Theories of Harm for Digital Mergers – OECD – June 2023 OECD discussion

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OECD Directorate for Financial and Enterprise Affairs

This presentation by the OECD Secretariat, was made during the discussion “Theories of Harm for Digital Mergers” held at the 140th meeting of the OECD Competition Committee on 16 June 2023. More papers and presentations on the topic can be found out at oe.cd/thdm.

Presentations & Public Speaking

Theories of Harm for
Digital Mergers
Competition Committee – 16 June 2023
Carolina Abate and Zoe Lyon
OECD Competition Division

• Digital – entities involved in the development
and deployment of digital technologies as
products and services on B-2-B and B-2-C
markets
• Focus on theories of harm:
– current practice
– proposed ‘new’ theories
– forward-looking challenges
1
Scope of Background Note

• Traditional theories (horizontal and
non-horizontal) widely applied
in digital mergers
• Data has been frequently considered both as an
input and for its potential to be combined
• Scope for theories to more comprehensively
capture certain digital market characteristics
2
Current practice

• Ecosystem effects – the potential for a merger to
impact markets beyond those the focus of the
merger and further entrench an ecosystem
• Non-price aspects of competition – particularly
the potential for privacy degradations and harms
to innovation
• Longer-run effects – the impact of a merger may
take longer to play out in digital markets
3
Proposed areas for greater focus

• A trade off: more novel theories of harm
= greater uncertainty
• Despite challenges, there is scope for, and utility
in, further adapting existing theories and
continuing to explore new theories
• Potentially more difficulty meeting legal tests
and a greater role for courts as final arbiters
4
Forward-looking challenges

This slide presentation reviews the much awaited 2019 report "Competition Policy for the Digital Era" written by Jacques Crémer, Yves de Montjoye and Heike Schweitzer. The report sets out a rich list of options for future EU competition policy in the digital sector. Given the close involvement of DG COMP in the fact finding process, it is likely that the report will make impact in decision making circles. This presentation critically reviews the main suggestions of the report, and tries to identify those items that are most likely to inform future EU competition policy evolutions.

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Digital Platforms: a practical framework for evaluating policy options, by Pieter Nooren (TNO), presented at the European Consumer and Competition Day, Amsterdam, April 18, 2016 The increasing economic and societal impact of digital platforms, such as Google, Apple, Uber, Airbnb and Netflix, raises a number of questions for policy makers. On the one hand, digital platforms offer efficiencies and opportunities for innovation. On the other hand, they challenge existing policy frameworks by disrupting markets. Concerns are raised about whether the current regulatory approaches and instruments suffice to promote and safeguard public interests. We suggest that policy makers should not focus on trying to define digital platforms but rather recognise that platform economics is only one element of a much broader set of characteristics of digital business models. Each business model is built on strategic choices in how it operationalises platform economics in order to exploit direct and indirect network effects. This choice is made together with strategic choices in other characteristics of the business model, such as how data is being used, what revenue model is applied, etc. Each of these characteristics can introduce a risk or opportunity for public interests. A policy that aims to address one particular public interest can easily affect the balance between the various business model characteristics and may have unintended effects on other public interests. It is therefore crucial to recognise the heterogeneous nature of digital platforms. In particular, one should stay away from attempts to force digital platforms into a single category, as the positive and negative impacts on public interests differ from case to case. We have developed a practical framework that provides structured guidance for policy makers when designing policies in the context of the digital economy. Our framework differs from other approaches in that we take the digital business models as the starting point for the analysis. The framework has been applied to a number of case studies in the European context. The framework consists of three pillars: 1. Platform characteristics capturing the various technical and business aspects of platforms, such as the revenue model (direct payment, advertising, revenue share), network effects, use of data (internal, external, curation/editorial control) and dependence of other companies on a platform. 2. Public interests categorized in four broad areas: competition and innovation, consumer interests, freedom from improper influence, and integrity and continuity of applications. 3. Policy options broadly divided in three categories: removing obsolete instruments, using existing instruments (stricter enforcement or tailor their application to the digital economy) and adopting new instruments.

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