juillet 1992. Toute utilisation non autorisée constitue une contrefaçon, délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art.
L. 335-2 CPI). L’utilisation personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures techniques de protection pouvant accompagner ce document. This document is protected by copyright laws and international copyright treaties. Non-authorised use of this document
COFECE’s market investigations empower us to port services) and one is still ongoing (payment
determine the existence of barriers to competi- systems). The cases related to freight transpor-
tion and to eliminate them, or the existence of an tation and milk determined that the competi-
essential facility and to regulate its access. tive process was flawed because of the existence
of regulatory barriers. In both cases, we issued
Regarding barriers to competition, Article 94 non-binding recommendations to the local
allows the Commission to impose two types of authorities in order to eliminate these barriers.
remedies. First, there are behavioral remedies, In these cases, we learned that if we identify in
which oblige economic agents to act in a specific advance that the main anticompetitive effects
way or to stop acts that distort the competitive derive from regulatory barriers, and that the
process. There are also structural remedies, which likely result of the market investigation will solely
allow modification of the structure of a market involve non-binding recommendations for public
with the objective to create or restore compet- authorities to amend those regulations, then the
itive conditions. Moreover, we can also issue outcome will be the same as our non-binding
non-binding recommendations to authorities of opinions. Hence, it does not make sense to devote
any level of government to eliminate the regula- too many enforcement resources to these types of
tory barriers identified in a market investigation. cases.
We can also determine the existence of essential Other salient experience we had with this tool
facilities and, if deemed necessary, establish rules derived from the airport slot allocation case,
for their access and use by other economic agents where we determined the existence of an essen-
when their existence is determined as a result of tial facility. This case generated important lessons
the market investigation. related to the Commission’s scope to regulate
access to an essential facility, since the Judiciary
Due to the aforesaid characteristics, Article 94 interpreted that COFECE’s powers to regulate
constitutes a hybrid competition and regulatory access to essential facilities have limits in the
tool with the advantage that it allows to conduct presence of a sectoral regulator, in this case the
a thorough market assessment employing all aeronautical authorities of the country. However,
the Commission’s investigative tools (among this judiciary precedent is not mandatory as case
which are forensic analysis, screening, onsite law. Additionally, as in other countries, no regu-
searches, requests for information, depositions latory body for the digital economy exists in
and international cooperation with other compe- Mexico, so this allows COFECE to exercise its
tition authorities). It also allows us to impose powers related to regulatory measures for essen-
appropriate remedies even though competition tial facilities in said markets.
problems are not directly related to traditional
anticompetitive conducts. On the positive side, the experience with this
tool has shown us that we are able to conduct
Furthermore, this is a tool that is not intended deeper analyses of market structures, bringing
for sanctioning anticompetitive practices carried to light elements which hinder competition but
out by an economic agent in particular, but rather are usually unnoticed in the investigation of anti-
to identify behavioral and structural problems competitive practices. Among these elements are
present in the investigated market, and to order behavioral biases, practices which affect compe-
their correction through various remedies, tition but are not included in the Mexican cata-
including regulating the access to an essential logue of abuse of dominance practices, use of
facility. personal information, and the behavior of other
competitors. The analysis of these elements is
relevant in digital markets which exhibit charac-
COFECE’s experience in market teristics that often result in high concentration,
investigations accumulation and control over large volumes of
data, strong network effects, bundling of digital
Thus far the Commission has opened seven products or services, etc.
market investigations into: (i) slot allocation at
the Mexico City airport; (ii) local freight trans-
portation in Sinaloa; (iii) barley production and Applying Article 94 in the analysis
distribution for beer factories; (iv) port services of digital markets
and transportation for bulk grains in Puerto
Progreso in the state of Yucatan; (v) distribu- The Commission’s experience with market inves-
tion and transportation of unprocessed milk in tigations has contributed identifying Article 94 as
Chihuahua; (vi) norms and standards for eval- a possible mechanism for the analysis of digital
uation of conformity assessment; and (vii) card markets and their intrinsic problems in at least
payment systems. four areas.
