Digitalisation is reshaping competitive dynamics in the economy, creating new markets and transforming existing ones. This presents a multifaceted challenge for competition authorities. This handbook and interactive website provide access to the extensive work undertaken by the OECD to address these issues through the Competition Committee, the Global Forum on Competition and the Latin America and Caribbean Competition Forum. Download the handbook or navigate by theme.
23/02/2022 - Launched during the 2022 Competition Open Day, the OECD Handbook on Competition Policy in the Digital Age provides a new resource for competition authorities, policymakers, researchers and anyone else interested in digital competition policy. It highlights the key messages from the extensive body of OECD work in this area to date, including anticompetitive conduct, merger control and remedies. The Handbook provides links to all of our digital competition work, making it easier to explore the wealth of background papers, country contributions, and other resources available on over 40 topics. It also contains our views on the road ahead for digital competition policy, including the need for co-ordination among jurisdictions as they transition from diagnosing concerns, to implementing solutions.
A starting point for analysing competition in digital markets, and assessing whether changes are needed to existing competition policy frameworks, is the identification of some key features of digital markets. These features, which shape competitive dynamics, can include:
where digital product acts as a platform, bringing different groups of consumers together. For example, a digital content platform may feature content creators on one side, viewers of content on another, and advertisers on another.
Strong network effects
meaning that as the number of users grows, the value of the product to users increases. In the extreme, these network effects may lead to markets “tipping” into a monopoly.
Substantial economies of scale and scope
since many digital markets exhibit high fixed costs and low or zero variable costs. Firms can therefore rapidly scale up, expand their geographic coverage, or potentially use their assets in one market to enter another.
Reliance on large amounts of user data
that can be difficult to replicate and costly to analyse.
for example users may have invested time and effort to create a profile on a social network or a reputation as providers on an exchange platform, which they may lose by switching.
Often important intellectual property rights
including patents which grant the owner a limited-term monopoly over the use of a technology or method.
Low or zero prices
associated with business models that earn revenue from the collection of consumer data, the sale of advertising or the use of customer relationships to sell “premium” or other paid products. These business models are of increasing importance: seven of the ten largest global companies provide zero price products and services in digital markets.
that dramatically reduce transaction and intermediary costs, and may be offered outside of regulatory frameworks that limit competition by incumbents.
Vertically-integrated and conglomerate business models
which may give rise to specific concerns about anticompetitive conduct. Digital platforms that act as “gatekeepers” between downstream firms and their customers may be the subject of competition concerns if they provide advantages to their own downstream operations. Further, firms may seek to leverage their market power from one market into another, for example with bundling and tying strategies that foreclose competition for a digital “ecosystem” of products.
While some of these characteristics, such as network effects or zero price business models, are not new, they are taking on a new prominence in digital markets, with significant consequences for market dynamics. In particular, they may can give rise to concentrated markets, and the emergence of large digital conglomerates present in a range of markets. They may also cause “competition for the market” dynamics, in which firms compete to become the single dominant firm within a market.
The innovations brought by digitalisation have generated substantial consumer benefits in many markets, including lower prices, greater accessibility and convenience, more variety, and new products. At the same time, several concerns have been identified with respect to competition in many digital markets, in terms of market structure, the conduct of firms, and merger activity in the sector. Each of these concerns points to declining competition intensity, demonstrated by increasing mark-ups, falling entry rates (especially in digital-intensive sectors), and growing concentration (see, for instance, Bajgar et al. (2019), Calvino and Criscuolo (2019)), as a symptom of the problem.
In general, competition policy generally focuses on cases where market power is durable, rather than a temporary reward for innovation that can be contested by a competitor with novel technologies. Concerns about the competition impacts of durable market power could be particularly pronounced when:
A dominant firm behaves anticompetitively
for example using its position to exclude competitors from a market, or acquiring potential emerging competitors simply to prevent their products from reaching the market
Competition is distorted by regulation
that allows incumbent firms to maintain a dominant position for reasons unrelated to the attractiveness of its products to consumers
Features of demand or supply prevent entry by new firms, or expansion by dominant firms’ competitors
including very strong network effects or economies of scale and scope, information asymmetries between firms and consumers, switching costs, or consumer behavioural biases (such as framing bias - being influenced by the way different options are presented -, salience bias - focusing on the most prominent choice item - , and default bias - a low tendency to switch to unambiguously better offers)
Some concerns about dynamics in digital markets fall squarely within a competition enforcement context, namely with respect to anticompetitive conduct and mergers giving rise to durable market power. However, competition authorities will need to adapt their analytical tools to the unique conditions of digital markets, including multi-sidedness and business models involving a price of zero. They may also need to grapple with new theories of harm that may not fall within established frameworks, and which will require legislative or at least analytical changes to apply. Further, they must adapt their processes, to match the speed of evolution in digital markets and ensure that potentially anticompetitive conduct is scrutinised.
