Category Archives: Antitrust and Technology Markets

25 July 2017
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Antitrust and Technology Markets

Your guide to the Google Shopping decision

The Google Shopping case has shaken the competition law community to its core. Here is your guide to what the Commission has disclosed and what influential commentators have had to say about it.

First, let’s deal with the information that has come out of the Commission. The case concerns a leveraging of dominance from the search engine market to price-comparison services. Regarding dominance, the Commission relies on high market shares in all EEA markets (mostly of 90 percent) and on indirect network effects as the main barrier to entry (the more users who use Google’s browser the more attractive it is for advertisers and the more data Google has to improve search results and targeted advertising).

The comparison-shopping market, where the harm is alleged to have occurred, has been separated from merchant websites such as eBay and Amazon. The main difference is that comparison sites do not offer the option to buy the product of interest as the two mentioned companies do. In any case, the Commission argues that if one includes merchant platforms, Google’s conduct has caused harm in a substantial part of this joint market.

Now to the more complex point. The ruling on the conduct has been described by the Commission, in my opinion, in very confusing terms. The Commission insists that it is not meddling with how Google designs its results page or writes its algorithm. The conduct, however, concerns precisely how the company presents its own comparison-shopping results (at the top of the page with pictures of the products and their price) as well as the demotion of competitor services. The issue here is indeed the product design.

Regarding the harm in the market, the Commission states it has evidence that traffic to rival comparison sites has decreased significantly and that this can be traced directly to the demotion to subsequent pages of the results.

The commentary on the decision has concentrated on the harm part and the conduct. Some do argue that Google’s dominance is overstated but the harshest criticism has been directed at the conduct-harm analysis of the Commission. I will give you a review on five articles written by the following five influential commentators: Alfonso Lamadrid, Nicolas Petit, Alden Abbott, Geoffrey Manne, and Pinar Akman. As you will see, my conclusion will be in most cases that we have to wait to see the decision to make a final judgment on the merits of the case. It might not be the most exciting assertion but I think is the more sensible one. Let me explain to you why.

Product improvement or exclusionary conduct?

One of the arguments made in all the articles is that we are in the presence of a product improvement that the Commission has wrongly labeled as anticompetitive. Nicolas Petit used a more cautious language, though. I do agree that the universal search results, as the informative boxes in the results page are called, cannot be considered harmful to consumers. They provide valuable information in an improved format. The mentioned articles, however, overlook at least two important points. First, the boxes could include non-proprietary information, that is, content from other comparison-shopping sites. If such content is more relevant, then there could be harm to consumers if Google systematically favors its content. Second, the conduct that has been punished, as stated by the Commission, is not only the display of the box but also the simultaneous demotion of competing websites to the fourth page in the search results. This second part has been completely bypassed by the mentioned articles. It will be an important issue to make an assessment of the decision. There could be one hundred thousand business justifications for the demotions so I guess we’ll have to wait and see what the decision and Google said in more detail about it.

In this respect Pinar Akman makes a slight distinction. She argues that Google’s favoring of its own content in the universal search results (the box) can be seen as advertisement of its own products, which then makes the Commission decision incomprehensible. This is perhaps one of the best business justifications that Google could offer. However, one weakness of this argument is that across categories of queries Google does use third party content in the box—content from Wikipedia, for example.

Lots and lots of choices

Another popular criticism of the decision is that consumers have lots of choices when it comes to this type of content (comparing product prices). That is certainly true. Consumers can compare prices not only on the websites that Google allegedly excluded but also on Amazon and eBay, who in addition offer the option of buying the product through their own website (which may arguably make them a better choice than googling the product). All the scholars mentioned before make this point. What they do not address is the Commission’s statement that even taking these choices into account Google has significantly distorted competition because comparison-shopping websites are still closer competitors in the relevant market that was defined. My guess is that no one commented on this because everyone considers it a wild assertion.

What I would have to see to make an assessment is data on how consumers look for product information. The main issue would be to see if they favor comparison-shopping sites, and whether these are mainly reached through search engines (where Google is alleged to be dominant). Geoffrey Manne points that in the US more than half of product searches start at Amazon. If that were the case in the EU as well, then the Commission’s position would be weaker. We will have to wait and see the information on which the Commission based its conclusions.

