Access to data just one factor determining a platform's power, says German competition watchdog

Out-Law News | 20 Jun 2016 | 12:58 pm | 2 min. read

Online platforms that control access to data will not necessarily be considered to hold a position of market power, Germany's competition authority has said.

The Federal Cartel Office (FCO) said (21-page / 148KB PDF), though, that "access to data sources is a factor indicating market power that should be analysed in an overall assessment under competition law, particularly in the case of online platforms and networks".

The FCO outlined its views in a new report on the market power of platforms and networks.

"Many internet products are essentially based on data," the FCO said. "If such data are part or input of an internet offer, the exclusive control over specific data can represent a barrier to the market entry of competitors. This applies in particular if the market affected is characterised by indirect reciprocal network effects."

"Control over data per se is not an indication of market power. However, in an overall assessment of all circumstances this can play an important role. It must be examined on a case-by-case basis which data are collected, what is their relevance for competition in the market, whether they can be duplicated and which options are available to a business wishing to combine data from different sources," it said.

One aspect of competition law prohibits businesses that are dominant in a market from abusing their position of dominance.

In its paper the FCO said that looking at an online platform's share of a market is not "the most relevant factor" in determining whether the company enjoys market power. It said other "specifics" have to be considered as part of that assessment.

"These specifics are in particular: the relevance of direct and indirect network effects; the returns on scale; the prevailing types of use on the opposite market side (single-homing/multi-homing) and the degree of differentiation; the access to data; the innovation potential of digital markets," the FCO said. "Market shares are deliberately not treated as the most relevant factor in the overall assessment."

"When assessing market shares in platform or network cases one should take account of the general tendency of platform markets with pronounced indirect network effects and of networks with pronounced direct network effects to show high levels of concentration," it said. "In these markets in particular, high market shares are of less relevance for the assessment of market power than is usually the case. The reason for this can be found in the ambivalent (positive/negative) impact of network effects on competition, the fact that market processes are rather open-ended and the potential dynamics of the internet."

Plans are already in place to update Germany's merger control rules to account for changes in digital markets. The changes would allow competition authorities to intervene in more deals concerning the acquisition of innovative start-up businesses. The announcement by Germany's government followed a call last year by the country's advisory body on competition law for the merger control rules to be updated to better reflect the potential impact on competition where amalgamating businesses have access to vast sets of "commercially valuable data".

Earlier this year Munich-based competition law expert Michael Reich of Pinsent Masons, the law firm behind, highlighted the FCO's desire to protect smaller companies that are active in the internet economy. At the time he said the FCO "appears aware of the internet's potential to facilitate a quick and early concentration of power in markets, with immediate effects on competition".