Other concerns in digital markets cannot be addressed by competition authorities, or at least not directly. The size and reach of large digital firms across multiple markets has led some to highlight the potential for systemic risks, rent-seeking (for example, through lobbying activities) and inequality. While vigorous competition in markets can mitigate each of these risks, competition enforcement and competition policy more broadly may not be equipped to tackle them head-on.
Many concerns fall within a grey zone between these two categories – in other words, it is not always clear what can be addressed by competition enforcement, and what cannot. Competition authorities have begun to explore issues ranging from labour market power by large firms, to consumer privacy. These efforts include both enforcement work, as well as broader competition policy and advocacy efforts. Going forward, competition authorities will need to identify the boundaries of competition enforcement, and clarify where other regulators, such as consumer protection authorities, will be better-suited to address an issue. A range of proposals have also been made for new digital regulators to be established. These regulators could promote competition outside traditional competition enforcement frameworks, and pursue additional policy objectives, acting essentially as a sectoral regulator. Even where competition authorities may not be involved in enforcing these new regulations, however, they have a role to play in advocating for procompetitive regulatory design.
There is, therefore, a great deal of work to be done to address competition concerns in digital markets, and to ensure that current regulatory frameworks are up to the task.
Mergers in digital markets have led to some fundamental questions for competition authorities in terms of the economic foundations of their work, their analytical tools, and their legislative frameworks. Brand new theories of harm with colourful names have attracted new attention, and questions have been raised about past decisions.
While many established concepts underpinning merger control remain valid, and authorities may in fact need to dust off theories designed long ago in traditional markets. At the same time, new market dynamics and characteristics will need to be factored in.
Some considerations in this process include:
The prominence of vertical and conglomerate theories of harm in recent discussions about digital markets.
Many competition concerns in digital markets appear to feature a vertical component, namely foreclosure strategies focused on access to a given platform, technology or dataset. Digital sector mergers may also be conglomerate in nature (they bring together firms that are not currently competitors or in a supply relationship). However, the distinction between these categories and horizontal mergers is becoming blurred. Downstream consumers may one day become a large platform’s rival in some markets, and incumbents may rapidly enter related markets by building off their knowledge and resources. Competition authorities must grapple with this complexity, and may need to consider vertical and conglomerate mergers, which previously captured little attention, given the particular characteristics of digital markets, in addition to potential future horizontal concerns.
New merger and acquisition strategies may need to be considered in merger review...
and may require adaptations to existing frameworks. In particular, authorities are increasingly exploring acquisitions by incumbents of nascent competitors, which may not have attracted significant attention, or even been notified, in the past.
The effects of mergers on dynamic competition, and non-price dimensions of competition, may require ...
particular attention and adapted analytical tools. In particular, competition authorities may find the effects of a merger on innovation abilities and incentives to be especially important in some digital markets, requiring them to grapple with long-term considerations and the associated uncertainty. Careful attention will also be needed to the validity, and merger specificity, of claimed efficiencies when there is a risk of these harms.
While some claims have suggested past failures ...
in merger control are responsible for current trends in digital markets (for example with respect to mark-ups), evidence on this point is limited. In particular, relatively few past mergers have been identified as having had a substantial negative impact on competition. However, more ex-post assessments of mergers are needed to better understand the role of mergers in current digital market trends, and whether tools and concepts should change. Competition authorities should engage in these assessments, and may wish to explore co-operation with academia to gain insights on a larger number of past digital sector merger decisions.
The preceding chapters highlight the unique features of digital markets that may give rise to competition problems, and the unique forms that misconduct and merger harms can take in these markets. This uniqueness poses challenges for the selection of remedies as well. While durable market power may well arise, it is different in character to the natural monopolies of the past – particularly given the role of dynamic competition, innovation, and complex product ecosystems. Should authorities therefore revise their approach to remedies, for example placing a particular emphasis on behavioural measures?
Three key messages arise from the OECD’s work in this area:
Structural remedies and line of business restrictions ...
remain the simplest to monitor andarguably most effective approach to anticompetitive mergers and conduct. However, they may not be feasible in digital markets, particularly when they are incompatible with platform business models and rely on unsupported conclusions about the source of market power (for example when they equate data inputs for which substitutes exist with the network monopolies of the past).
Behavioural remedies require careful design and oversight,
given the incentives of the firms subject to these remedies. Co-ordination with sector regulators and other authorities with such oversight functions may therefore be needed. Further, no single behavioural remedy is a single bullet in digital markets – conditions in a market must be suitable for data portability or interoperability measures, for example, to be effective.