No duty to cooperate with rivals

A related point to the previous two is that if Google is not the only or most important choice for consumers, then there is no duty to cooperate with rivals. The Commission’s argument is that the company has to apply the same algorithm to its own content, even when it chooses what to display in the box. Lamadrid argues that since Google has not been labeled as an essential facility, such an obligation is unwarranted for. He uses a supermarket analogy to portrait how, in his view, the Commission’s decision makes little sense. One should not expect a grocery store to not treat its proprietary brands favorably over those of competitors and such a conduct does not harm competition because consumers can go somewhere else. Abbott uses the same analogy. What both miss is the inadequacy of comparing a supermarket with a search engine. The latter is a multi-sided platform to which different economic principles apply in order to establish dominance. Google has different incentives in promoting its own content than a supermarket does in placing its own brands on a strategic shelf position. The latter makes some profit when it sells other brands. Google does not make a cent when providing a user with product-price information. Google’s interest is in increasing its traffic to monetize the other sides of the market (vendors who may be charged a fee per click on the product or advertisers who wish to target a given audience).

Although the supermarket analogy is wrong, what is still true is that the Commission has omitted the use of the term essential facility. That makes the case, as Lamadrid points out, unprecedented. As a matter of EU law this makes the Commission’s position peculiar but is not, in my view, fatal to it. From an exclusively EU law perspective the case is, as Petit points out, on strong grounds because the standard for exclusion is too low. As a matter of economic policy, the law as well as the case may be wrong. This point is closely related to the conclusion I reached in the previous point regarding the choices consumers have. If the Commission failed to prove harm beyond the exclusion of a small group of firms then it might have caused a great deal of harm from a consumer-welfare perspective. Receiving a pat on the back from the General Court and the Court of Justice would not change that.

Hard to trace rival’s traffic loss to Google’s conduct

One point that Pinar Akman and Alfonso Lamadrid make in their respective articles is that it is hard to trace the loss of traffic from the affected comparison-shopping sites to Google’s conduct. In addition, they argue that there are more plausible explanations for that (for example, changes in consumer preferences). Although it is true that there may be many reasons why these websites experienced fewer visits, there are statistical tools that can be used to elucidate the causal flow. The Commission may have had all the information it needed at its disposal to make such an inference. We’ll know this in due time.

The fine

It is the factor that has come as the biggest surprise. As Lamadrid and Petit point out in their articles, the Commission attempted to settle in the past, which implies a consideration that the case was not eligible for a fine (recital 13 of Regulation 1/2003). Both of them put too much weight on this consideration. First, the recital does not prohibit the Commission from pursuing the case if a settlement cannot be reached. It is a longshot, at best, to argue that once the Commission attempts to solve the case via commitments it falls into a trap. What kind of leverage would it have in negotiating if the prospect of a future fine is removed from the picture? As Jones and Sufrin point out, on the other side of the coin, the Commission has accepted commitments when the allegations concerned serious violations to article 102 of the TFEU.[1]

As an additional point of surprise, Akman points out that the decision goes against previous practice. The Commission does not usually impose a fine when it is unfamiliar with the conduct. As a matter of law this is of no relevance. As a matter of policy it might be the sensible approach and it is indeed surprising that the Commission decided to set a world record under such circumstances and in a market where the existence of such a magnitude of harm does sound a bit odd. 2.4 billion euros is a lot of money. I am looking forward to see where this magic number came from.

Google is one of the most innovative companies on earth

Akman and Petit point out that Google has the 4th largest R&D expenditure in the world. From a legal perspective, it doesn’t matter how good a monopoly is if it indeed committed a competition law violation. From an economic policy perspective it is of some importance only if the fines and order have the ability to reduce Google’s incentives to innovate. In the case at hand, this could be true if indeed the decision sends the wrong signal, even if it is in accordance with EU case law. If there is not enough evidence in the decision to support the competitive harm, for example, then companies in the EU will be left under an uncertainty cloud. Google may have technical reasons to prefer its own content where comparison-shopping is concerned, and if the Commission did not give them due weight, innovation in Internet platforms may indeed be affected.

Conclusions 

The commentary that I have analyzed has some good criticism of the Commission decision, at least based on what has been disclosed so far. However, it cannot be stressed enough that we can only make our final judgment once the decision itself is published. The main point will be that of harm. It is difficult, though not impossible, to prove that Google’s conduct is indeed welfare reducing, as Geoffrey Maine has pointed out in his criticism to a study regarding other types of search queries (local coffee shops). Other than that, I have nothing more to say than I am looking very much forward to see the decision in full.

[1] Jones, A. & Sufrin B. (2014). EU Competition Law: Text, Cases, and Materials, p. 982. Oxford University Press.

