Data as essential facilites

410 Pages·2016·3.441 MB·English

by  Inge Graef

KU Leuven
Faculty of Law

Data as Essential Facility
Competition and Innovation on Online Platforms

Inge Graef

Supervisor: Prof. Dr. Peggy Valcke
Co-supervisor: Prof. Dr. Wouter Devroe

Thesis submitted with a view to
obtaining the degree of Doctor of Laws
Academic year 2015-2016
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KU Leuven

Faculty of Law

Data as Essential Facility
Competition and Innovation on Online Platforms

Inge Graef

Thesis submitted with a view to obtaining the degree of Doctor of Laws of KU Leuven

Examination committee:
Prof. Dr. Peggy Valcke (Supervisor), KU Leuven
Prof. Dr. Wouter Devroe (Co-supervisor), KU Leuven
Prof. Dr. Pierre Larouche, Tilburg University
Prof. Dr. Alexandre de Streel, Université de Namur
Em. Prof. Dr. Jules Stuyck, KU Leuven
Em. Prof. Dr. Frank Hutsebaut (Chairman), KU Leuven

The text is updated until 30 May 2016
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Acknowledgements

This thesis marks the end of a doctoral project initiated in October 2012 at the predecessor of
the current Centre for IT & IP Law (CiTiP), the Interdisciplinary Centre for Law & ICT
(ICRI), of the Faculty of Law of KU Leuven. At ICRI and its successor CiTiP, I found a very
stimulating working environment made up of a dynamic bunch of researchers with different
backgrounds and interests. I feel privileged to be a part of such a vibrant research group. Over
the years, I have benefited from invaluable discussions with colleagues who have widened my
horizon to ‘exotic’ topics that I was not yet familiar with such as data protection, e-health and
cyber security. I am grateful to all my colleagues who make CiTiP such an enjoyable place to
work. Notably, I would like to mention my past and current roommates, Björn, Ellen, Valerie
and Stephanie in particular, who brightened up my day on many occasions by providing
welcome distractions from the PhD writing. In addition, I would like to say a word of thanks
to the ‘admin team’, Shuki, Carmen and Edith, for the excellent administrative support.
From October 2013 onwards, I have benefited from a PhD scholarship from the Research
Foundation Flanders (FWO) which gave me even more freedom and opportunities to
participate in conferences and workshops in Belgium and abroad. At these occasions, I have
met many fellow researchers who have often provided renewed inspiration and motivation for
the thesis. Special thanks go out to Dr. Yuli Wahyuningtyas with whom I had the pleasure to
work on a number of papers and who joined me in attending many events, or ‘competition
law picnics’ as we used to call them. I would also like to thank FWO for funding my research
stay at the Max Planck Institute for Innovation and Competition in Munich in Fall 2014 where
I benefited from useful exchanges with Dr. Beatriz Conde Gallego and Dr. Gintarė Surblytė.
The members of my PhD examination committee deserve particular mention here. Before all
others, I am grateful to Prof. Dr. Peggy Valcke for being a most inspiring supervisor and for
being there whenever I needed advice or guidance. For the encouragement she offered and for
the opportunities she created for me over the years, I will always be thankful. I am also much
indebted to my co-supervisor Prof. Dr. Wouter Devroe for introducing me to the exciting field
of competition law when I was a master student in Maastricht in 2009, for supporting me and
following my work ever since, and for stimulating me to form my own opinion on the PhD
topic. I would also like to thank Prof. Dr. Pierre Larouche and Prof. Dr. Alexandre de Streel
for their commitment to the PhD project as members of my supervisory committee and for
providing detailed comments and suggestions on draft chapters along the way. In addition, I
wish to express my gratitude to Em. Prof. Dr. Jules Stuyck for kindly accepting to read the
manuscript and to act as a member of the examination committee at the end of the project, and
to Em. Prof. Dr. Frank Hutsebaut for taking up the role of chairman at the predefence and the
public defence.
Finally, a very special thanks goes to my parents and sister for their continued support and
encouragement without which I would not have reached this far.

