ANTI COMPETITIVE AGREEMENTS OR ABUSE OF DOMINANCE IN THE DIGITAL ECONOMY

MINISTRY OF EDUCATION AND TRAININGFOREIGN TRADE UNIVERSITY DISSERTATION ANTI-COMPETITIVE AGREEMENTS OR ABUSE OF DOMINANCE IN THE DIGITAL ECONOMY Major: International Trade Policy and Law

MINISTRY OF EDUCATION AND TRAINING

FOREIGN TRADE UNIVERSITY

DISSERTATION

ANTI-COMPETITIVE AGREEMENTS OR ABUSE OF DOMINANCE IN THE DIGITAL

ECONOMY

Major: International Trade Policy and Law

Full name: Le Phuong Nam SUPERVISOR: Prof Dr Tang Van Nghia

Ha Noi – 2019

DECLARATION

I hereby declare that this master thesis is the scientific research of my own which made on the basis of theoretical studies and under the direction and supervision of Prof Dr Tang Van Nghia The research contents and results of this thesis is completely honest These data and documents for the analysis, review and evaluation were collected from various sources which are fully listed in the reference list.

I am fully responsible for the content of this master thesis as well as this declaration.

Hanoi, 31 December 2018

Author

Le Phuong Nam

CONTENTS

ACKNOWLEDGEMENT

During the completion of this master thesis, I received the guidance and valuablehelp from the lecturers, siblings and friends With great respect and deep gratitude, Iwould like to express sincere thanks to:

Prof Dr Tang Van Nghia, Dean of Faculty of Graduate Studies of the ForeignTrade University (FTU) who wholeheartedly helped, supported and encouraged mefrom the initial to the final level of this dissertation He provided me withcomprehensive guide from choosing the topic, outlining the thesis and editing thisresearch

Professors and lecturers from FTU as well as World Trade Institute in the Master

of International Trade Policy and Law Intake Four, who not only spread profoundknowledge and information in the fields of economy and law but generated strongmotivation for me while I was taking this course as well

Last but not least, I would like to express my sincere thanks to my family, mycolleagues and my friends, who have always by my side encouraging, supporting,contributing valuable ideas and giving me favorable conditions for me to complete thisscientific research

LIST OF ABBREVIATIONS Abbreviation Full name

Development

TRIPS Trade – Related Aspects of Intellectual Property Rights

UNCTAD United Nations Conference on Trade and Development

LIST OF FIGURES

LIST OF BOXES

The digital economy is developing very rapidly, digital technologies have goneinto all aspects of life, including the production and business activities of enterprises.This thesis shows the new characteristics of the digital economy, the differences thatdigital technologies have impacted on the competitive behavior of enterprises,including anti-competitive agreements as well as abuse dominant behaviors Sincethen, the thesis points out the difficulties and challenges faced by Vietnam 'scompetition authority when dealing with competition issues of the digital economy Anumber of solutions to improve the effectiveness of resolving anti-competitiveagreement or abuse of dominance cases will also be discussed

More specifically, the thesis presents some contents such as: (i) Basic conceptsand principles of competition law, anti-competitive agreements, abuse of dominancebehaviors of enterprises in the market; (ii) The legal provisions of Vietnam and theworld in adjusting and managing competitive acts of enterprises, especially anti-competitive agreements as well as abuse of dominant position; (iii) The characteristics

of the digital economy, the participants, the relationship between subjects, thedifference in competitive behavior of enterprises on digital platforms; (iv) Differentialcharacteristics of the anti-competitive agreements in the digital economy, the forms ofagreements, the conditions of agreement, the method of agreement, the difficulties forthe management agencies to check and detect ; (v) Differences in acts of abusing thedominant position of the enterprise in the digital economy, the main implementingentity, the implementation methods, difficulties in the detection and management ofthe competition authorities (vi) challenges competition authorities face when dealingwith competition cases in the digital economy, difficulties in identifying relevantmarkets, managers do not have expertise in digital technology, consumers lackawareness of protecting themselves .; (vii) Some solutions to help Vietnam'scompetition authority to improve the management capacity of anti-competitiveagreements or abuse of dominance, solutions to improve the agency's capacitymanagement, improvement of the legal system, solutions to raise consumers'awareness

