COVID-19 - European competition watchdogs face the digital giants

A year on from lockdowns beginning their march across the continent, Margrethe Vestager, Executive Vice President of the European Commission, is fulsome in her praise for how the retail, wholesale, and distribution sectors have faced the COVID crisis. Some players were born digital, some have attained it, but many have had it thrust upon them since March 2020.

Addressing business leaders on Friday, she said:

I want to thank every retailer in the European Union, every wholesaler, every distributor, every agent. It has been a year since COVID-19 began its spread throughout Europe. In that time, some of you have faced closure, some of you have faced disruptions, and all of you have faced radical change as to how to do business.

Because you showed up for work, making the necessary changes to keep staff and consumers safe, we have food on the shelves and we have essential supplies available - with remarkably few disruptions given the scale of the emergency that we have faced. Without the resilience shown in the retail and wholesale sectors, we would not have gone through this year as well as we did, in spite of everything.

She added:

We do not just want to recover, we want to build a better, a more sustainable and a more digital economy than the one we had back in 2019.

Despite the crisis - and to some extent because of it - the EC's competition policy still plays a key role in underpinning the competitiveness of Europe's industrial and services sectors. Alongside Covid, those sectors have also faced disruption from the need for green renewal and sustainability, plus the twin forces of digitalisation and globalization. Throw Brexit into the mix, and the strain has been significant.

Since the pandemic began, the Commission has been reviewing its competition policy, partly to enable state support to affected businesses (roughly €3 trillion across the continent, she said), and partly to ensure that the future is not handed to American cloud giants on a plate. New rules are incoming for the platforms many of us now rely on, in the form of Europe's Digital Markets Act.

Recognising e=commerce growth and the critical importance of online, cloud, and mobile platforms is a big part of updating and complementing the EC's competition rules. But that must not be to the exclusion of other types of business, including the bricks element in clicks within multichannel or omni-channel businesses.

The rules on vertical agreements, vertical block exemption, regulation, and the vertical guidelines, they have to reflect this new reality.

In the wake of the Covid crisis, we all know that has increased online sales beyond belief, but we must also make sure that investment in bricks-and-mortar stores is not discouraged, so that consumers continue to have a choice, not only between online channels, but also whether to buy online or offline. This review is still ongoing.

We want alliances to do what they claim to do: lower prices, innovation, more choice, rather than being a cover for cartel behaviour. And it is here that the rules are not up to date regarding the possibilities of information exchange in the digital era. We recognise the need to clarify and update the text of those chapters.

The platform challenge

But it is not a simple matter of just updating rules for a ‘more digital' landscape. Nearly two in three European retailers did not have an online sales presence before Covid. At the same time, the crisis dramatically accelerated digital investments, in some cases from a timescale of years to just weeks. This has pushed many companies towards making choices that may not have been in their long-term interests: into the arms of FAMGA, in fact.

Platforms not only promise enhanced consumer choice, but also a means for traditional sellers to reach customers without needing to set up their own online operations. This creates a risk of large digital players using the crisis to impose restrictions on sellers, while at the same time hoovering up their data and pushing consumers towards their own services and offerings instead.

So how can digital and competition rules help brick and mortar retailers compete successfully online? Vestager said:

The first thing is, of course, to maintain a leading role when it comes to antitrust enforcement. We will do everything we can with the tools we have.

We had the suspicion that data are being used to the benefit of Amazon retail, dramatically reducing the risks of Amazon retail compared to the risk that any other trader on the platform, and to not having access to the same type of data , which are not publicly available data.

You probably know as well about our Apple investigations - one specific when it comes to the App Store - and we have a Facebook investigation.

We also now have the sector inquiry into the Internet of Things, which will bring us new insights and knowledge. We will also use intermediate measures in any cases where this would be appropriate. But the bar that we have to use is quite high, because there has to be irreparable harm or damage [from failing to act].

We don't want this to stifle competition, we don't want it to glide into cultural behaviour. If the balance is maintained, there will be a competitive drive for investment in innovation, and obviously that is very important.

Digitization has also brought about a new range of possibilities when it comes to data sharing and pooling, and we should ensure that guidance is out there, allowing stakeholders to self-assess what you're doing in order to be effective in using data.

Consumer choice is of the essence.

My take

A reassuring, well-pitched presentation, and one that emphasises the advantage of single, integrated markets. But the key challenge facing European companies has more of a big-picture element: outside of a handful of enterprise software players, such as SAP, where are the companies to take on FAMGA in Europe - or the UK for that matter? Consumers will keep voting with their trackpads and their screens for whichever solution offers the lowest-friction, most reliable service.