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1 June 2017
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Antitrust and Technology Markets, Development and Antitrust Law

Concrete Antitrust Economics

By Francisco Beneke*

Last week I read a book called Concrete Economics by two Berkeley professors, Stephen Cohen and Bradford DeLong. The general theme of the book is simple and straightforward: economic policy redesign throughout US history has been successful to the extent that it has been pragmatic, not based on abstract theories of how markets behave but on concrete thinking of what the economy needed. The authors argue that it had been that way until the last redesign of the 1980s when ideology prevailed and nobody had a good idea about the supposed benefits of moving the US away from manufacturing and toward what were believed to be higher value-added activities (finance, insurance, and real estate).

The point applies to the debate on some issues in antitrust analysis. Competition policy can take many shapes within the same country during different periods of times, as in the US, and also differ to a significant degree across important jurisdictions––say, the EU, US and China. The discussion of what is the right approach turns sometimes ideological. Take the debate surrounding digital markets for example. Some people advocate for a loose stance on big tech companies because of the fragility of their position. Google’s competition is one click away and Facebook took the field that was already dominated by other social networks. We can describe a position to be ideological if it’s based on a myopic view of the facts. What about the companies’ jaw-dropping share in online-advertising or the fact that true challengers only appear to succeed in certain niche markets? (think of the success of Snapchat with teenagers in the US). Some commentators like to oversimplify the discussion and throw general arguments such as that intervention dampens innovation. If only things were so simple. The question we should ask is which specific type of intervention we are talking about in order to make an educated guess on the effects we may expect to see.

Another topic on which the debate is highly ideological concerns my main area of research: do we need to adjust competition policy and analysis to the different characteristics and needs of developing countries? A big point of the discussion is about keeping consumer welfare as the north of the compass and ditch other considerations that would make antitrust an instrument of industrial policy. There are good points on both sides, and I must confess that my own research does not depart from the consumer welfare paradigm. What is certainly true is that purists, as professor Ariel Ezrachi calls them, claim a higher intellectual ground. Theirs is the economic approach. In that way, the debate turns ideological too.

There are good questions to ask around the purpose of competition policy in countries ridden with poverty and weak institutions. They are not populist and they are grounded in economic concepts. The desirability of focusing on consumer welfare rests on assumptions that look shaky, to say the least, in the case of developing countries. One such assumption is the flexibility of the workforce. If imports take a market by storm, the displaced workers will have a harder time being relocated to new activities because of their lower average education and skills development. Does that mean that developing countries should close their borders to imports? The point of this post and the book I read is that this is the wrong question to ask. It sounds ideological, not concrete because it is formulated too generally.

Concrete Economics has some important lessons for moving away from this ideology trap. First, in applying the book’s approach to tech markets or adjusting competition policy to unique economic and social contexts requires us to borrow some techniques from the medical profession. We can’t prescribe a treatment without a diagnosis (a point advocated by Jeffrey Sachs in his book “The End of Poverty: Economic Possibilities of Our Time”). That means not only compiling information but the right kind of it. Second, we have to paint a clear picture of the results that we are aiming for––in the authors’ words, what you see is what you get. And third, Cohen and DeLong favor a pragmatic approach of trying the policies that seem to have the best chance of succeeding, observing their results, ditching what does not work and keeping what does. This is what they argue happened during Franklin Roosevelt’s administration amid the Great Depression.

Granted, all of this is easier said than done, but worth the effort. A good start is asking the right questions. In the case of developing countries, for example, an important one is the following: what are the most pressing matters for the well being of the population and on which competition policy can make a significant contribution? Poor countries have an urgent need of education reform, but it is hard for me to picture a way in which antitrust can have a significant impact on the subject. On the other hand, vital infrastructure such as energy and telecommunications have important competition components that determine their coverage rate. Finally, we should come up with good evaluation methods––a practice that is scarce in competition policy––to be able to see what works and what doesn’t. As Cohen and DeLong admit, no one has the right formula, but that does not mean that we should not do anything.

Co-editor, Developing World Antitrust

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9 May 2017
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Antitrust and Technology Markets

Network Effects and the Assessment of Market Power in the Sharing Economy

By Francisco Beneke*

You may have heard of unicorns and venture capital in the Silicon Valley. Unicorns are startup companies that have not generated a single cent in revenue but are able to marshal multimillion-dollar amounts of capital from investors and cross the one-billion-dollar threshold in market value. Why? Their potential, of course. Venture capital firms don’t want to miss on the next Facebook. But in what exactly does this potential consist? In the particular case of platforms like the one just mentioned, the hope of the investors is that the company will have an exponential growth in consumers and providers, which in itself will make the product more attractive to other buyers and sellers, which in turn generates a virtuous circle in the company’s growth. That is, investors covet companies that can generate network effects or demand-side economies of scale, which enable them not only to monetize customers but also to get their hands on the data they generate.

