What are the EC’s concerns?

The EC (and other global regulators) are concerned that existing competition rules cannot tackle modern threats to markets. These concerns have played out primarily in digital markets so far. They are particularly worried about markets “tipping” in favour of a single player and the emergence of “digital gatekeepers”.

What has the EC proposed?

The New Tool represents a radical shift in enforcement from “prevention” to “cure”. Existing rules prevent certain types of conduct (illegal collaboration and abuse of dominance). The New Tool will change the rules of the game giving the EC powers to intervene in evolving market with the aim of preserving competition.

The EC has tabled four proposals, which boil down to two questions:

1. Should the EC have the power to act only where there is established market dominance or should they be able to intervene in any market structure they consider to be of concern?
2. Should the tool cover all sectors and markets or apply only to certain sectors, primarily the digital sector?

What are the challenges?

The scope and scale of the regulatory change proposed by the EC is huge. We have worked together with economists at Compass Lexecon to analyse three challenges that the EC will have to consider before legislating:

1. The EC will need to establish (i) that there is a “problem” (e.g. markets tipping); and (ii) that it is possible and desirable to address this problem through competition policy. The benefits of intervention (i.e. retaining effective competition in markets that would otherwise tip) must outweigh the costs (chilling of innovation and reduction in business certainty).
2. The EC will need to ensure that its New Tool sits coherently with its existing powers. The EC will need to identify the “enforcement gap” that the New Tool must address and the powers that it will need to remedy market problems.
3. The EC will need to articulate a legal test for the New Tool. This challenge cannot be overstated. Competition authorities around the world have been grappling with how to tackle digital markets for some time and, as yet, no consensus has emerged. The EC will need to set out a test that captures “problem” scenarios” but doesn’t give it carte blanche to intervene in markets.