Online Platforms and the Digital Single Market

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Online platforms, which comprise a wide range of software-based technologies, from search engines and social networks to price comparison websites and collaborative economy platforms, are drivers of growth, innovation and competition. They enable businesses and consumers to make the most of the opportunities created by the digital economy. Supported by the emergence of mobile devices and pervasive wireless connectivity, online platforms have transformed how we live, interact and transact. In doing so they have disrupted existing sectors of the economy and challenged regulatory frameworks. As part of its Digital Single Market Strategy the EU Commission announced its plans to launch a consultation to investigate how the largest online platforms use their market power and whether the current regulatory environment remains ‘fit for purpose’. This report responds to that consultation. Our assessment of the features of these markets suggests that online platforms that succeed in harnessing strong network effects can become the main provider in a sector, gateways through which markets and information are accessed, and an unavoidable trading partner for dependent businesses. Such platforms are likely to possess substantial market power. However, the possibility of disruptive innovation is higher in these markets than in other networked industries and this may create competitive pressures even where firms have high market shares. We conclude that determining whether a firm possesses substantial market power, or is abusing that power, requires meticulous case-by-case analysis. On this basis we advise against the creation of a platform-specific regulatory regime. Instead, to protect consumers and to ensure that market power is not abused, we recommend that existing regulators should be vigilant in these markets. We also considered three areas of existing regulation and suggested a number of adaptations to each. Despite the challenges competition authorities face when dealing with online platforms, we find that the flexibility of competition law means that it should be well-suited to addressing the subtle and complex abuses of dominance that may arise. We suggest that the merger control regime should be modified, to prevent the acquisition of smaller digital tech firms by large online platforms from escaping scrutiny. The slowness of competition enforcement, as exemplified by the ponderous Google case, is cause for concern in such fast-moving markets: we recommend that the Commission make greater use of ‘interim measures’ and impose time limits on commitment negotiations, to make enforcement more responsive. There are also sector-specific issues. For example, some allege that online travel agents exploit their bargaining power relative to their trading partners by engaging in a variety of aggressive and misleading practices. To address these concerns, we urge the Competition and Markets Authority to investigate the sector. In markets where online platforms have been found to impose unfair terms and conditions on their trading partners, we suggest that competition authorities could usefully develop codes of practice. The collection and use of consumer data are integral to the provision of online platforms’ services. We are therefore concerned to find that consumer trust in how online platforms manage personal data is worryingly low. Consumers seem to be unaware that they trade their personal data in exchange for access to many of the so-called ‘free services’ that online platforms provide and that their data are used to generate advertising revenues or are sometimes sold on and shared with third parties. The opaque and legalistic privacy notices used by online platforms are one reason for this lack of trust. We also identify a lack of competition between platforms on privacy standards, and suggest that online platforms could potentially abuse a dominant position by downgrading their privacy standards. To address this, we recommend that the Government work with the Commission to develop a privacy seal that incorporates a graded scale, and that platforms found to have repeatedly or egregiously breached data protection laws should be required to communicate this directly to their users. We also urge Government to press for the proper implementation of the recently agreed General Data Protection Regulation, and invite the Commission to clarify some of its more ambiguous provisions.
Keywords: 
Internal Market, Digital Single Market, Digital Contracts Rights, Digital Jobs, Growth, Data Flow
Country of publication: 
United Kingdom
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Publication date: 
Wednesday, April 20, 2016
Number of pages: 
128