In some markets, sharing economy platforms like Uber and Airbnb have grown so much that they are attracting lawsuits of abuse of dominance. That is, plaintiffs consider that these firms have become the main players in their markets. If these companies have already generated a critical mass of providers and customers, their position may be entrenched just for the fact that they are big. Providers will choose a given platform because the potential demand is bigger and customers will rather buy services through it because there are more options (in the case of Uber, for example, more drivers means shorter wait times and wider geographical coverage for passengers within a city).

There is much to be said about network effects and market contestability. However, I will focus just on one aspect. An important point in the case of sharing economy platforms is the geographical scope of these effects.[1] More Lyft drivers in San Francisco mean nothing to a customer in Munich. More Airbnb listings, on the other hand, are a different story.

You may have already guessed the direction of the argument in this post. The global (or at least transnational) character of Airbnb’s network effects makes it a more powerful company against its competitors than Uber. The battle for passengers is fought city by city, which means that companies have to attain a lower critical mass of consumers and providers to contest Uber or Lyft’s foothold. There can still be, to a certain extent, an international component in ride-hailing apps’ network effects. A part of their demand is composed of tourists. However, if we expect the bulk of passengers to be city residents then network effects will tend to be more local.  If any of these companies is being scrutinized for monopolization/abuse of dominance, this factor has to be taken into account.

That is not the same as saying that the geographical location of the market has to be correctly assessed. I’ll give you an example. If you are analyzing a short-term accommodation market you may define the relevant geographical dimension as that of a city. The company in question, however, may have a global reach, which makes it likelier that a tourist or a business traveler will use its platform to search for a place to stay.

I admit that network effects are a complicated issue from an antitrust perspective. The source of concern is something that benefits consumers in the first place. If the platform is attractive, among other things, because of its size, then all the better for it. That should lead to view mergers in any such markets with less suspicion, right? My bet is that it will not be that way except in the cases when national champions, like Didi in China, buy foreign threats, like Uber.

*Co-editor, Developing World Antitrust

[1] Sundararajan, A. (2016). The Sharing Economy–The End of Employment and the Rise of Crowd-Based Capitalism, p. 20. Cambridge, MA: MIT Press.

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30 April 2017
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Antitrust and Technology Markets

3D printing and the future of sunk costs in antitrust analysis

By Francisco Beneke*

I have heard about 3D printing before but never thought about its antitrust implications until now. After having a revelation-like moment, I decided to write a short post. I did some research (googled and did not go beyond the first results page, I confess) on this relationship but could not find much. Let me share what I think my revelation is.

Some futurists predict that 3D printing will soon take manufacturing industries by storm. What is so fundamentally disruptive about this technology is that it allows the same machine to manufacture/print all kinds of different products. As the technology evolves and we are able to print more and more goods instead of producing them in traditional factories, manufacturing across industries will be performed by machinery that is not market- or firm-specific. That means, sunk costs in physical assets will stop being a consideration.

If the same machine can print toothbrushes, glasses, shoes, and furniture, the risk of entering this activities will disappear and in theory we should see more competitive markets. 3D printing is already used in the production of auto and spacecraft parts and there have even been instances of house printing. In addition, this multi-purpose technology will free up resources to invest in other activities within the firm. We may see a lot more (or better) advertising, more R&D investment, or both.

According to Arun Sundararajan of NYU, in the future, we may see the average household owning a 3D printer that can print any type of physical product of a small enough size and printer shops for bigger, more complex goods. We will buy designs from a freelancer but we will have no more need of big factories and retail chains. This will be a world with easy hit-and-run entry and exit in almost all economic activities. A brave new world.

*Co-editor, Developing World Antitrust

@Paco_Beneke

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19 August 2016
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Antitrust and Technology Markets

Market Definition and the Sharing Economy

By Carmen Ortiz*

Introduction

Technology enabled the flourishing of the sharing economy both in developed and in developing countries.[i] It is characterized as an innovative system of collaboration between peers through an online platform accessed through smartphones.[ii] Services, goods, spaces, and others that are in surplus are offered for lease or sale at reduced transaction costs. Thus, the sharing economy boosts competition while generating different effects for the groups affected. For one part, consumers benefit with the access to new products and services, lower prices and non price benefits. For the other part, traditional firms face new threats by suppliers that compete aggressively to reduce the revenues and the market shares of incumbents. This novel model of commerce motivates for an analysis that determines the extent to which competition authorities in developed and developing countries should include the sharing economy activities in the relevant markets (RM) for traditional products and services.