2 Concurrences N°1-2021 I Foreword I Alejandra Palacios Prieto I “Are market investigations a suitable tool for the analysis of digital markets?”First, Article 94 facilitates the analysis and –P
rohibition of discriminatory treatment or
constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment and up to a € 300 000 fine (Art. L. 335-2 Code de la Propriété Intellectuelle). Personal use of this document is authorised within the limits of Art. L 122-5 Code de la Propriété Intellectuelle and DRM protection.
correction of behavioral barriers carried out by self-preferencing measures which could warrant
Ce document est protégé au titre du droit d'auteur par les conventions internationales en vigueur et le Code de la propriété intellectuelle du 1er juillet 1992. Toute utilisation non autorisée constitue une contrefaçon, délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art.
L. 335-2 CPI). L’utilisation personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures techniques de protection pouvant accompagner ce document. This document is protected by copyright laws and international copyright treaties. Non-authorised use of this document
economic agents that do not necessarily enjoy at diverse measures such as the application of
the present moment substantial market power, an ex ante regulation to a vertically integrated
but that participate in markets with characteris- digital platform that has a gatekeeper role.
tics (i.e., network externalities, economies of scale
–D
ivestiture and functional separation of digital
and scope, etc.) that generate competition for the
platforms that have the ability to exercise market
market. In this sense, the international discus-
power and distort the competition process.
sion has warned that the intervention of compe-
tition authorities through traditional tools could Fourth and last, as already mentioned, this mech-
happen too late, when the rest of the potential anism can allow us to determine whether an
entrants can no longer compete with the consol- economic agent possesses an essential facility
idated platforms, even to offer improved or inno- and, if deemed necessary, to regulate its access.
vative features against dominant economic agents. On the international level, discussions have
In the competition jargon, this phenomenon is focused on whether the data or databases in
known as “tipped markets,” which favor “winner- possession of certain economic agents, and even
take-all” outcomes. Therefore, our market inves- their processing capacity, could be considered as
tigation tool can allow us to intervene at an essential facilities. These can generate a compet-
early stage and establish behavioral or structural itive advantage that is difficult or impossible to
remedies that promote competitive processes. achieve or replicate by their competitors.
Second, as I mentioned, Article 94 can also allow
us to analyze practices that are not expressly
Final remark
found in the Mexican catalogue of abuse of domi-
Currently there are very few countries that have
nance practices of Article 56 of the Competition
mechanisms that, independently of anticom-
Law. Some behaviors that have been identified in
petitive practices, allow to analyze and, when
the international discussion as potential abuses
appropriate, correct market structures through
of dominant position and do not necessarily fit
remedies that favor the entry of new competitors
in the list of abuse of dominance practices are
and generate environments favorable to competi-
self-preferencing or the imposition of abusive
tion. Iceland, Greece, Mexico, South Africa and
contract terms. These are likely to occur when a
the United Kingdom are among the few countries
platform holds a gatekeeper position (that is to
that have mechanisms of this nature.
say, platforms that have control over distribution
and/or entry channels to other lines of business
It is interesting to see how the characteristics of
and that benefit from network effects).
our market investigations and our experience
with this tool have motivated the international
Third, with the use of Article 94 we could impose
community to turn its attention to the analysis of
structural remedies such as:
Article 94 in the search for answers to the question
of its suitability to address competition problems
– Interoperability of data and protocols which arising in digital markets. When this provision
could occur in different forms. For example, was enacted in the 2014 Mexican Competition
through compatible interoperability for third Act, it was largely criticized by various actors of
parties under discriminatory conditions, by the competition community. They considered it
making a protocol of one digital platform an unnecessary mechanism because we already
interoperable for competitors in the market. Or had our abuse of dominance enforcement powers
by establishing specific requirements to provide and because the Commission was not a regulator.
interoperability in relation to specific areas of a
business model, and by generating interopera-
I believe that our experience and the four advan-
bility in various related digital markets.
tages described above can contribute positively
– Data portability to allow the migration of each to the international debate, and the accumu-
user’s data from one platform to another, so it lated knowledge from this debate will allow us, as
can be reused independently and without losing a competition authority, to apply this tool in an
information previously created. effective manner. It corresponds to COFECE to
assess in detail the application of Article 94 on
– Establishment of codes of conduct applicable a case-by-case basis. Our actions most certainly
to dominant platforms in order to self-regu- are going to be challenged by the investigated
late the behavior of these agents and prohibit parties in the courts. But new challenges require
certain conducts (such as self-preferential prac- new methods and new solutions that keep up with
tices or “abusive” contracts). the times. n
Concurrences N°1-2021 I Foreword I Alejandra Palacios Prieto I “Are market investigations a suitable tool for the analysis of digital markets?” 3Concurrences
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