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Abstract

The competitive strength of online businesses is increasingly being determined by the
amount, variety and quality of the data they hold. Providers of online platforms such as search
engines, social networks and e-commerce platforms employ business models that are
dependent on the acquisition and monetisation of personal data of users. Many internet
companies can be seen as so-called ‘multi-sided’ platforms that bring users and advertisers
together. By accumulating and analysing information about the behaviour and interests of
users, providers of these platforms are able to improve their services to users in the form of
more relevant search results, social interactions and purchase recommendations as well as to
advertisers in the form of better targeted advertising. Datasets built on the basis of the
information that individuals disclose when using online services have become an economic
asset in the digital economy.
Against this background, the thesis explores how existing competition concepts can be
applied to data-related competition concerns in digital markets. The main focus is on potential
refusals of dominant providers of online platforms to give access to their data. In line with its
significance in the digital economy, data is becoming a necessary input of production for a
variety of services competing with or complementary to the services offered by incumbent
providers. By refusing to share information with potential competitors or new entrants,
incumbents may limit effective competition and innovation to the detriment of consumers. In
this context, the question rises whether such a denial of a dominant firm to grant competitors
access to its dataset could constitute a refusal to deal under Article 102 of the Treaty on the
Functioning of the European Union and lead to competition law liability under the so-called
‘essential facilities doctrine’. Because of the particular nature of data collected by providers of
online platforms and the new business models that are employed, potential refusals to share
data give rise to new competition concerns. While the thesis concerns the application of EU
competition law to a specific type of conduct, it also raises several broader and more
fundamental issues including the appropriate analysis of multi-sided platforms under
competition law, the trade-offs that have to be made between protecting different types of
competition and innovation (competition in versus for the market; sustaining versus disruptive
innovation), and the relationship between competition and data protection law.
The thesis concludes that existing competition concepts are still fit for purpose in the digital
economy, provided that their application is adapted to the peculiarities of online platforms.
Even though the necessary tools are available, competition authorities and courts have to be
willing to employ them in such a way as to ensure that the competition analysis reflects the
competitive reality of digital markets. To that end, recommendations are provided for
bringing the application of competition law in line with the demands of dynamic markets and
for adequately protecting consumer welfare in the online environment.

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Table of contents

1 Introduction .................................................................................................................... 15
1.1 Background ................................................................................................................ 15
1.2 Focus of the thesis ..................................................................................................... 16
1.3 Structure and methodology ........................................................................................ 17

Part I: Competition and Innovation on Online Platforms ....................................................... 19
2 Business models and economic characteristics of online platforms .......................... 21
2.1 Introduction ............................................................................................................... 21
2.2 Describing the online intermediary environment ...................................................... 21
2.2.1 Search engines .................................................................................................... 21
2.2.2 Social networks .................................................................................................. 24
2.2.3 E-commerce platforms ....................................................................................... 28
2.3 Multi-sided businesses ............................................................................................... 29
2.3.1 Multi-sidedness in general ................................................................................. 29
2.3.2 Establishing a multi-sided business .................................................................... 36
2.3.3 Multi-sided nature of online platforms ............................................................... 38
2.4 Network economy characteristics of online platforms .............................................. 43
2.4.1 Economies of scale ............................................................................................. 43
2.4.2 Network effects .................................................................................................. 44
2.4.3 Switching costs and lock-in ................................................................................ 50
2.4.4 Barriers to entry .................................................................................................. 57
2.5 Conclusion ................................................................................................................. 62

3 Evaluating the link between competition and innovation .......................................... 65
3.1 Introduction ............................................................................................................... 65
3.2 Measuring competition and innovation ..................................................................... 65
3.3 Economic theory and empirical evidence on the relationship between competition
and innovation ...................................................................................................................... 69
3.3.1 Schumpeter ......................................................................................................... 69
3.3.2 Arrow ................................................................................................................. 70
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3.3.3 Aghion ................................................................................................................ 72
3.3.4 Appraisal ............................................................................................................ 73
3.4 Different types of innovation ..................................................................................... 77
3.4.1 Disruptive versus sustaining innovation ............................................................ 77
3.4.2 Appraisal ............................................................................................................ 79
3.5 Conclusion ................................................................................................................. 83

4 Market definition and dominance on online platforms .............................................. 85
4.1 Introduction ............................................................................................................... 85
4.2 Market definition of multi-sided businesses .............................................................. 86
4.2.1 An approach for market definition of multi-sided platforms ............................. 86
4.2.2 Relevant product market for the user side .......................................................... 94
4.2.3 Relevant product market for the advertiser side ............................................... 100
4.2.4 Relevant geographic market for online platforms ............................................ 105
4.2.5 Economic tools for market definition on multi-sided platforms ...................... 106
4.3 Market definition in new economy industries ......................................................... 110
4.3.1 US initiative towards a framework for innovation in competition analysis ..... 110
4.3.2 EU approach towards innovation in competition enforcement ........................ 112
4.4 Assessing dominance on online platforms .............................................................. 117
4.4.1 Room for competition in markets in which multi-sided businesses operate .... 117
4.4.2 Establishing dominance of online platform providers ..................................... 120
4.4.3 From market shares to potential competition? ................................................. 122
4.5 Conclusion ............................................................................................................... 125

Part II: Data as Essential Facility ......................................................................................... 127
5 Setting the scene ........................................................................................................... 129
5.1 Introduction ............................................................................................................. 129
5.2 Role of data in the digital economy ......................................................................... 129
5.3 Protection of user data under data protection and intellectual property regimes .... 135
5.3.1 Protection of personal data under the European data protection regime .......... 136
5.3.2 Copyright and sui generis database protection for user data ............................ 137
5.3.3 Trade secret protection for datasets .................................................................. 143
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