Existing Rules are Enough for Platforms

The European Commission is considering a range of regulatory options that could be applied to the relationship between internet platforms and their businesses users. Based on consultation with stakeholders and a study commissioned from ZEW-Gutachten und Forschungsberichte, it has identified a number of undesirable practices which it says threaten Europe’s successful transition to the Digital Single Market. While the Commission’s study and stakeholder consultation has found some questionable practices, fixing them will not require the more intrusive of the economic regulations which its “Reception Impact Assessment” is contemplating. There are three reasons for this. First, the practices, such as they are, don’t seem to be all that widespread—the evidence offered is anecdotal. Second some of the “problems” may not be problems at all. And third, mechanisms such as existing competition law and self/co-regulation offer a better alternative.

The Commission’s study identifies the following: sudden changes in terms and conditions (Ts & Cs), a lack of transparency in search and ranking results, the delisting of products or termination of an account without warning or explanation, platforms competing with business users, restrictions on what data users can see and what they can transfer, and a lack of access to redress when disputes arise, as the problem areas it wants to tackle. In this list there are areas where platform businesses need to be more responsive to the needs and, contractual rights, of their businesses users. Unexplained delisting of products, or unnotified changes to Ts & Cs that have a material impact on businesses that are, thanks to platforms’ own success, dependent on their service, are indefensible. The Commission is right to take up the cause of eliminating such practices. But before we consider what needs to be done we should first ask two questions.

First, how bad is it? The Commission’s own survey reports that seventy six per cent of business users surveyed prefer to use redress mechanisms offered by the platform company rather than an outside mechanism. Eighty per cent of users feel that the Ts & Cs of platforms are fair, neither fair nor unfair, or have no opinion. The 20% who feel that the Ts & Cs are unfair suggests an operational problem rather than a systemic market failure requiring significant regulatory intervention. The report provides different figures for why ‘heavy’ and ‘non-heavy’ users of platforms feel the Ts & Cs are unfair. The dominant reasons for dissatisfaction of this 20% as a rounded % of all users is:

  • No possibility to negotiate or amend Ts & Cs (16% of heavy users, 12% of non-heavy users)
  • Possibility of one-sided changes by the platform (11% of heavy users, 7% of non-heavy users)
  • Limited access to dispute resolution (10% of heavy users, 5% of non-heavy users)
  • Unfair pricing (7% of heavy users, 6% of non-heavy users)
  • Biased or non-transparent search practices (8% of heavy users, 4% of non-heavy users)

These are not compelling figures.

The second (more provocative) question is: Is all of this really a problem at all? The Commission’s research has not quantified the economic effect of the problems that it has identified. The report tells us that the question about impact was ‘misunderstood’ by the survey recipients and so has not been included in the report. This leaves out the most important information of all. Further no cognisance is taken of the impact on consumers. These two facts alone undermine the case for sweeping regulation at the upper end of the Commission’s Impact Assessment menu.

There are, of course, very likely real potential problems behind the figures presented. Platforms that are selling goods in competition with their business customers are in a position of potential conflict of interest. If they are dominant players then they have the opportunity to use pricing and other information gained from their business customers to drive them out of business. If this occurs it is a very questionable business practice. In addition platforms that suddenly change Ts & Cs, with no or little notice, could cause real problems for businesses that have come increasingly to rely on them. Platform businesses are large. Merely because they mean no harm does not mean they can do no harm.

There is no doubt that many of the businesses who responded to the Commission's survey have real grounds for complaint. But how much of the response from business users reflects general anxiety about the move to online trading that many of them have been forced to undertake? How many are simply complaining about an enforced change to their business model that is disruptive to them but not bad for their customers?

For example the lack of ability to negotiate or amend Ts & Cs is only a problem if those Ts & Cs are unfair in the first place. If the Ts & Cs don’t distort competition then there is no case for the Commission to act. Do standard Ts & Cs provide better outcomes for consumers? To what extent do the practices of the main internet platforms protect consumers?

Without any real evidence of impact the Commission would be wrong to conclude that it has found a problem that needs far-reaching intervention.

The Commission’s Impact Assessment offers a menu of responses, ranging from industry-led intervention—essentially something like an industry code of practice—all the way up to an EU-wide platform regulator whose job would be to bring EU competition legislation to bear on platform businesses.

The absence of identified consumer harm or even risk to consumers, the lack of clear evidence that any systemic market failure exists, and platform companies’ capacity to fix operational problems where they occur all point towards the soft rather than the hard approach as the best way forward.