The inclusion or exclusion of sharing economy activities could widen or narrow traditional RM and this can produce several consequences that influence the efforts of competition authorities in their aim to protect competition. First, the analysis of market power may be influenced by identifying more or less competitive constraints in the commercial behaviour of an undertaking. Second, regarding merger control, if sharing economy firms participate in the same RM of traditional firms, mergers between them would be analysed as horizontal (for example, where traditional firms could acquire sharing economy start ups to eliminate competitors). Third, referring to abuses of dominance, traditional firms could independently or collectively exclude sharing economy suppliers by raising barriers to entry. Moreover, a cartel between traditional firms might be obstructed if sharing economy competitors are successful disruptors of collusion. For all these reasons it is important to set a framework for definition of RM that can adapt to cases where this model of commerce is present.

New and expanding competitive constraints by sharing economy suppliers can change the current structure of traditional markets. Real world cases of this model of commerce are Uber and Airbnb, which exert competitive pressures on traditional rivals. For example, Uber fares in Stockholm can be up to 60% lower than traditional taxi fares.[iii] Non price benefits for consumers include less congestion, less delays and less time lost in traffic, all of which increase the demand for the service. Regarding Airbnb, in Texas, its growth of by 10% results in decreases of 0.37% in monthly hotel revenues.[iv] In the period of 2010 to 2015 the occupancy rates of traditional hotels have decreased from 8-10% in the areas where Airbnb has more demand.[v] These firms will serve as examples for the development of this proposal.

Framework for defining RM when the sharing economy is present

For the purpose of suggesting a framework for the definition of RM, the EU antitrust jurisdiction will be taken as a base as it is a leading regime that can be taken as a guide or as a point of comparison for other jurisdictions. The first step in this framework is to embrace the objective and the concept of RM. In the EU, the objective of defining the markets is to establish which undertakings constrain others from behaving freely in absence of competition.[vi] The basic concept of RM encompasses a product and a geographic dimension, and these will remain as the building blocks of this proposal.[vii]

Second, the undertakings that could supply the products or services that form part of the RM must be defined.[viii] In this stage, the focus is directed to the economic activity of the entities.[ix] In the special case of the sharing economy, two economic activities must be distinguished: a) online platform’s intermediation of supply and demand and, b) the supply of products and services. The specific characteristics of the relationship between the owner of the platform for intermediation and the suppliers of the services are decisive to determine whether they together form a single undertaking or independent undertakings. Lougher and Kalmanowicz sustain that if the firm providing intermediation also influences the conditions of the offer it could be determined that there is a single undertaking performing both activities. This posture is also accepted outside the EU, for example, in Australia.[x] For example, Uber sets requirements for the driver, the car and for the mode of operation. According to Lougher and Kalmanowicz, the exam must consider the contractual conditions, whether or not the suppliers are independent from the platform, if they bear risks, if they are employees or agents, among others.

Third, once the firms have been identified, the competitive constraints that they encounter should be established. Firms can face constraints as demand substitutability, supply substitutability and potential competition.[xi] Special considerations for each of these constraints are required in the markets where the sharing economy is present. On one hand, demand substitutability significantly determines market definition. The whole purpose of market definition is to determine which are the substitute products or suppliers to which customers can switch. Demand substitutability may refer to the prices, characteristics and the intended use of the products. For the EU Commission, the decisive criteria is the consumer’s reaction to prices as it considers that product characteristics and intended use are insufficient to reveal demand substitutability.[xii] Nonetheless, consumers of the sharing economy have revealed that they prefer it for its convenience.[xiii] Therefore, this framework suggests that the analysis should be flexible enough to take into account the consumer’s reaction to prices and also the product’s characteristics and intended use as they are motifs of convenience. The evidence of marginal consumers switching for reasons as price or convenience to the sharing economy products and services and making the price increase in traditional products unprofitable allows the inclusion of those products and services into the traditional RM.

