On June 5, 2020, the French Competition Authority (“FCA”) published a study on the growth of e-commerce and its impact on competition policy. This publication provides an overview of the lasting changes triggered by the development of online sales, the impact of such changes on the analytical framework used by the FCA and the types of anticompetitive conducts that may arise as a result. The study is part of a broader reflection led by the FCA on the challenges raised by antitrust enforcement in the digital sector.[1]
As French consumers increasingly purchase online, the FCA’s study seeks to identify the consequences of this growth of e-commerce on market dynamics and business strategies, both from traditional retailers and pure online players’ perspective. The study also notes that the development of e-commerce has allowed the emergence of new products or services that cannot be offered through traditional distribution channels, thereby intensifying competition. Finally, the study assesses the impact of these developments on the FCA’s possible analysis of market power and of anti-competitive behaviors.
Assessing market power with the growth of online sales
The development of online sales has affected the way in which the FCA defines relevant product and geographic markets, and in particular whether online and offline channels encompass one single market for a given product or service. For the past few years, the FCA has used both quantitative criteria (e.g., would a “small but significant and non-transitory increase in price” lead a significant portion of customers to switch from traditional retail shops to online purchases?) and more qualitative criteria (e.g., what is the evolution of market penetration of online sales in the sector?) to answer the question on a case-by-case basis.
The study proposes further adaptations. First, the FCA notes that the local specificities of a sector may warrant analyzing the market both at the national and local levels, as distances between brick and mortar stores may still play a role in certain situations. The FCA endorsed such a dual approach in its review of the Fnac/Darty[2] and PicWic/Toys’R’Us[3] transactions. Second, the FCA explains that the development of online sales may require an adaptation of its traditional market share calculation methodology, for instance by taking into account various volume indicators such as the number of website users or visitors, rather than solely focusing on turnover data. In addition, the study recommends assessing other competitive factors (e.g., the investment capacities of digital platforms), as market shares can be very unstable and evolve rapidly, in particular on multi- sided digital markets.
The study identifies several factors specific to digital markets that can either reinforce or weaken competition:
On the one hand, the development of online sales may facilitate price and product comparison between different websites and lead consumers to switch more easily between providers or to “multi-home”. Moreover, a number of digital markets may be particularly dynamic and unstable, especially during the first years of development and therefore prone to potential market entries. For instance, when analyzing the SeLoger/Logic-Immo transaction,[4] the FCA considered the possibility of head-to-head and imminent competition from the GAFAs on traditional market players but dismissed this hypothesis in the short term.
On the other hand, certain characteristics of online markets may reinforce barriers to entry and increase incumbent operators’ market power. They include network effects and the growing significance of data when access to such data is an important competitive parameter. For instance, when reviewing the Aufeminin/TF1 merger,[5] the FCA analyzed whether TF1 could reinforce the attractiveness of its online advertising spaces by acquiring data collected by Aufeminin – although in this case the FCA ultimately dismissed the risk of anticompetitive effects.
Analyzing anticompetitive conducts likely to reduce online competition
In the past, the FCA reviewed (i) practices implemented by suppliers to limit the competitive pressure exerted by online sales, (ii) regulatory frameworks that may dissuade operators from relying on online sales, and (iii) practices implemented by online players to limit competition between them.
First, the study mentions practices that have been implemented by suppliers to limit competition exerted by online sales. Pricing practices mainly relate to resale price maintenance[6] and price discrimination at the wholesale level between offline and online distribution channels.[7] As regards non-price related practices, the FCA notes that it may investigate suppliers who decide to ban distributors from selling their products online, as this constitutes a hard-core restriction of competition.[8] The FCA may also investigate suppliers that prevent distributors from selling on third-party online platforms or so-called “market places”[9] or that restrict the possibility of being referenced on price comparison websites (although the FCA notes that it has not yet come across the latter type of conduct).
Second, the FCA notes that the development of online sales may be hindered by state regulations limiting online sales, thereby reducing consumer choice, competition between undertakings and opportunities for new players to develop. For instance, the FCA notes that it has regularly suggested to adapt the conditions for online distribution of over-the-counter drugs although the regulatory framework still constrains the development of online sales by French pharmacies.[10]
Third, the FCA’s analysis focuses on practices implemented by online players to reduce competition amongst themselves or to exclude or prevent the development of competing online platforms. The FCA notes that such strategies are less frequent than those aiming to limit competition between offline and online sales, but may develop over time as companies acquire significant market power. The FCA has already challenged the lawfulness of price parity clauses imposed by Booking.com on hotel operators referenced on its platform.[11] In addition, the FCA emphasizes the need to pay particular attention to exclusionary and foreclosure strategies implemented by incumbent operators or former state monopolists who may leverage their dominant position on the offline market across the online market. The FCA identified such risks in its opinion relating to the online gambling sector, with regard to La Française des Jeux,[12] and in its commitment decisions concerning the horse-race betting company PMU[13] and the rail operator SNCF.[14] Finally, the FCA emphasizes that there is a wide range of other practices that dominant platforms may implement to restrict competition, for example resorting to exclusivity or tying mechanisms, or imposing unfair commercial conditions.
