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Posted in Digital Single Market (EU) Winston Maxwell

DSM Watch: Commission official and industry experts discuss “problem-based” approach to platform regulation


Digital Europe‘s June 22, 2016 debate on platform regulation featured Anna Herold, Member of Cabinet of Commissioner Oettinger, Patrice Chazerand, Director, Digital Europe, Pieter Nooren, from the Dutch think tank TNO and Hogan Lovells partner Winston Maxwell.

Ms. Herold emphasized the “problem-based” approach to platform regulation put forward by the Commission’s recent communication on platforms, pointing out that a single horizontal regulation for platforms is not optimal given the diversity of business models and problems encountered. She pointed out that the Commission is looking more closely at the need for supplemental EU legislation on the B2B side, where there may be a gap at the EU level. The Commission is favouring self- and co-regulatory solutions wherever possible.  Ms. Herold said that the Commission is looking at Member State initiatives to regulate platforms, including the current French proposals.  While some of the substantive proposals are interesting, there is a risk of fragmentation of the internal market.

Patrice Chazerand commented that positions even within France are not uniform on the question of platform regulation, citing the example of the French Competition Authority that generally supports increased reliance on competition law.

Pieter Nooren described TNO’s highly-influential study on the regulation of platforms.  TNO’s model focuses on the characteristics of platforms (revenue model, network effects, etc.), the public interests at stake (competition, consumer protection) and the potential regulatory responses, including removing outdated regulatory instruments, increasing enforcement of existing measures, and/or creating new instruments.  Mr. Nooren emphasized that enforcing current regulation must be thought about differently, citing the example of food laws in The Netherlands.  How those food laws should be applied to a meal sharing platform requires a nuanced, risk-based, approach.

Winston Maxwell presented the white paper, that he and Thierry Pénard (Professor of Economics at the University of Rennes (France)) co-authored on the economic and legal rationale for regulating digital platforms. The white paper concludes that the economic effects of digital platforms are not fully understood, and that regulators should be cautious before enacting regulations specifically targeting them. In most cases, existing laws – consumer protection, competition and data protection regulations — are sufficient to address market failures.

Digital platforms are multifaceted, in some cases representing business models, in other cases technological platforms or enablers of other services. The very definition of what is a digital platform is fraught with difficulties making the creation of specific regulations perilous. The complexities of multisided markets make the diagnosis of market failures particularly difficult.  As pointed out in a recent paper published by the French and U.K. competition authorities, both open and closed digital ecosystems can create pro-competitive and anti-competitive effects.  No single model maximizes social welfare in all situations.  Because of network effects, the emergence of a relatively small number of generalist platforms, coexisting with multiple niche platforms, may in fact be efficient.  As pointed out by the economist Howard Shelanski, policymakers need to be wary of false positives, i.e. concluding too hastily that certain new digital business models are anti-competitive and require a regulatory fix.

The white paper notes that existing consumer protection, competition and data protection laws already apply fully to digital platforms, and that a number of digital platforms have been sanctioned under those existing laws. The paper underlines that under OECD and European Commission “better regulation” methodology, a full regulatory impact assessment must precede any new regulatory proposal and that as part of that regulatory impact assessment policymakers must take a sober look at what market failures actually exist and whether those failures are likely to persist in the absence of specific new rules. Regulatory approaches must be technologically neutral and should not penalize particular new business models in the absence of clear evidence that those business models harm consumers.

Finally, the white paper explains why telecommunication regulation cannot be used as an analogy to create new regulations for digital platforms. Telecommunication regulation was created in order to respond to a particular problem raised by the transition from government-owned monopolies to competition, and the presence of network infrastructure that is necessary for competitors to enter the market and that would be impossible to duplicate.  This kind of essential facilities argument cannot be extended to digital platforms, where barriers to entry are lower, and technological innovation and market evolutions make disruption likely.