Monday, March 15, 2021 - 16:42

THE COMPETITION CHALLENGES POSED BY A DIGITAL ECONOMY

Economics doyen Professor Massimo Motta weighs in.

Massimo

BY ASHUTOSH RAVIKRISHNAN

The merits and drawbacks of a fast-digitising economy are well-documented. But one area that has been less explored is the impact of digitalisation on the development of competition and antitrust regulations. Part of this stemmed from a belief that existing regulations were “flexible enough” to deal with new phenomena, opines respected economist Professor Massimo Motta of the Barcelona Graduate School of Economics.

“We did not see it coming,” he tells SAL, referring to the effect that digitalisation has had in relation to the application of competition law. “I think at the beginning we were affected by an arrogant attitude. We thought that this was just another sector and that antitrust rules have proven flexible enough to be able to deal with the novelties.” He candidly adds, “I include myself in the list of those who thought it was more or less business as usual.”

But the reality is that competition experts from the world over are now grappling with how to regulate the digital economy. One hotly discussed aspect is the issues that arise from the assessment of mergers in an era of digitalisation, as Prof Motta explains.

SAL: How differently will we start looking at mergers in this era of digitalisation?

Prof Motta: I think digital mergers pose a lot of challenges, in many respects. To start with, in industries where (direct or indirect) network effects matter a lot, firms often start monetising when they have already reached significant user bases.

This means that notification thresholds based on turnover do not allow antitrust agencies to even review many mergers. Then, there is the fact that these sectors are very dynamic and change quickly, implying that it is often difficult to assess the likely current and future competitive constraints in the markets at issue. Further, we know that these are markets often characterised by very high barriers to entry with some large digital platforms enjoying persistent dominant positions, but antitrust agencies often have a high standard of proof to block acquisitions by such platforms. The list of challenges could probably go on and on...

SAL: What are some additional tools that can be considered to tackle merger controls in the digital era?

Prof Motta: I think many jurisdictions require some legal changes. In the European Union, for instance, there is not even the opportunity for antitrust agencies to review many mergers, in particular those in which large platforms acquire potential competitors. This would require, for example, the obligation for companies with entrenched dominant positions to notify their mergers.

But this would not be enough unless the standard of proof to prohibit a merger is not as high as it is now. For instance, I am afraid that in cases of mergers with potential competitors, the case law so far would require the antitrust agency to show that there is more than 50% probability that the acquired company will become a competitor, and this would probably need to be supported by documentary evidence.

I think that in cases a dominant firm takes over another company, the burden of proof should be reversed, and a lower threshold should be accepted to block such mergers.

Prof Motta will be speaking at the Competition Law webinar series, jointly organised by the Singapore Academy of Law and the Competition and Consumer Commission of Singapore. There are three more sessions in the series, which covers topics like the impact of digitalisation and data on competition law, M&As, market definition and the enforcement of competition and consumer protection laws. Registrations are open now.

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