For example, to test consumers’ reactions to prices the EU Commission’s Notice refers to a hypothetical monopolist and whether its “customers would switch to readily available substitutes or to suppliers located elsewhere in response to a hypothetical small (in the range 5 % to 10 %) but permanent relative price increase in the products and areas being considered”.[xiv] In the case of Uber, the test will reveal if the referred increase in prices of traditional taxi services would be unprofitable because Uber exerts sufficient competitive constraints that enable customers to switch to it. If yes, Uber should be included in the product market. For defining the geographic market, the question is to which other areas of Uber service would costumers switch “in the short term and at negligible cost” in reaction to the referred fare increase.[xv] Those areas that are alternatives for consumers should be included in the relevant geographic market. In synthesis, this is the extent to which Uber services could be included in the RM of traditional taxi services. It is interesting to note that it has been argued that because the sharing platforms are not direct substitutes of traditional products and services and because they cannot fulfill the demand, they should not be considered competitors (see Oxera Compelling Economics article). This proposal disagrees with such point of view. The reason is that the inclusion of a product in a relevant market relies on whether that product exerts sufficient competitive constraints in the other products to the point that their price increases are not profitable, not whether that product is able to fulfill the total demand or whether it is exactly the same in terms of characteristics.

Evidence in support of the inclusion of the sharing economy in the traditional market definitions could include the substitution on the recent past,[xvi] empirical data of quantities demanded and its impact on the traditional offer, good brand reputation that attracts the preference and loyalty of consumers,[xvii] convenience (accessibility, trust), the legal treatment by authorities of the product forming part of the traditional supply,[xviii] among others.

Regarding Airbnb, a similar methodology applies. Unprofitability after the mentioned price increase in hotel rooms in a given area will reveal if Airbnb exerts sufficient competitive pressures that allow its inclusion in the traditional RM of accommodation services. Past substitution, comparisons of the room capacity of hotels versus the growing supply of Airbnb,[xix] the impact of Airbnb on hotel’s revenues, uniqueness of Airbnb service, consumer’s preferences, could all constitute evidence that supports demand substitutability.[xx]

Once it has been established that the sharing economy activities exert sufficient competitive pressures to make unprofitable the price increases of traditional services, it must be ascertained which specific activities will be included in the definition of RM. The activities could be the intermediation platform and the supply, which could be considered independently or jointly in the exam of substitutability. It will all depend on the closeness and interdependence between those activities. If they are independent from each other, only be the products or services that exert competitive pressures on traditional products or services will be tested. If they are close enough to constitute one single activity, the intermediation and its underlying supply should be tested as a whole.[xxi] Even when it has been acknowledge that the “sharing economy platforms are generally active on the relevant product market for the intermediation of the relevant underlying supply”,[xxii] this is a situation that must be determined case by case.

On the other hand, regarding supply substitution and potential competition, the sharing economy involves a significant and constant competitive threat. In the scenario of the sharing economy, consumers with surplus of space, products and time, can easily become suppliers of more than one product or service depending on the surplus they possess over them and this way they can compete with traditional firms.[xxiii] This could happen in response to small and permanent changes in relative prices of traditional products and services which represent potential sources of income for new suppliers.[xxiv] The presence of sharing economy suppliers that compete for the customers of the traditional firms is an element that supports the inclusion of that specific sharing economy in the traditional RM.

Finally, regarding barriers to entry, these could take the form of legal, cultural, social and economic barriers that could weaken or obstruct the pressure exerted by the sharing economy on traditional businesses.[xxv] Legal barriers were raised with the French Constitutional Court banning Uber services (See article by Reuters). Moreover, Uber has closed operations in Frankfurt, Hamburg and Düsseldorf in response to a Court ban (See article by Lomas, N). Cultural barriers might arise when local custom, traditions and values are not relaxed enough as to allow its members to interact with strangers that offer services through the sharing economy. Social barriers might be the political instability, insecurity and violence in the society that could demotivate consumers from being exposed to the risks associated with the offer of the sharing economy (for example, unpredictability of trusting a stranger). Economic barriers could referr to the lack of resources to fund publicity and marketing for a sharing economy product or service. All of the mentioned barriers must be considered for the definition of relevant markets as they prevent consumers from switching their demand towards sharing economy substitutes.

Conclusion

Technology, consumer preference, strong brand reputation and the possibility of an ever growing supply provide the sharing economy with a high potential of growth within many sectors of the economy. The assessment of its inclusion on traditional RMs is essential for the protection of competition and innovation in developed and in developing countries. The assessment must be case and context specific as every industry has different structure and conditions. Moreover, barriers to entry specific to each national context might prevent the sharing economy from being a competitive constraint. For these reasons, there cannot be a one size fits all answer to whether the sharing economy activities should be included or not into the traditional relevant markets. In some cases, some analysis will result positive for its inclusion while in others, negative.

*LLM in International Competition Law and Policy, University of Glasgow, School of Law, Scotland, United Kingdom. Candidate for the LLM in Law and Economics, University of Utrecht, Netherlands. Head of the Mergers Control Unit in Superintendencia de Competencia, El Salvador, from January 2012 to August 2015.

