Should digital antitrust be ordoliberal?
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Concurrences REVUE DES DROITS DE LA CONCURRENCE | COMPETITION LAW REVIEW “ Should digital antitrust be ordoliberal?” Foreword l Concurrences N° 1-2020 l pp. 2-4 Alexandre de Streel alexandre.destreel@unamur.be Professor University of Namur, Namur Digital Institute Joint Academic Director Centre on Regulation in Europe (CERRE), Brussels
Foreword
“Should digital
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antitrust be
ordoliberal?”
Alexandre de Streel
alexandre.destreel@unamur.be
Professor
University of Namur, Namur Digital Institute
Joint Academic Director
Centre on Regulation in Europe (CERRE), Brussels
H
istory tells us that the concentration of economic This debate is key for competition policy as it questions its
power, what US Supreme Court Justice Louis fundamentals, in particular its objectives and underlying
Brandeis described as the curse of bigness, can economic theories. It also goes beyond as ex post antitrust
be as dangerous as the concentration of political power, intervention is often the prelude to more comprehensive
leading to social unrest and, if the state does not react ex ante economic regulation. To advance the debate, we
appropriately and in a timely manner, to the weakening should first identify the main characteristics of the digital
of liberal democracies or, at worst, the outbreak of economy and then reflect on how those characteristics
wars. History also tells us that at the beginning of should shape the enforcement of competition law.
each industrial revolution, economic power tends to
concentrate among the first few firms that master the The characteristics of the digital economy are many and
new technologies. Indeed today, at the dawn of the fourth different across business models and digital platforms,
Industrial Revolution, few big digital conglomerates but I see at least three characteristics that are key and
have accumulated not just important economic but also common to most digital platforms.
informational and quasi-regulatory powers. Europe
should be particularly worried because most of those –
The first characteristic is the market concentration
due to the massive direct and indirect network effects
conglomerates are based in the US or in China.
as well as the different data feedback loops. The
implications of market concentration on market
As competition policy is one of the most powerful tools for
power should be assessed case-by-case because
controlling the concentration of private power, it comes
network and feedback effects may be balanced by
as no surprise that there is now a fierce debate among
multi-homing but, often, the first effects are stronger
academics on the role of antitrust in digital economy. than the latter. Concentration is horizontal within
Some, the neo-Brandeisians, claim that antitrust should markets but is also “conglomeral” across markets.
go back to its roots and be as forcefully applied against Indeed, “conglomeralism” is not a bug but a feature
big tech giants as it was against the barons of the second of the digital economy. This can be explained by a
Industrial Revolution. Others, the neo-Schumpeterians, combination of supply-side and demand-side effects
claim that the digital economy is very competitive, with which reinforce each other. On the supply side, product
rival products just “one click away” and new invention development is often based on sharable modules, like
one garage away, hence markets should be left alone. Lego blocks, that can be used and reused to develop
Many antitrust agencies across the globe have done or very different products or services. For instance, the
commissioned reports on the adaptation of competition same dataset may be reused to develop a search engine,
policy to the digital era and a consensus is emerging that a digital map or an autonomous car. This modular
more intervention is needed. design product development generates economies of
2 Concurrences N° 1-2020 I Foreword I Alexandre de Streel I Should digital antitrust be ordoliberal?scope and reduces the costs of expansion across However, the three main characteristics of 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.
markets. On the demand side, customers often digital markets give some directions for the
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
value the synergies within product ecosystems. antitrust objectives, theories of harm, process
For instance, many Apple customers value the and remedies in the 21st century.
smooth and secure interoperability between
their iMac, iPad or Apple Watch. Those As digital firms mainly compete in innovation,
ecosystem synergies increase the benefits of antitrust agencies should mainly aim at
expansion in different markets. Economies of maintaining an “innovation level playing field”
scope and ecosystem synergies are not new but and ensure that a new innovator in a garage
are very much amplified in the digital economy. has the same chances as the big tech firms to
develop and then diffuse her innovation. In other
– The second characteristic of the digital economy
words, markets should remain contestable and
is the important and rapid pace of innovation.
contested. In addition, as the results of the digital
Most of the digital firms do not compete on
innovation are often uncertain but also disruptive
the price (and surely not on the monetary price
and unpredictable, agencies should look not only
that is often absent) nor even on the quality of
at the innovation outputs (the future products
existing products and services. They compete on
and services) but also at the innovation inputs—
the innovation for the next product or service
what David Teece calls the innovation capabilities.
and, then, on its rapid take-up and scale up to
Those capabilities vary across industries and
reap the full benefit of the network and feedback
their innovation paths. In digital, they include
effects and win the whole market. This is why
data, computing power, computing skills or risky
the R&D spending ratio of the digital firms are
and patient capital. Thus, agencies should focus
higher than the average in the economy.
on the firms controlling the digital innovation
– The third main characteristic is the high level capabilities and ensure that the key capabilities
of uncertainty of technology and market remain available to all. More controversially,
evolution. We know that it is difficult to make antitrust agencies may also want to ensure a
predictions, especially about the future. This certain degree of diversity in the innovation field
is even more difficult in the digital economy. as evolutionary economics shows us that diversity
This is why Andy Grove, the iconic founder of may stimulate the level and the resilience of
Intel, famously wrote that only the paranoids innovation.
