G7 Compendium on Competition in Digital Markets

Last month, competition authorities from the G7 published a Compendium of approaches to improving competition in digital markets.

The Compendium provides an overview of how different authorities are working to promote competition in digital markets and the commonalities in the approaches those authorities are taking. In particular, it explains that whilst the growth of digital markets has brought enormous benefits to business, consumers and society as a whole, this has also created new challenges for competition enforcement and policy.

Challenges in relation to digital markets

The Compendium highlights common features present in digital markets which can often lead to a smaller number of firms gaining more powerful positions.

One such feature that many digital markets exhibit is positive “network effects”, such that the value of a service (to some users) increases with the number or activity of the service’s other users. Network effects can provide significant benefit to users and encourage platform businesses to invest and compete aggressively to acquire scale, but they are relevant to competitive concerns. Network effects may deter entry by increasing the number of users that an entrant must obtain in order to compete, which, in turn, may make market power further entrenched.

In essence, it is the very characteristics of digital markets, which are responsible for their growth, that pose unique challenges for competition authorities and governments. These characteristics tend to lead to the creation of firms with durable and entrenched positions of economic power, providing them with the ability to engage in ‘exploitative and exclusionary’ conduct.¹

Approach of regulators to address competition concerns

As competition issues rarely arise in a vacuum and many of the concerns highlighted are inextricably linked with other regulatory and policy areas, such as privacy and consumer protection, the authorities are regularly working with other government departments and regulators to tackle these issues in a holistic way.

The Compendium demonstrates that there is a high level of commonality in the approaches that authorities are taking to address competition concerns. These include:

• opening investigations, conducting studies, or bringing enforcement actions to address concerns about the exercise of market power of platforms;
• strengthening institutional capabilities by developing specialist teams staffed with technical experts or upskilling existing staff;
• considering or introducing legislative reforms, due to the insufficiency of current tools, to either bolster enforcement tools, introduce an ex-ante regulatory regime or both; and
• ensuring regulatory cooperation both among domestic regulators working across disciplines as well as with foreign counterparts to promote interoperable systems.

The concerns of the different competition authorities with respect to the digital markets and their approaches to them are unprecedently similar. The Compendium represents the first time in the history of competition law and policy that so many competition authorities and governments have prioritised the examination and investigation of the same markets and the same or similar conduct, demonstrating the profound international concern in this area.

¹ G7 Germany 2022, Compendium of approaches to improving competition in digital markets, page 9