Presentation delivered at the EUI in Florence during the FSR C&M, CMPF and FCP Annual Scientific Seminar on 'Competition, Regulation and Pluralism in the Online World' (22-23 March 2018).

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Competition Law and Online Platforms
Reflections on the market definition
Daniel Mandrescu LL.M March 2018
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Overview
1. Approach to the market definition – ‘how many markets ?’
2. The SSNIP test and zero pricing
3. Scope of the relevant market – perspectives of platform participants
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Introduction to online platforms
The rationale behind online platforms is to facilitate an interaction between two or more parties
more efficiently than the individual parties could do on their own and monetize this interaction
There is no definition of a platform but rather a list of characteristics that are mostly derived from
economic literature (network effects, multi-homing , skewed pricing schemes, etc.)
The commission’s definition of an online platform is: “ an undertaking operating in two (or multi)-sided markets,
which uses the Internet to enable interactions between two or more distinct but interdependent groups of users so
as to generate value for at least one of the groups”.
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Online platforms – features with competition law
relevance
ØDifferent and relatively new economic model: two- multi sided market model
ØExtremely skewed price schemes
ØZero pricing strategies
ØMarket dynamics are full of extremes due to network effects
ØIncreased transparency and online monitoring between competitors
Ø(Personal) data has become a determinant of competition and market power
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Online platforms and dominance
Dominance was defined in the context of Art. 102 case as:
Ø The ability to act to an appreciable extent independently from
competitors, customers and consumers
Ø The ability to increase prices above the competitive level for a
significant period of time
In essence it requires the existence of market power
The assessment of dominance entails two main steps
1. Relevant market definition
2. Market power measurement
In the case of online platforms both steps will require adjustments to
the economic model and characteristics of online platforms
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Market definition – how many markets?
The platform facilitates the interaction between two or more separate customer groups – do these all form part of the
same relevant product market or are separate markets required?
Bundeskartellamt approach:
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Consumer Platform Business Consumer Platform Business
Matching platform Audience providing/ advertisement platform
Two separate but related markets**
Two different products
One market*
Product is the interaction
Transaction / non-transaction

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Market definition (2)
ØDivision between matching platform and audience providing / advertisement platform does not fully fit in with
reality
ØMatching platforms can also be solely developed for advertisement purposes – price comparison platforms
ØPlatforms must expand in order to survive – hybrid models are very likely to arise
ØRather that division between the two types of platforms it is better to first look at type of interactions on the
platform from a functional perspective and later from a monetization/commercial perspective
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Function bundling
Expansion
strategies
Constellation

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Market definition (3)
Platform definition based on interaction typology
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Consumer Platform Business Consumer Platform Business
Bi or –multi lateral matching Unilateral matching
Two separate but related markets- one for each side of the
interaction ** à Two or more different products
Occurs when: only one of the customer groups are interested in
the matching interaction- indirect network effects are
unidirectional
One market for the interaction* à Product is the interaction
Occurs when: (1) mutual interest in the matching interaction –
indirect network effects are positive with regard to all the
parties to the interaction (2) demand interdependency with
each other and the platform (no obvious substitution)
Transaction / non-transaction

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Market definition – interaction
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Platform
MerchantConsumer
Marketplace / booking platform / crowd funding platform with display advertising
=
Online platform with bi-lateral matching + unilateral matching
Advertiser

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The SSNIP test and zero pricing
The relevant product market includes :
‘A relevant product market comprises all those products and/or services which are regarded as interchangeable or
substitutable by the consumer, by reason of the products' characteristics, their prices and their intended use’
Beyond this qualitative approach and direct evidence of substitution practice has come to relay greatly on the
SSNIP test
Problem
SSNIP test requires a positive price to be increased with 5-10% but platforms often are ‘free’ with regard to
some customer groups à a 5-10% increase of zero is still zero!
à going from a price of zero to a nominal price is not an option!
Solutions: adapting the price centered SSNIP test to a different test
SSNIC- increase in cost instead of price
SSNDQ- decease in quality instead of increase in price
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SSNIP test and zero pricing (2)
SSNIC- increase in cost instead of price
Attention costs : customers/ users are exposed to more advertisements they cannot skip (YouTube)
Information costs: customers / users are requires to provide (personal)data in order to participate on the platform (Uber)
Challenges :
v Attention is not an easily (or at all) measurable variable
vAttention costs can be the product of the platform itself
v Attention costs can be mitigated by improved targeting
vInformation costs are equally hard to measure:
vInformation cost often translate into product improvements
vBoth information and attention costs are cannot be tested in abstract as in the case of price increases
vThe concept of nominal increase in both instances remains is unclear
vRelies on the premise that platforms want to increase use of ads / require more data
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The SSNIP test and zero pricing (3)
SSNDQ- decease in quality instead of increase in price
Advantages:
v Quality has already be recognized as a criteria for competition
vA quality based test simulates precisely what customers/ users do when comparing free products or services
vQuality is a flexible concept which can be applied with regard to any product or service
vMethodologies have been developed to determine which qualities will be important to customers/ consumers with regard
to a product or service
Challenges:
vQuality is difficult to evaluate in an abstract manner unlike prices – experience may be required
vNeed to establish a legal procedure for how the selection of the tested quality occurs
vThe tested quality should be one that is profitable for the platform to decrease
vThe tested quality in the case of online platforms should be one that is determined by the platform- difficult to distinguish
v Reevaluating the concept of nominal change in quality – a degree of 25% seems to be the minimum (OECD rep.)
• Until the SSNDQ is legally legitimate market definition will have to ‘go back to basics’ à Google Shopping decision
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Scope of the relevant market- substitutability
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Platform
MerchantConsumer
Mutual matching with transaction possibility
Platform substitution
Per market substitution

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Scope of the relevant market- substitutability
Merchant users perspective:
• Participants that offer their products and / or serviced on the platforms the perceive the platform as sales channel
• From the perspective of these users substitutability for the platform may be rather limited due to the position of the
platform is the chain of supply
• The closer the ‘merchant’ is to the consumer the less alternative outlets it has
• Producer consumer Full control
• Producer retailer consumer
• Producer wholesaler retailer consumer
• Producer --------------platform -----------> consumer
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No transfer of ownership.
Only part of control transferred
Full control over price
Transfer of ownership
and/ or control in
each stage
Control on price lost!

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Scope of the relevant market- substitutability
• Consumer perspective
• Are online and offline alternatives interchangeable ?
Yes online – offline difference entails an external change to the product or service
No online – offline difference entails an integral change to the product or service
• Is the range of product / services categories the same?
Marketplace platform = department store
Online retailer = specialty store (with exception of very large retailers)
• Is the scope of offers with in each product / service category the same?
10 TVs vs 150 TVs
• Is the scope of offers with regard to each product the same?
price comparison function per product/ service
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Demand aggregation
character of the platform

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Questions?
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