survive or why Clayton Christensen warns
firms about the risk of disruptive innovation. The antitrust enforcers should then focus their
Indeed, digital innovation is not only sustaining attention on corporate behaviours that try to
within the value network of the established unlevel the innovation field. This is the case
firms, innovation is often disruptive and takes when big firms foreclose or limit access to key
place outside the established value network by innovation capabilities. This was possibly the
introducing a different package of attributes strategy of Twitter when it limited access to its
from the one mainstream customer historically data to PeopleBrowsr. Or when big firms combine
value. their large users’ base and important economies
of scope to envelop their efficient but smaller and
The three main characteristics of niche competitors. This may have been the strategy
the digital economy – concentration, of Alphabet using Google Search to envelop the
innovation and unpredictability –
competitors of Google Shopping. Or when big
firms try to identify their potential competitors
should shape the enforcement of when they are small and then, with mergers or
competition policy in the 21st century. acquisitions, kill them while swallowing their
innovation. This may have been the strategy of
The relationship between those three Facebook when it bought WhatsApp.
characteristics are complex. On one side, the
neo Schumpeterians claim that concentration To be meaningful, those antitrust interventions
is needed for innovation as it increases the should be sufficiently quick given the rapid pace
appropriability of its benefits and, in any case, of innovation and the possible irreversibility of
that innovation threat limits the market power market tipping. There may be a trade-off between
effects of concentration. On the other side, the velocity and the quality of the process.
the neo Brandeisians claim that concentration To reduce this tension, authorities should increase
may slow down innovation as contestability is their expertise and reduce their asymmetry of
needed to stimulate it and that the concentration information vis-à-vis the digital firms. This
of innovation is, in any case, detrimental for is why the recent expert reports, the hiring of
the economy and the society. This debate, in data scientists and AI experts and the increase
particular the respective effects of appropriability transparency imposed by several new regulations,
and contestability, is very difficult to arbitrate, such as the recently adopted Platform-to-Business
in particular when markets are unpredictable. EU Regulation 2019/1150, are all welcome.
Concurrences N° 1-2020 I Foreword I Alexandre de Streel I Should digital antitrust be ordoliberal? 3As most digital firms compete on experimentation may be limited to remedies which
innovation, antitrust agencies should
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.
are behavioural (as they in general less costly
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
for firms than structural remedies) and which
maintain an innovation level playing have been co-designed with the parties involved.
field. In any case, in the digital sector, behavioural
access remedies are often preferable to structural
This is also why a possible resurgence of the separation remedies because the former keep the
interim measures in the wake of the Broadcom benefits of the economies of scope on the supply-
case should be praised. In fact, the relevant EU side and ecosystem synergies on the demand-side.
rule on interim measures integrates the decision
theory framework. Article 8 of Regulation In brief, contemporary antitrust should aim
1/2003 provides that antitrust enforcer should at ensuring innovation level playing field and
impose interim measures when (i) there is a risk possibly diversity. Agencies should focus on
of serious and irreparable harm, i.e., the costs of corporate behaviours that try to unlevel the
type II errors (under-enforcement) are high, and innovation field by foreclosing access to key
(ii) when there is a prima facie case of finding an innovation capabilities, enveloping efficient but
infringement, i.e., the risks of type I errors (over- smaller and niche competitors or killing young
enforcement) are low. As several recent policy potential competitors while swallowing their
reports have shown, the costs of type II errors innovation. Agencies should do that quickly,
may be higher in the digital economy because when justified by imposing interim measures.
of the possible irreversibility of market tipping Moreover, they should be more participatory and
while the risks of type I errors may be lower in experimental in their remedies design.
the digital economy because of the high market
As digital innovation is often
concentration. So applying the legal rule, which is
consistent with the insight of the economic theory
under uncertainty, may lead to the imposition of unpredictable, the best objective
more interim measures in the digital sector. for the antitrust agencies is to protect
the competitive process.
However, the most difficult issue for the antitrust
enforcer is the choice of the appropriate remedies That leads us to a more fundamental question;
as the Google Shopping case illustrated. The what should be the normative framework for
choice of remedies has never been easy but antitrust intervention in an economy that is more
given the rapid and unpredictable evolution concentrated, innovative and unpredictable?
of technology and markets as well as high The ordo-liberalism developed in the thirties
information asymmetry between enforcers and by the Freiburg School as a reaction against the
firms, remedies design is particularly complex concentration of economic and political power in
in the digital economy. This is probably where the Nazi Germany, may be a good place to start.
antitrust enforcers, with the support of the Ordo-liberalism is not monolithic and has evolved
Courts, should be the most innovative. They over time but one of its main insights is the need
could innovate in two directions. First, agencies to promote the competitive process and to protect
may involve even more the parties, investigated the rivalry between firms. When competition in
firms and complaints alike, into the design of innovation is based on rivalry and future is very
the remedies. In the same vein, Jean Tirole calls difficult to predict, it is probably better to pursue
for a more “participatory antitrust”. Second, the competitive process as an objective in itself
the agencies may experiment different types of instead of focusing on the efficiency outcome.
remedies and learn by doing. There is an obvious Uncertainty inevitably implies that competition
tension between regulatory experimentation, authorities will make mistakes. Those should
which is necessary when uncertainty is high, and be minimized but, as puts by Jean Tirole, we
legal predictability, which is indispensable when should err on the side of competition. So yes,
a legal instrument is based on open norms and I suggest that the goal of competition policy in
allows extensive remedies. Experimentation leads the digital era should have an ordo-liberal flavour
to long term benefits when the best solution and protect, as such, the competitive process and
is found but entails transitory costs until the firms rivalry. n
solution is found. To reduce those transitory costs,
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