Dear Readers,
In antitrust policy discourse (particularly, but not exclusively, concerning the digital economy), there is often a background assumption that intermediaries impose a consumer and societal cost. Thus, the colloquial phrase “cut out the middleman” – which, translating from the vernacular to the parlance of antitrust means “disintermediate” the consumption of goods – is a formulation that will never lose currency.
One therefore commonly sees arguments that consumer welfare would be enhanced if only end-users could freely combine products from different providers. This commonly takes the form of arguments against bundled goods, walled gardens, and other forms of intermediation. These arguments often have great merit, but, as always, the true picture is more nuanced and complex.
Current debates in this regard take place in the context of accelerating reform of competition and other rules, particularly as they apply to the digital economy, and – arguably – a newly invigorated trend in antitrust enforcement in the EU, the U.S., and worldwide. The articles in this Chronicle draw out various aspects of the role of intermediaries in the economy (both digital and physical) and in antitrust analysis.
Dr. Christophe Carugati discusses the EU’s proposed Digital Markets Act (“DMA”). The DMA will impose obligations and prohibitions on large online platforms that act as so-called “gatekeepers.” The same platforms are already under investigation in Germany under a DMA-like competition law that also imposes prohibition rules ex ante. Similarly, other European countries are considering similar rules. This raises the question of how the DMA should interact with national competition laws. Inconsistency would hamper the effectiveness of both the DMA and those existing rules. The article draws from the lessons learned in Germany in order to explore how this dilemma might be resolved.
Similarly, Daniel F. Spulber considers U.S. and EU antitrust policies regarding digital intermediaries. The article emphasizes the need to apply advances in the economics of markets and platforms in developing such policies, particularly in light of the fact that intermediaries can improve economic efficiency through innovations that lower transaction costs and make new types of transactions feasible. To promote consumer welfare and economic efficiency, antitrust policy should deter anticompetitive conduct without diminishing the many economic contributions of intermediaries.
Diana L. Moss looks to the question of supply chains. As they have grown in sophistication and complexity, so too have the competition rules governing them. Bottlenecks in supply chains have a number of important implications. For example, dominant firms and oligopolies in intermediate markets can give rise to market power on both the buyer side and seller side. Moreover, strong incentives for players to bulk up to counter the bargaining power of suppliers and distributors has exacerbated consolidation, with serious implications for the stability and resiliency of supply chains—as we have seen during the COVID-19 pandemic. The article examines the problem of market power in supply chains using the pharmaceutical and food & agriculture sectors as case studies. It highlights allegedly weak merger control in the U.S. as a source of the problem and proposes key priorities to address it.
On a more theoretical note, Alexander White draws a contrast between textbook economics, whereby a monopoly is by definition inefficient and adding competitors lowers prices and provides consumers with enhanced choice. By contrast, in modern digital platform industries where network effects are key, it has been recognized that such competition does not necessarily have such a positive effect. Unlike in idealized worlds of textbook “perfect competition,” in markets where network effects are prevalent, there can be advantages to market concentration. Nonetheless, there is the potential for negative effects in terms of spillover effects and how policy should deal with certain outlying entities. This article addresses these concerns and offers a useful theoretical framework to address them.
This view is also reflected in the piece by Dirk Auer & Lazar Radic. As their article explains, viewpoints castigating “middlemen” as “vampire capitalists” ignore the potential value brought by intermediation and the trade-offs between different business models or forms of intermediation. The authors argue that the ongoing Epic v. Apple proceedings are a good example of why it is important to respect the role of intermediaries in digital markets, and the benefits they can bring to consumers.
Finally, Maria Andrea Latapie Aldana & Natalia Patricia Patiño Espinosa look at the impact of digital intermediaries on retail formats (including online and offline sales channels) in Mexico. Like in other countries, the retail value chain has evolved, due to the emergence of e-commerce and the integration of digital technology into all areas of a business. Despite this revolution, the authors conclude that considering that Mexican antitrust authorities already have tools to analyze antitrust risk in markets transformed by digitalization, regulators should resist introducing inflexible ex ante rules that could have adverse effects in evolving retail markets.
As always, many thanks to our great panel of authors.
Sincerely,
CPI Team