Bibliography

Reports and Market Studies

Australian Competition and Consumer Commission, “The sharing economy and the Competition and Consumer Act”, 2015, available at: “https://www.accc.gov.au/system/files/Sharing%20Economy%20-%20Deloitte%20Report%20-%202015.pdf

Stefansdotter, A., Utfall Danielsson, C., Kastberg Nielsen, C., Rytter Sunesen, E. (2015) “Economic benefits of peer- to-peer transport services”, Copenhagen Economics, Stockholm. Available at: https://www.google.nl/search?client=safari&rls=en&q=Copenhagen+Economics+(2015),+%E2%80%98Economic+benefits+of+peer-to-peer+transport+services%E2%80%99,+25+August.&ie=UTF-8&oe=UTF-8&gfe_rd=cr&ei=1oePVuPECYim8wfcoLbwDA

Notices

Commission Notice on the definition of relevant market for the purposes of Community competition law (97/C 372/03)

Notice 07/14 of the Transport for London – Taxi and Private Hire, available: http://content.tfl.gov.uk/07-14-taxi-and-private-hire-smartphone-apps-in-london-letter-to-drivers.pdf

Decisions

Hofner and Elser v Macrotron GmbH (Case C-41/90) [1991] ECR I-1979

Google/DoubleClick (Case COMP/M.4731) Commission Decision [2008] OJ C 184

Microsoft/Yahoo! Search Business (Case COMP/M.5727)

Articles and News

Lomas, N. (2015), “Uber Pulls Out Of Three German Cities After Court Ban Shrinks Driver Pool”, TechCrucnh, available at: http://techcrunch.com/2015/11/02/uber-retrenches-in-germany/#.prbkyj5:RjYZ

Lougher, G. and Kalmanowicz, S. (2015), “EU Competition Law in the Sharing Economy”, Journal of European Competition Law, available at: http://jeclap.oxfordjournals.org.proxy.library.uu.nl/content/early/2015/12/10/jeclap.lpv086.full.pdf+html

Oxera Compelling Economics, (2015) “A fair share? The economics of the sharing economy”. Available at: http://www.oxera.com/Latest-Thinking/Agenda/2015/A-fair-share-The-economics-of-the-sharing-economy.aspx

Reuters, “French court upholds ban on Uber’s service using non-professional drivers”, available at: http://www.reuters.com/article/us-france-uber-tech-idUSKCN0RM26C20150922

San Francisco Chronicle, “S.F. taxi owners, cabbies join forces against Uber, Lyft, others”. Sept 2014, available at: http://www.sfgate.com/bayarea/article/S-F-taxi-owners-cabbies-join-forces-against-5773407.php#photo-6898035

Wallsten, Scott, (2015), “The Competitive Effects of the Sharing Economy: How is Uber Changing Taxis?”, Technology Policy Institute, Studying the Global Information Economy, June 2015. Available at: https://www.ftc.gov/system/files/documents/public_comments/2015/06/01912-96334.pdf

Zervas, G., Prosperio, D., Byers, J. (2015), “The Rise of the Sharing Economy: Estimating the Impact of Airbnb on the Hotel Industry”. Available at: http://people.bu.edu/zg/publications/airbnb.pdf

[i] See, information about the scope and impact of the sharing economy, at Crowd Companies. Author: Jeremiah Owyang, available at: http://www.web-strategist.com/blog/2014/09/29/a-day-in-the-life-of/ . See, also, information about the expected growth of the sharing economy, at Crowd Companies. Author: Jeremiah Owyang, available at: http://www.slideshare.net/jeremiah_owyang/sharingnewbuying , slide No. 12.

[ii] Australian Competition and Consumer Commission, “The sharing economy and the Competition and Consumer Act”, 2015, pg. 1.

[iii] Uber was founded in San Francisco, California, in 2009. It functions through an online platform that permits consumers to hire drivers that use their own cars. “Uber is evolving the way the world moves. By seamlessly connecting riders to drivers through our apps, we make cities more accessible, opening up more possibilities for riders and more business for drivers. From our founding in 2009 to our launches in hundreds of cities today, Uber’s rapidly expanding global presence continues to bring people and their cities closer”. See, Uber Website: https://www.uber.com/about . See, also, Stefansdotter, A., Utfall Danielsson, C., Kastberg Nielsen, C., Rytter Sunesen, E. (2015) “Economic benefits of peer- to-peer transport services”, Copenhagen Economics, Stockholm. pg. 3-4. , which are factors that could increase the demand for the servicetter Sunesen, E. (2015) irms might have a different result if

[iv] Airbnb was founded in San Francisco, California. It is “a provider of travel accommodation and a pioneer of the sharing economy, has served over 30 million guests since it was founded in 2008. Although Airbnb remains privately held, its valuation of over $10 billion now exceeds that of well-established global hotel chains like Hyatt”. See, Zervas, G., Prosperio, D., Byers, J. (2015), “The Rise of the Sharing Economy: Estimating the Impact of Airbnb on the Hotel Industry”, pg. 2.

