By Dr. Arthur Odima
JUNE 30 – Competition law and policy enforcers consistently face challenges in understanding the economic forces that drive competition in digital platform markets. Specifically, regulators struggle to draw clear market boundaries using conventional tools, because these platforms serve multiple groups of users at once, such as advertisers and consumers, and a price change on one side of the market often ripples through to the other, where the firm may not be dominant.
Perhaps the biggest challenge is measuring market power itself. The usual yardsticks, price sensitivity, market shares, and the ability of consumers to switch to competitors, do not easily translate in multisided markets. What may seem perfectly competitive on one side may be quietly squeezing users on the other.
The markets created and dominated by large digital platforms are characterized by low levels of competition since many firms operate as monopolies. The major competition concerns may, in part, be occasioned by the conduct of the platforms themselves, as evidenced by the wave of high-profile enforcement cases brought against them globally. But it can also stem from structural factors like network effects and economies of scale and scope.
This article examines how competition contraventions manifest on digital platforms, and how competition tools can regulate them.
Digital markets are characterized by accelerated network effects, where the platform becomes more useful to the user as the subscriber base increases, as well as exponential growth due to popularity that is not tied to geographical borders. High switching costs and barriers to entry reinforce monopolistic outcomes.
Firms that have successfully harnessed these conditions have morphed into powerful gateways, controlling how and when markets and information are accessed.
Further, entrenched market power in online platform markets could result in monopolistic conditions, where a single marketplace becomes the principal point of access thereby dampening competition by acting as a gatekeeper between consumers and other competitor firms. Some gatekeepers also use access to customer data to restrict competition. This issue is even more pronounced when firms are vertically integrated (at different levels of the value chain), thereby increasing their capacity to collect and extract value from customer data, increasing their competitive advantage.
Such platforms can then assume the role of gatekeepers over the online stores and application marketplaces they themselves own and operate in. They compete for the market instead of competing in the market, leading to ‘winner takes-all’ outcomes.
Once a firm acquires the gatekeeper position and entrenched market power, it is likely to impose entry barriers through conduct such as interoperability restrictions on its competitors. Others may engage in self-preferencing where a platform, without justification, prioritizes the display or ranking of its products, or uses operators’ non-public data on the platform to develop its own products or inform decision-making. Gatekeepers can also unfairly impose discriminatory conditions and restrictions on app developers, or prevent promotion of competing payment methods.
Further examples of such conduct are; deliberate delays of apps review and approvals, unfairly removing apps from their app stores; impairing a user’s rights to make decisions about processing of their data; processing users’ data without their consent; unnecessarily preventing SMEs from fairly obtaining industry and market data generated by the platform
Given the unique and complex nature of these markets and contraventions, competition agencies must be very intentional. In so doing, regulators must first define the criteria for designating a firm as a gatekeeper and provide a list of core platform services.
Secondly, they should ensure legal clarity by elucidating anti-competitive conducts that are prohibited once a firm is designated as a gatekeeper. In addition, the agencies should develop digital online platform market specific rules explaining the obligations on designated gatekeepers and the remedies available when culpability is proven.
The rules must equally define the scope of their application. In the event that jurisdictions decide to amend their regulatory frameworks to include Strategic Market Position, then prohibitions must be specified in that respect. Agencies could also explore the use of market inquiries as an initial step to regulating digital markets. It is encouraging that the Competition Act is currently under review, with a focus of the proposed changes seeking to better attend to anti-competitive conduct in digital markets. Just like the aforementioned competition issues affect users and customers in Europe, America, or South Africa, where significant progress has been made by regulators, Kenya too needs to step up to the enforcement challenge.
Dr. Arthur Odima, Ph.D., is a Principal Analyst, Policy and Research at Competition Authority of Kenya.
