Tuesday

16th Aug 2022

Brussels Bytes

Policymakers must be careful on 'platform regulation'

  • The services platforms provide consumers are in large part determined by the terms their sellers must accept. (Photo: freestocks.org)

In response to a few businesses complaining of unfair treatment, the European Commission has proposed a regulation to compel online platforms to publish their policies on third-party sellers and to apply those policies consistently.

While it is not clear that new regulation was necessary, the proposal would prevent capricious behaviour without distorting the online economy because platforms would still have full control of their own policies.

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However, MEPs and member states may be tempted to amend the proposal to create stricter regulations on platforms' dealings with sellers, which would reduce the differences between platforms and force them to reconsider services that compete with third party sellers, limiting consumer choice in both cases.

If the European Parliament and the Council of the European Union adopt this regulation, they should not make drastic changes to it.

The commission's proposal would require platforms to disclose their policies on matters such as why they remove sellers' listings and how they rank them, including when platforms have their own competing products, and would enable businesses to seek redress when platforms fail to play by their own rules.

But the proposed regulation would not introduce significant distortions to the digital economy because it does not stipulate what platforms' policies should be, besides requiring that criteria for delisting sellers be "objective" and that sellers receive prior notice of changes to the criteria.

However, the proposal still has to pass in the parliament and the council, where MEPs and member states may yet amend the regulation to make it stricter. Indeed, some lobby groups have previously called for much more onerous rules.

In June 2017, the Commission reported that some companies wanted platforms to share more user data so that sellers could interact with customers off-platform, and some complained about platforms' own products outperforming those of other sellers.

In November, the European Games Developer Federation called for a "functional separation of dominant platforms from their publishing and advertising branches," while IndustriAll, a labor union, argued that "web sites that sell products or select information should be mandated to include a fair search algorithm," such as "a concentric search whereby all relevant results are first displayed in random order (this randomness being controlled by third party inspection of the source code)."

Forcing platforms to share customer data with sellers, curtailing platforms' ability to favour their own products, or otherwise restricting platforms' flexibility in setting the rules sellers play by would make it harder for platforms to compete and innovate by offering different experiences to consumers.

It would also drive away consumers unhappy with the measures platforms would have to implement to comply with the rules.

The services platforms provide consumers are in large part determined by the terms their sellers must accept.

eBay, Amazon and Apple

For example, eBay has an open marketplace, Amazon operates a hybrid retailer-marketplace, and Apple curates the iTunes store more strictly.

EU digital single market regulation is often heavy-handed, and calls to hobble major online platforms are hardly anathema to some senior officials at the commission, such as the European commissioner for competition Margrethe Vestager.

It is reasonable to suppose that the reason the commission's cooler heads prevailed this time is a sufficient awareness of the dangers that over-regulation would pose, as well as confidence that straightforward transparency and accountability measures will be sufficient.

But political sentiment could still encourage the parliament and the council to introduce stricter measures in the name of reining-in U.S. tech giants and protecting the European companies that rely on them.

The commission, for its part, is not exactly apolitical, but nor is it as ideologically-driven as many MEPs of the left and the right, nor as inclined as directly-elected national politicians to ride the waves of what it believes to be public opinion, for better or worse.

The feeling in Europe that American platforms have too much market power may predispose some MEPs and member states to support amendments that weaken those platforms' position in relation to their sellers, especially if enough of the sellers calling for tighter controls are small European companies.

The fact the regulation will also affect European platforms, such as the travel website Booking.com and the online retailer Bol.com, may help to dispel the most naked examples of protectionism.

But it will do little to counter misguided notions about platforms as utilities, as digital-age robber barons, or as the modern incarnations of Standard Oil—natural monopolies that must be regulated or broken up to create a "level playing field" for other businesses.

As the Economist pointed out in 2014, calls for such measures are more about protecting companies than protecting consumers, because major platforms competing with other businesses can be good for consumers.

For example, Google provides free maps, flight information, and price comparison alongside its search engine.

Another example is Amazon's retail service, which supports some competition from other sellers to make the platform more useful to customers, but not to the extent of diminishing Amazon's own ability to compete and offer consumers what they want.

Platforms are so diverse that policymakers have struggled to establish an uncontested definition of what a platform is, or even to define the markets that various platforms trade in.

That poses problems for any regulation targeting platforms, but the commission's proposal is nevertheless largely benign.

Moreover, even if there is no compelling case for regulation, the proposal at least provides reassurances to businesses without harming consumers, which is why MEPs and member states should refrain from inflating it with harmful amendments.

Nick Wallace is a Brussels-based senior policy analyst at the Centre for Data Innovation. His Brussels Bytes column deals with the digital single market and data-related policy issues in the European Union

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