[v] “Our main result is that in areas where Airbnb is most popular the revenue of the most vulnerable hotels in our data has decreased by about 8-10% over the past five years”. See, Zervas, G., Prosperio, D., Byers, J. (2015), “The Rise of the Sharing Economy: Estimating the Impact of Airbnb on the Hotel Industry”. pg. 3.

[vi] See, Commission Notice on the definition of relevant market for the purposes of Community Competition Law (97/C 372/03), in further, Commission Notice, para. 13.

[vii] “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”. “The relevant geographic market comprises the area in which the undertakings concerned are involved in the supply and demand of products or services, in which the conditions of competition are sufficiently homogeneous and which can be distinguished from neighbouring areas because the conditions of competition are appreciably different in those area”. Comision Notice on the definition of relevant markets. Commission Notice on the definition of relevant market for the purposes of Community Competition Law (97/C 372/03), para. 7-8.

[viii] Case C-41/90 Hofner and Elser v Macrotron GmbH [1991] ECR I-1979

[ix] Lougher, G. and Kalmanowicz, S. (2015), “EU Competition Law in the Sharing Economy”, Journal of European Competition Law, pg. 3.

[x] See Note 2, pg. 35.

[xi] See Commission Notice, para. 2.

[xii] See, Commission Notice, para. 36.

[xiii] See, Crowd Companies. Author: Jeremiah Owyang, available at: http://www.web-strategist.com/blog/category/collaborative-economy/

[xiv] See, Commission Notice, para. 15-17.

[xv] See, Commission Notice, para. 29.

[xvi] Commission Notice, para. 38. For example, “Taxis, badly losing the battle on San Francisco’s streets, are finally fighting back. After seeing 65 percent of their business migrate to ride services like Uber, Lyft and Sidecar, taxi drivers and company owners, at odds for decades, have joined forces — not only with one another but with their overseer, the Municipal Transportation Agency”. See, article: “S.F. taxi owners, cabbies join forces against Uber, Lyft, others”. San Francisco Chronicle

[xvii] See, information on the public perception of brand reputation of traditional business and sharing economy businesses, at Crowd Companies, author: Jeremiah Owyang, available at: http://www.web-strategist.com/blog/category/collaborative-economy/

[xviii] For example, in the UK, the OFT includes Uber in the private hire operator sector. See Notice 07/14 of the Transport for London – Taxi and Private Hire. See, also, Lougher and Kalmanowicz, pg. 8.

[xix] See, information about the growing supply of Airbnb in 2015, at Airbnb summer travel report: 2015, available at: http://blog.airbnb.com/wp-content/uploads/2015/09/Airbnb-Summer-Travel-Report-1.pdf

[xx] See, information about consumer’s preferences regarding accommodation options, at Jeremiah Owyang, available at: http://www.web-strategist.com/blog/2013/07/29/collaborative-economy-airbnb-loved-over-traditional-hotel-brands/ . Besides, for example, in the state of Texas in US, Zervas, Prosperio and Byers state that “(…) this estimate indicates that Airbnb listings result in some Airbnb stays that are substitutes for hotel stays in cities with an established Airbnb presence”. See, Zervas, G., Prosperio, D., Byers, J. (2015), “The Rise of the Sharing Economy: Estimating the Impact of Airbnb on the Hotel Industry”, pg. 16.

[xxi] See Lougher and Kalmanowicz, pg. 5. See, also, Google/DoubleClick (Case COMP/M.4731) Commission Decision [2008] OJ C 184, para. 68 and Microsoft/Yahoo! Search Business (Case COMP/M.5727), para. 83.

[xxii] See Lougher and Kalmanowicz, pg. 7.

[xxiii] See, information about consumer’s potential of becoming suppliers in the sharing economy, at “Sharing is the New Buying: How to Win in the Collaborative Economy”, by Jeremiah Owyang available at: http://www.slideshare.net/jeremiah_owyang/sharingnewbuying

[xxiv] See, Commission Notice, para. 20.

[xxv] See, Commission Notice, para. 42.

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