European Commission Initiates Consultation on Possible New Competition Investigation Tool

On 2 June 2020, the European Commission (the Commission) published its inception impact assessment (or roadmap) on the possible adoption of regulation that would introduce a new market investigation tool. This assessment was immediately followed by the launch of a public consultation to seek views and feedback from the public regarding such a tool. The new tool would enable the Commission to investigate and impose behavioural and/or structural remedies on businesses with significant market power, whether dominant or not – and without any prior finding of a competition law infringement. As such, this new tool could present a significant risk and potential burden for companies with market power. On the other hand, it offers potential benefits to market participants, such as new entrants, who might otherwise see their access to markets foreclosed.

Enforcement Gap

As digitalization evolves and spreads across sectors rapidly, the Commission has come to understand that there are certain structural competition issues that prevent markets from functioning properly and tilt the level playing field in favour of only a few market players. The Commission acknowledges that in this regard the current EU competition rules cannot tackle or address those issues effectively.

Given that Article 102 TFEU only applies to certain practices by dominant companies, it fails to capture certain conduct that may allow powerful, yet non-dominant companies, to monopolize markets. Likewise, dominant companies may leverage their dominant position to gain control over adjacent markets, without acting in infringement of Article 102 TFEU. Therefore, the current model of ex-post competition law enforcement may not be the most effective way to resolve the resulting lack of competition. In addition, once a market has tipped in favour of a dominant player, there may be circumstances where it is simply no longer possible for others to compete, as alluded to in Margrethe Vestager’s speech “Keeping the EU competitive in a green and digital world” given to the College of Europe in Bruges on 2 March 2020. This may be due to market characteristics, such as strong network effects, extreme economies of scale and scope, and data dependency.

Article 17 of Regulation 1/2003 already allows the Commission to investigate a sector of the economy or a type of agreement where there may be a restriction on or distortion of, competition. However, the Commission has no instruments available to remedy any structural competition issues that it may have detected during such market investigation beyond individual infringement proceedings that it may decide to open in response.

Proposed New Competition Tool

The Commission is now seeking feedback on its inception impact assessment until 30 June 2020 and responses to its questionnaire until 30 September 2020 as part of the public consultation.

The exact form of the new tool has yet to be set. In the inception impact assessment, the Commission proposes four different options for a new competition tool against the baseline scenario in which the current EU competition law framework would remain unchanged. As indicated in the table below, the four options differ according to the target companies, target sectors, target issues, and remedies. In all scenarios, however the Commission will be able to act even before a target issue has materialized.

Target Companies Target Sectors Target Issues Remedies
Option 1 Dominant companies only All sectors (horizontal) Unilateral conduct that may lead to:

Foreclosure of competitors; or
Increased costs for competitors

Behavioural and/or structural remedies
Option 2 Dominant companies only Limited to certain sectors, notably;

Digital or digitally-enabled markets
Other sectors especially prone to have target issues due to entrenched dominance, high entry barriers, etc

Unilateral conduct that may lead to:

Foreclosure of competitors; or
Increased costs for competitors

Behavioural and/or structural remedies
Option 3 Any companies All sectors (horizontal) A structural risk for competition or a structural lack of competition that prevents the internal market from functioning properly Behavioural and/or structural remedies

Legislative Action

Option 4 Any companies Limited to certain sectors, notably;

Digital or digitally-enabled markets
Other sectors especially prone to have target issues due to entrenched dominance, high entry barriers, etc

A structural risk for competition or a structural lack of competition that prevents the internal market from functioning properly Behavioural and/or structural remedies

Legislative Action

Options 1 and 2 can potentially improve the market conditions and enable smaller players to compete on the merits. However, as the Commission acknowledges, both require a finding of dominance, which usually demands a lengthy investigation. At the conclusion of such an investigation, it is not inconceivable that smaller players may already have exited the market, making remedies ineffective, if not impossible.

With that in mind, Options 3 and 4 may be more effective as it allows the Commission to intervene without a finding of dominance. Swift intervention could thus enable the Commission to prevent the foreclosure of smaller players or the tipping of markets in a timely manner. Similarly, Options 3 and 4 will allow the Commission to remedy structural issues not necessarily resulting from objectionable unilateral conduct. However, these options have the potential of subjecting a broader range of companies to lengthy and burdensome investigations, and costly and economically damaging remedies.

Moreover, Options 3 and 4 could potentially impose on non-dominant companies a special responsibility not to allow their conduct to impair competition, similar to the responsibility currently attributed only to dominant companies. Thus, without stringent safeguards and rigorous judicial review, Options 3 and 4 might not be proportionate to the objectives they seek to achieve.

In any event, remedies should never go beyond what is strictly necessary to correct the identified structural competition issues. This requires the strictest safeguards in all scenarios. Intensive engagement with relevant parties during an investigation, including hearings and consultations on the proposed remedies, timely access to documents, including economic assessments, and close market monitoring following the imposition of remedies will need to part of due process.

Unless the target sectors under Options 2 and 4 are strictly defined, the dividing line between these options and Options 1 and 3 will become blurred. Targeting only a few sectors might be seen as arbitrary and discriminatory and reduce flexibility for the Commission and prevent it from capturing novel competition issues arising in constantly evolving markets. At the same time, leaving the sectoral scope undefined may not be proportionate. Thus, the definition of a certain threshold or certain criteria may be required.

Remark

This article has addressed the underlying approach underpinning the proposed options for a new competition tool. The case has yet to be made compellingly, however, that such a tool is a necessity or that existing antitrust tools cannot address the perceived enforcement gap. Apart from the availability of suitable antitrust tools, the proposed enforcement tools may also lead to a philosophical debate about the need for active intervention vs reliance on self-correcting capacity of (ever-changing) markets. The intervention of the Commission, through the new tool, would undeniably need to demonstrate proportionality and balance between the efficiencies resulting from it, and the burden and costs for the companies concerned. It remains to be seen what safeguards will be proposed for that purpose.

In parallel on 2 June 2020, the Commission also launched a separate but related public consultation on ex-ante regulatory instrument of very large online platforms acting as gatekeepers. This consultation will be the object of a separate contribution.

Caroline Ruiz PalmerCaroline Ruiz Palmer
Caroline Ruiz Palmer focuses her practice on all aspects of EU competition law, with a particular emphasis on merger control. Her experience includes assisting international companies in multi jurisdictional merger control filings and advising clients on anti-competitive agreements, competition compliance issues and abuse of dominance in various sectors. Read Caroline Ruiz Palmer's full bio. 


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