In general, the dissertation provides new content on anti-competitive agreements

as well as abuse of dominance in the digital economy, and proposes some solutions toauthorities before rapid development of this economy

CHAPTER 1: INTRODUCTION

1.1 Research rationale

Competition is a core element of a market economy, competition law is alsoconsidered as the constitution of the economy With continuous development, manynew business models have been formed, and the most outstanding ones in recentyears are the emergence of digital business models These businesses grow at arapid pace and create a whole new market - digital market or even digital economy However, competition in the digital market differs in some ways compared tocompetition in more traditional markets This field often includes platform-basedbusiness models, multi-sided markets, network effects and economic scale, whichmake competition more complex These distinctive characteristics have ambivalenteffects on the competitive process Indeed, while digital markets are generallyperceived to benefit consumers through lower prices, increased transparency andimproved product quality, they also have a tendency towards market concentration,which results in new big concern for competition authorities, who are not quitefamiliar with kinds of digital characteristics

In a digital economy, a mainstream trend often takes place, that one or veryfew companies account for the majority, even the entire market share A termcommonly used to describe this situation is “winner-takes-most” markets, which means that dominant firms have excessive power to raise prices without losing many customers Today’s superstar companies owe their privileged position to digital technology’s network effects, whereby a product becomes even more desirable as more and more people use it With considerable market power, these companies often use it skillfully to increase their economic benefits On the other hand, for emerging, small-scale digital companies, it is imperative to have agreements between them and between them and "superstar" companies to do business in a digital economy, unless they want to be annexed by other super big companies In many cases, these digital companies violate competition law by anti- competitive agreements or market power abusive conducts, and then dramatically eliminating competitiveness in the market Competition authorities around the world are now facing difficulties in resolving these kinds of issues, because of their newness and complexness.

Because of the above practice, this essay will focus on analyzing the new and

complex characteristics of anti-competitive agreements and abuse of dominance conducts by businesses in the digital economy, and then, making some recommendations for competition authorities, especially Vietnam competition authority in handling these kinds of competition cases.

management agencies In Europe, a number of studies on competition policy in thedigital economy have been conducted, and are still very new.

First of all, there must be research “Competition law in the digital economy: a French perspective (Pierre Honoré and Romain Verzeni, 2017) This is a research

on digital market, with both pro and anticompetitive characteristics On the onehand, digital markets are generally perceived to benefit consumers through lowerprices, increased transparency and improve product quality On the other hand, theyalso have a certain tendency towards market concentration Drawing upon therecent decision-making practice of the French Competition Authority, the articleprovides a brief account of some of the challenges raised by the application ofcompetition rules in the digital economy

Market Power of Platforms and Networks (Bundeskartellamt, 2016), in

respond adequately to the challenges of the digital economy for antitrustenforcement In the context that the Internet is relevant for many cases Large USInternet companies such as Google, Facebook and Amazon are operating on anational and European level with a high-profile online presence At the same time,their competitive conduct and their strategies always provoke intensive discussionsabout competitive harm caused by such strategies and the question of whether theyare legal or should be dealt with under a regulatory framework The paper it is theBundeskartellamt’s goal to expand its expertise in the field of the digital economy,

to develop antitrust investigation concepts including relevant case practice and – tothe extent required – highlight any need for legislative action In general, this studyfocuses on Platforms and Networks which is a key component of the digitaleconomy through which businesses and consumers meet, exchange, buy and sellgoods and services online

The digital economy, a challenge to competition policies (Edmond Baranes

and Andrea Cosnita-Langlais 2016) is a study that clarifies many aspects, the nature

of the digital economy, in particular the role of platforms and the competitive

acts of enterprises Since then, this study also proposes solutions to develop andupgrade the competition policy in general of countries to meet the new demands ofthe digital economy.

