Antimpnopoly regulation is lagging behind the Internet technologies

26 september 2016

The development of payment systems, online auctions, the Internet search engines, operating systems, video games is creating a lot of new challenges for legislators and state authorities that enforce the laws. Experts of the Analytical Center studied the international practices of antimonopoly regulation in bilateral markets and considered some controversial issues surrounding the application of antimonopoly regulation, having analyzed the cases of some foreign antimonopoly bodies. The findings of the study prompted the Analytical Center to publish a new bulletin on the development of competition.

The emergence of new forms of business organizations and new sectors in the economy means that state policy should be adequately applied in these new sectors, especially when it comes to the competition policy. Information technology markets are creating new challenges and new problems for regulators, manufacturers, distributors, and customers alike. A key aspect of the competition between technology companies is innovations, experts insist. "What really sets IT markets apart from the more traditional markets in terms of the enforcement of antimonopoly regulations, is that IT markets evolve very fast with the emergency of new sectors on an on-going basis and significant network effects on the demand side," the analysts write in the bulletin. Nevertheless, the experts are confident that fundamental principles of antimonopoly policy are quite applicable to the new sectors.

What are these new types of markets? They include mass media where a TV channel or a publication is used as a platform for interaction between viewers (readers) and advertisers; video games where the developers and the players interact; on-line auctions that bring buyers and sellers together, etc. Recruitment centers, auction houses, real estate brokerage services, securities trading solutions act as platforms. Unlike the traditional middleman type organizations, the  platforms facilitate direct interaction between groups of users.

Legislation is failing to keep up with the fast-paced development of technologies and emergence of new relationships that are coming into existence thanks to the Internet services. There is a problem with checking the quality of goods and services offered through online platforms. The issue of privacy is becoming more and more relevant, especially the privacy of the users of various online platforms that can be regarded as bilateral markets. The features of bilateral markets create certain constraints and demand new approaches with regards to economic analysis of how to best use antitrust laws: from identifying markets to identifying their participants as well as identifying barriers for entry and grounds for deciding on the nature of behavior of the market participants  that control the platform services.

Bilateral platforms minimize transactional costs and facilitate direct interaction between organizations, but at the same time they impose certain restrictions and new approaches are needed in terms of antimonopoly analysis – starting from market identification to possible collusion revelation, the analysts explain. In this context the issue of application of Procedure-220 for the entire range of market analysis stages with regard to bilateral markets becomes especially relevant. "All the research stages required by Procedure-220 should take into account the specificity of bilateral markets when analyzing them: the market boundaries must be identified for two groups of purchasers, the replaceability of goods must be established for both groups of users and when the market volume is determined, transactions with both groups of users must be taken into account, plus when the barriers to entry are being assessed, objective structural barriers and cost of entry must be looked at for new users," the experts explain.

The experts note that bilateral markets are for the most part ignored in legal literature and antimonopoly agencies do not provide any clarifications either. And analysis of the way bilateral markets have been handled by the EU Competition Commission, the US, the Netherlands, and Australia hasn’t found any clear criteria for determining whether a seller is in violation of the antimonopoly law or not.

For more see the bulletin on Antimonopoly Regulation of Bilateral Markets: Problem Definition

For other competition development bulletins see Publications.