In November 2019, the Swedish Competition Authority (SCA) initiated a sector inquiry on digital platforms in order to gain deeper insights on the competition status and market conditions prevalent within the area. The SCA has now published its findings in a recent report.
The report is based on studies of platforms active within five different sub-markets: mobile app stores, digital marketplaces, subscription services for digital books, digital order placement platforms for takeout food and intermediation of digital advertising space.
The prevalence of competition concerns within these markets, according to the SCA, differs significantly from sector to sector and from platform to platform – making it difficult to draw general conclusions from the inquiry. Even so, the SCA identifies a few typical competition concerns that may arise within the sectors covered.
Tipping and concentration
The users’ benefit of using a given platform will generally increase as more people join the same platform. Platforms are thus characterized by so-called “network effects”. As more users join the service, however, the platform gains a lead in relation to its competitors – who, due to a lower number of users, will appear less attractive. This phenomenon is often described as the market tipping in favour of the dominant platform.
According to the sector inquiry, there are certain mechanisms in place to prevent tipping. On digital marketplaces, for instance, there are other ways to create value rather than by having a large number of users. The inquiry shows, however, that certain platforms – striving to tip the market in their own favour – are attempting to make it more difficult for their users to join competing platforms.
The intermediary powers of platforms
Often platforms are necessary for corporate users to reach their customers. This is sometimes referred to as platforms having intermediary powers. The intermediary powers enable the platform to charge higher fees or to otherwise impose less beneficial terms on their corporate users.
The sector inquiry shows that intermediary powers appear on a sliding scale within the sectors assessed, whereas platforms may hold anything from a low to a high degree of intermediary powers.
The double roles of platforms
Certain platforms are active as competitors within the same markets as their corporate users. This may give rise to conflicts of interests, where the platform is incentivized to benefit its own operations at the expense of their users. According to the SCA report, assessing the double roles of platforms and its connection to prevalent competition concerns is a highly complex task. It is currently deemed impossible to draw any general conclusions with regards to the double role of platforms and the implications thereof within the sectors assessed.
Corporate users’ access to customer data
The SCA confirms in their report that all platforms gather large amounts of customer data, but that corporate users are seldom given access to the same data. On markets where customer data is an important asset for both the platform and the corporate users, this unwillingness to share may give rise to competition concerns. The need for customer data varies between corporate users but is deemed especially high for undertakings whose products or services are “custom made”. Corporate users who are active on mobile app stores, for instance, are considered to have a higher need for customer data compared to those active on the market for digital books.
Proposed solutions and countermeasures
In the report, the SCA states that there are some inherent limitations in current regulatory framework. While the legislation in place indeed allows for said competition concerns to be investigated as potential antitrust infringements, there is a need for more effective measures to tackle the problems as such.
In December 2020, the European Commission launched a proposal for a new EU regulation aimed to ameliorate the market conditions for digital platforms – the so-called Digital Markets Act (”DMA”). The proposed regulation targets certain practices deemed to negatively affect the market competition, or practices that are otherwise deemed unjust. In addition to a set of new obligations on digital platform companies, the proposed regulation contains obligations to provide information, as well as new rules to facilitate regulatory supervision.
According to the SCA, the DMA may provide a remedy for some of the problems identified in the sector inquiry. At the same time, the SCA deems that there is a need to revise the regulatory framework on a national level as well. The SCA therefore proposes to initiate a project to assess the need for, and the construction of, a new regulatory framework to tackle the competition concerns on the platform market.
FACTS ON THE SECTORS ASSESSED IN THE SECTOR INQUIRY
Mobile app stores
App stores are platforms that enable users to find, install, update and erase applications from their smartphones. An application, or app, is a program used for work, for gathering information, for entertainment or for games, specifically designed for effective use on a smartphone.
A digital marketplace is a virtual place where sellers and consumers meet. The marketplaces are hosted on a platform intended to consolidate demand and supply on a given market.
Subscription services for digital books
Subscription services for digital books concerns the licensing of content from a publishing house to a company. The company packets the content into a subscription service that is then offered to consumers. The consumers pay a fee for the subscription service and the company pays a license fee to the publishing house.
Digital order placement platforms for takeout food
A digital order placement platform for takeout food matches the supply of local restaurants with the demand of customers and offers takeout deliveries from the restaurants to the customers.
Intermediation of digital advertising space
On the market for intermediation of digital advertising space, technical platforms act as middleman between advertisers on the one hand, and publicists – as well as others who offer advertising space, e g on websites – on the other.
The SCA report, Competition on digital platform markets in Sweden, is available here.
If you want to learn more about the SCA report or the European Commissions proposal for new platform legislation, please contact Esa Kymäläinen, attorney and partner at TIME DANOWSKY Advokatbyrå.