EU highlights difficulty of establishing online antitrust

The EU competition commissioner has highlighted the difficulty of gauging anti-competitive practices online, almost five months after antitrust allegations were made against Google.

In a speech given at University College London (UCL) on Wednesday, Joaquin Almunia warned that "dominance on the internet is difficult to establish", and hinted at the complexity of judging the "contestability" of markets such as search and social networking.

In February, three price comparison and search sites — Ciao, Foundem and ejustice.fr — alleged that Google either demoted their businesses in its search results or had unfair terms and conditions in its search partnership contracts. At the time, the Commission said it was examining the complaints, but had not opened a formal investigation "for the time being".

In his speech on Wednesday, Almunia referred to the case obliquely, noting that his department was "currently examining some allegations of anti-competitive conduct in relation to search".

"The work is at an early stage, but given the importance of search to a competitive online marketplace, I am looking at the allegations very carefully," he said.

According to Almunia, understanding the dynamics of e-commerce markets "is a complex task", as those markets are "characterised by innovative business models that are constantly evolving".

"Some web-based services are characterised by very large market shares," Almunia said. "This is the case for both search and social-networking sites, and not necessarily for the same reasons. The most important search engine in Europe [Google] benefits from a 95 percent market share in usage and the most important social media site [Facebook] has close to 70 percent.

"Dominance on the internet is difficult to establish. The real question remains the actual degree of contestability of these markets. Switching between search engines may appear to be relatively easy. Switching between social networks may be harder because of the stronger network effects and the portability of the data. But are switching costs of users the only criteria for contestability in two-sided markets? Are there other barriers to entry?"

He said that "if results on a search engine, for instance, are being manipulated, it may well make a difference on the market if consumers know about it", but questioned whether transparency would be enough to avoid being anti-competitive.

"As Commissioner Almunia has indicated, the Commission's inquiry is at an early, fact-finding stage," a Google spokesperson said in a Thursday statement. "We're working with the Commissioner and his team to answer their questions, including how Google's search ranking works to produce the most relevant and useful search results for users. We're very confident that our business operates in the interests of both users and partners, as well as within European competition law."

The competition commissioner also made reference to the emerging mobile and cloud market in his speech, noting that the Commission "cannot and should not predict the way these environments will develop".

"Some companies favour open and interoperable systems. Others develop closed environments and others navigate between the two. The markets should decide which business models prevail," Almunia said. "The task of competition authorities will remain to ensure that no market is foreclosed to competitors better able to serve their final users."

He said that open models and interoperability drive down the cost of innovation and favour the entry into the market of more players, but added that "a time such as this one characterised by a very dynamic environment and a high rate of innovation might not be the best time to close the door to experimentation and private initiative".

"This is why we will continue to work on the promotion of standards and requirements of interoperability in those instances where access becomes restricted to the point of foreclosing any kind of competition," he said. "Access will be particularly important when dealing with platforms and technologies that are essential building blocks for a next generation of innovation. It goes without saying that any public intervention aiming at promoting interoperability will have to strike a careful balance between granting access and protecting the rights of past and future successful innovators."