In conclusion, the FCA’s publication notes that while the growth of online sales may result in relatively atypical conducts, the current analytical framework and tools at its disposal are sufficiently flexible to allow the FCA to continue to address such conducts. Yet, as it did in its study on competition policy in the digital sector,[15] the FCA suggests reinforcing this framework by (i) developing specific digital analytical skills, (ii) using interim measures more often, (iii) improving competition authorities’ capacity to review mergers involving digital platforms and (iv) introducing new rules applicable to “structuring digital platforms”.
[1] See FCA’s contribution to the debate on competition policy in the digital sector of February 19, 2020.
[2] Decision No. 16-DCC-111 of July 27, 2016 regarding the acquisition of Darty by Fnac.
[3] Decision No. 19-DCC-65 of April 17, 2019 regarding the acquisition of joint control of Luderix International by Jellej Jouets and the Mulliez undivided ownership.
[4] Decision No. 18-DCC-18 of February 1, 2018 regarding the acquisition of sole control of Concept Multimédia by Axel Springer.
[5] Decision No. 18-DCC-63 of April 23, 2018 regarding the acquisition of sole control of Aufeminin by TF1.
[6] See for instance Decisions No. 17-D-01 of January 26, 2017 regarding practices implemented in the tableware and kitchen sector; No. 17-D-02 of February 10, 2017 regarding practices implemented in the competitive pétanque balls sector; No. 18-D-26 and 19-D-17 of December 20, 2018 and July 30, 2019 regarding practices implemented in the liquid fertilizers sector for above-ground home farming.
[7] See in particular Opinion No.12-A-20 on the competitive functioning of electronic commerce.
[8] See for instance Decisions No. 08-D-25 of October 29, 2008 regarding practices implemented in the sector for the distribution of cosmetics and personal hygiene products; No. 12-D-23 of December 12, 2012 regarding practices implemented by Bang & Olufsen in the selective distribution of hi-fi and home cinema equipment sector; No. 19-D-14 of July 1, 2019 regarding practices implemented in the sector for the distribution of high-end bicycles.
[9] For instance, in 2015, the FCA opened an investigation into Adidas’ decision to prevent its online retailers from being referenced on online marketplaces but closed the investigation as Adidas committed during the investigation to authorize retailers to use online marketplaces, provided that they met certain qualitative criteria (See FCA’s press release of November 8, 2015 on online selling: https://www.autoritedelaconcurrence.fr/en/communiques-de-presse/18- november-2015-online-sales). In 2018, the FCA also considered that a chainsaw manufacturer’s decision to prohibit its distributors from being referenced on online marketplaces was lawful because (i) this prohibition guaranteed that the products were sold by approved distributors, thereby limiting the risk of counterfeiting and lack of sufficient advice, (ii) according to the European Commission’s E-Commerce Sector Inquiry, online marketplaces were used by only 31% of the retailers, and there was nothing indicating that marketplaces would be more necessary for online resale of outdoor power equipment than for online resale of other products (See Decision No. 18-D-23 of October 24, 2018 relating to practices implemented in the outdoor power equipment distribution sector).
[10] Opinions No. 13-A-12 of April 10, 2013 regarding a draft regulation from the French Ministry of Social Affairs and Health on good practices in online drug sales; No. 16-A-09 of April 26, 2016 regarding two draft regulations on online drug sales; No. 19-A-08 of April 4, 2019 regarding the urban distribution of drugs and private chemical pathology sectors.
[11] Decision No. 15-D-06 of April 21, 2015 relating to practices implemented by Booking.com BV, Booking.com SAS and Booking.com Customer Service France SAS in the online booking sector. A complaint was also filed against Expedia and HRS in 2013 regarding similar practices, but the FCA dismissed the complaint (See Decision No. 19-D-23 of December 10, 2019 regarding practices implemented in the online hotel booking sector).
[12] Opinion No. 11-A-02 of January 20, 2011 regarding the online gambling sector.
[13] Decision No. 14-D-04 of February 25, 2014 regarding practices implemented in the online betting and horseracing sector.
[14] Decision No. 14-D-11 of October 2, 2014 regarding practices implemented in the train ticket distribution sector.
[15] FCA’s contribution to the debate on competition policy in the digital sector of February 19, 2020.