It is crucial for competition authorities to consider ...
dynamics on the demand side of digital markets. These dynamics can exacerbate harm, and may limit the effectiveness of any remedies imposed. The sources of demand-side problems in digital markets should be identified, and, while remedies to address these problems are particularly difficult to design and implement, should not be ignored.
While competition law enforcement occupies much of the discussion on digital competition issues, the role of regulatory barriers to competition is also crucial. In particular, regulatory frameworks that are out of date, unnecessarily restrictive, or premised on business models undergoing disruption can result in serious competition harms. They may prevent new innovations from emerging, or create an imbalanced playing field that favours incumbents and lead to disputes about compliance.
The OECD work on disruptive innovation has explored how these new business models, often based on digital technology, can fundamentally reshape markets. They can introduce new products and services, cut costs, limit intermediation, and improve quality – particularly in previously stagnant markets featuring a small number of large incumbents. Competition policy, including competition authorities, have a key role to play in identifying regulatory frameworks that unnecessarily restrict competition, and proposing alternatives. This process is not without challenges, as it involves balancing sometimes competing policy objectives (potentially including new concerns, such as data protection), and significant uncertainty in markets undergoing rapid changes. Some strategies, such as the use of regulatory sandboxes and close co-operation among regulators, can help.
The OECD has updated its Competition Assessment Toolkit to take account of the unique challenges that may emerge with respect to regulatory barriers to competition in digital markets. The Toolkit provides practical guidance on detecting, assessing, and identifying alternatives to regulatory barriers to competition.
Digital markets have posed significant challenges for competition law and policy frameworks in recent years. The OECD’s work in this area has highlighted that the core concepts, principles and economic foundation of competition policy are as relevant as ever in these markets. In fact, many well-established theories of harm and core concepts will be vital to ensure that digital markets remain dynamic and innovative. Anticompetitive horizontal mergers, agreements among competitors and vertical restraints can produce as much harm in digital markets as in traditional ones – in fact, network effects and strong economies of scale and scope may amplify this harm. Further, many competition law frameworks remain sufficiently flexible to tackle some of the novel theories of harm and unique market characteristics that emerge in digital markets.
At the same time, there is a growing consensus that at least some parts of the competition policy framework must be adjusted in response to digitalisation. Some proposals include:
Enhancing merger control frameworks...
including adjusting notification thresholds to capture anticompetitive acquisitions of emerging competitors, increasing the emphasis on innovation and dynamic competition issues, explicitly including digital-specific issues such as data access or intermediation power in merger legislation, and placing the burden of proof on merging parties to show the lack of competition harm in certain situations. Ex-post assessments of past merger decisions have also been pointed to as an important tool to learn from past experience in digital markets as it accumulated.
Strengthening abuse of dominance (or monopolisation) enforcement...
in particular by either shifting the burden onto dominant firms to show the procompetitive effects of certain types of conduct, and by using more interim measures to preserve competition while a case is ongoing.
to help firms understand the situations in which digital-specific competition concerns may arise, and how they will be analysed.
Enhancing the digital tools and expertise available to competition authorities...
given the complex nature of these markets and the conduct that may arise. Authorities are establishing dedicated teams focused on digital markets, and are experimenting with new digital resources such as the use of artificial intelligence to monitor remedy implementation.
Deeper international co-operation among competition authorities
given the cross-border nature of digital markets and the common issues they pose.
Greater use of market studies to take a holistic view of competition problems in digital markets...
since they may emerge outside the context of a merger or enforcement case. Several authorities have used these tools to advocate for regulatory change and improve their knowledge in areas such as digital advertising, FinTech and patent assertion entities.
Beyond these ideas to strengthen existing competition policy frameworks, there has been a range of proposals seeking to create new ex ante regulatory regimes and legislative measures. These proposals reflect a view that existing frameworks may not capture the full range of competition problems that arise in digital markets, or that current enforcement processes are too slow or ineffective given the rapid pace evolution of these markets. Further, regulatory proposals also seek to recognise that competition concerns in digital markets, generally stemming from durable market power, may overlap with other policy concerns, such as fair trading, data protection and innovation, among others.
These proposals, and legislative measures to implement them, are rapidly developing, and will remain a focus of OECD work in the years to come. While many of the core objectives and concerns motivating these proposals are the same, there is a growing divergence in the precise approach taken, including:
Looking ahead, the gains from greater co-operation and co-ordination among competition policymakers in this area can be significant, both in terms of improving the effectiveness of the measures in question and reducing the compliance burden on firms from diverging approaches (particularly if there are attendant risks for innovation incentives).