On Thursday, EU Competition Commissioner Margrethe Vestager brought her third case against Google, this time against its advertising business. Netopia can only agree with the Commissioner’s conclusions that the internet giant abuses its dominant position in this and many other areas. Netopia also wishes Vestager success in her court cases. Regrettably, it will probably do little to make competition work better online, partly because of how the internet works and partly because of the Commission’s digital policies.
The online markets are different from traditional markets mainly because of the lack of friction. Where in other places, there are necessary physical restrictions to purchases, deliveries, quantities etc, online most of such restrictions are artificial rather than built in. You can only buy as many books as you can carry, but you can carry unlimited amounts of e-books, to take one example. This in combination with the so-called network effects – also known as Metcalfe’s law – that say that the value of the network is greater the more connections it has, and as a consequence the penalty for staying outside the network increases. Think of social media, if all your friends are on Facebook, you pay a social price if you stay out: fewer invitations, lost on inside jokes, out of tune with the gossip etc. This creates the winner-takes-all economics of the online markets. It makes a lot of sense to have one place for ad listings online. It makes little sense to have more than one. Runner-ups will have to focus on special niches or find a way to deliver a much better service. Competition between similar alternatives which is the rule in traditional markets, is the exception in online markets.
Once you are the top dog in an online market, there is nothing to stop you from making the most of that position which in most cases is the same as abuse of dominant position. Only a business run by a saint would take enough care to invite the competition. The challenge for competition law online then is to cope “downstream” with these effects that are consequences of how the markets are set up in the first place. Vestager’s Commissioner colleagues are not really helping to cope with this problem. One answer could be to think of “upstream” policies that limit the impact of the winner-takes-all-system, but in fact most of the current digital policy proposals go in the opposite direction. That’s right: Digital Single Market, Privacy Shield, portability of services, even net neutrality all serve to take away friction and thus support the niche monopolists. Add that the “follow-the-money”-principle on copyright infringement that European Commission has set out (which is a really good idea on paper – focusing on improving the system and going after commercial-scale infringers rather than consumer pirates) fails to include responsibilities for those who have the biggest stakes and the biggest powers – internet platforms and access providers – in the list of payment services, advertisers and hosting providers that should be required to take action, and the fellow Commissioners are not giving any upstream support to Vestager’s bold campaign. In order to get a better competitive online landscape, the European institutions are likely the only government function in the world that could have a tangible influence, but that would require a political vision beyond “de-regulate and there will be growth”. In want of that, we are left to give Vestager our sympathy and moral support, at least for the time being.
