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Digital Economy

Digitalisation is rapidly gaining weight across all industries and has triggered tremendous transformation processes, both for companies and consumers as well as for competition.

Digitale Wirtschaftsdecoret - Fotolia.com)

Digitalisation has revolutionised markets across all sectors of the economy. Innovative digital products and business models have created new challenges for competition policy and competition law enforcement. The Bundeskartellamt was quick to react to these developments and, in June 2016, published a working paper on the market power of platforms and networks which received a lot of attention. The authority has also already concluded several landmark proceedings in this area. In the international arena, the Bundeskartellamt is therefore one of the competition authorities at the forefront of antitrust enforcement and offers its expertise in the discussion of urgent economic and regulatory issues raised by the digital economy. Without a clear regulatory framework in this area it will be increasingly difficult for new market participants and small competitors to compete against the industry's big players and have the chance to develop pioneering innovations.

The legislator has also taken action in response to the challenges raised by the digital economy. The latest amendment to the German Competition Act, which entered into force in June 2017, has introduced new provisions relating to the digital economy. Germany is one of the first jurisdictions worldwide to have incorporated such provisions into competition law. In addition, the Bundeskartellamt has been given new competencies to conduct sector inquiries if there is a suspicion that consumer protection laws have been violated. These competencies have been granted in particular with a view to the digital economy where it only takes one illegal measure by a company to harm millions of consumers.

Competition in the digital economy

Digitalisation has brought profound changes to many industries. Fundamentally new business models have emerged: Search engines, price comparison websites, social networks and many business models of the sharing economy would not be feasible without digitalisation. At the same time, digitalisation is changing many traditional sectors, too. This creates new challenges for competition and for the Bundeskartellamt in its work as a competition law enforcement agency.

Digital markets typically have characteristics that are less prominent in traditional markets. Often, digital business models are operated as platforms or networks. A key feature of a platform is that it enables direct interaction between two user groups (e.g. between buyers and sellers or between advertisers and recipients). Networks, in turn, enable direct interaction between members of one and the same user group, for example the users of a social network.

Many digital markets show high levels of concentration and are dominated by a few big players. In particular the leading platforms have become hubs for all kinds of business transactions, ranging from communication and advertising via the brokerage of business deals to the direct distribution of goods. Data volumes handled via these platforms are constantly increasing. The possibility to collect and analyse user data (or, in other words, have access to data and data analysis techniques) therefore plays a much more significant role in these markets than in traditional markets. At the same time, many platforms offer their services free of charge to a user group but finance this through advertising. In public debate, this is often referred to as the 'everything for free' culture of the Internet which exerts pressure on traditional business models that are based on some form of monetary exchange. Last but not least, many digital markets are characterised by high levels of innovation and a market environment where business models and practices are constantly changing.

Monitoring activities by the Bundeskartellamt

Early on, the Bundeskartellamt has dedicated resources to tackle the issues raised by the digital economy. Among other measures, the Bundeskartellamt set up a "Think Tank" in early 2015 in which legal experts and economists study the latest economic research on platforms and networks and discuss how best to apply the results to antitrust case practice. With the help of the Think Tank the Bundeskartellamt aims to further develop existing examination concepts and, where necessary, develop new ones to enable the authority to quickly and efficiently assess cases involving the digital economy. The main focus of the Think Tank is on online platforms and networks.

In June 2016 the Bundeskartellamt published a working paper titled "Market Power of Platforms and Networks" which deals with the economic specifics of digital platforms and networks and their effects on market definition and the criteria used to assess market power. In another project, which it conducted jointly with the French competition authority Autorité de la concurrence, the Bundeskartellamt examined the consequences and challenges which the collection and use of data in the digital economy and other industrial sectors pose for competition authorities. The results have been published in a joint working paper "Competition Law and Data". The examination concepts are constantly reviewed and refined, based on experience made in case practice and information shared by internal and external expert groups.

The focus of the Bundeskartellamt's case work is two-fold: to keep markets open to promote innovation (thereby also promoting the growth of new or smaller competitors), and to effectively address the abuse of market power by large companies. In this context, abuse proceedings in particular are complex and challenging because they have to be conducted in a market environment where business models and practices are constantly changing. Nevertheless, the Bundeskartellamt has already successfully concluded a number of proceedings relating to the digital economy. Among these were abuse proceedings against hotel booking platforms and against restrictions on online sales, as well as several merger control proceedings examining mergers between Internet platforms (e.g. real estate portals and dating platforms).

A selection of cases can be found here:

Reform of the German Competition Act (9th Amendment)

The Bundeskartellamt's case practice and general policy work have shown that the existing competition law provisions need to be revised in some aspects in order to take account of the specifics of the digital economy. The Bundeskartellamt has made specific recommendations to this end which have been incorporated into the law with the 9th Amendment to the German Competition Act. The Act now clarifies that transactions where no monetary consideration is paid also constitute a market and can fall within the scope of competition law. Moreover, aspects that are critical for the market power of platforms and networks (such as network effects and access to data) have been introduced into the law as new criteria for market power.

Last but not least, the merger control thresholds have been revised to include a threshold that is based on transaction value (purchase price criterion). The previously applied turnover thresholds are not sufficient to cover all relevant mergers and acquisitions in the digital economy and other innovative sectors. The merger between Facebook and WhatsApp is a graphic example of the new acquisition types where high purchase prices are paid for companies which up to now have achieved little or hardly any turnover (but are of great potential value).

For further information on the amendment see also:

For more information on the topic see:

Series of Bundeskartellamt papers on "Competition and Consumer Protection in the Digital Economy":

Further publications:

Statements and interviews by the President (in English):

Statements and interviews by the President (in German):