Resetting competition policy frameworks for the digital ecosystem (GSMA,

2016) is a further study on the specific characteristics of digital ecosystems,including the role of telephone services in the digital economy This study alsoprovides basic principles in determining relevant markets, and assessing marketpower in a digital economy Since then, making recommendations in developing acommon competition policy to catch up with the constant changes of this digitalmarket

Challenges for Competition Policy in a Digitalized Economy (European

Parliament, 2015), this study focuses on describing the economy of the form ofvalue network, business models, business strategy of enterprises through thosevalue networks Since then, this study has pointed out 10 issues that the digitaleconomy poses to the competitive field and challenges for state managementagencies in solving those problems and offering some solutions In general, this is aquite comprehensive and practical study for the legislative bodies of the researchcountries to improve their capacity to solve competitive issues in the digitaleconomy

Pricing algorithms: the digital collusion scenarios (Freshfields Bruckhaus

Deringer1, 2017) is an interesting study of the subtle collusion methods thatbusinesses can implement in the digital market, through price fixing usingalgorithms This is a very new aspect, which outlines the cases in whichunderground businesses collude to fix prices without competition laws Since then,this study shows the gaps that European competition laws in particular and theworld in general in controlling such anti-competitive agreements

In addition, there are many other studies that I cannot name them all Such asEconomic studies of two- and multi-sided markets and of service platforms have

1 Freshfields Bruckhaus Deringer, the international law firm (a limited liability partnership

organised under the law of England and Wales www.freshfields.com/support/legalnotice.

developed considerably in the past few years (CAILLAUD & JULIEN 2001, 2003;ROCHET & TIROLE 2003, 2006) More recently, studies have focused on theimplications of the digital economy for competition policies (EVANS 2003) Theyhave recurrently emphasized that the major conclusions drawn for traditionalmarkets cannot be extrapolated to e-businesses This holds, in particular, for prices,which, if lower than costs, would be evidence of predatory (or abusive) behavior, orfor profit margins, which, if too large, would necessarily be incompatible withstrong competition (BEHRINGER & FILISTRUCCHI 2015; VASCONCELOS2015; WRIGHT 2004).

1.3 Research objectives

This study focuses on clarifying the characteristics of agreements to restrictcompetition and abuse of dominant position in the digital economy At the sametime, it makes recommendations for the Vietnamese competition authority inresolving those issues

1.4 Research questions

The objectives of the research are derived from the research questions asfollows:

- What is importance of a digital economy?

- What are characteristics of anti-competitive agreements in the digital economy?

- What are characteristics of abuse of dominant in the digital economy?

- Which difficulties and challenges do competition authority face when dealing withcompetition issues in the digital economy?

- How does Vietnam Competition Authority improve adaptive capacity andeffectively solve competition cases in the digital economy, especially agreements torestrain competition and abuse use a dominant position?

1.5 Scope of research

In terms of the content of this thesis, it focuses primarily on the synthesis ofthe characteristics of anticompetitive agreements and the abuse of dominantposition in the digital economy and from there to make recommendations forVietnam Competition Authority Therefore, the scope of this thesis is as follows:

As for geographical scope: This thesis focuses on research on anti-competitiveagreements and acts of abuse of dominant position in the digital economy, takinginto account the specific cases that occur in the world, then this study makes deeperanalysis on Vietnam's context

As for time scope, the research focuses its analysis and synthesis on the recentperiod of about 15 years (since the digital economy emerged) and also makes some

prediction of some new complicated characteristics of competitive activity in thedigital economy in the future

1.6 Research methodology

During the research process of this thesis, the author has combined differentresearch methods as follows:

- Theoretical research methods:

The thesis will collect legal documents, economic information through historical research method and then classify and systematize them Moreover, the thesis also analyze and synthesize all data and documents.

- Practical research methods:

The thesis will observe the real situation of enforcement of competition law and policy all over the world and base on particular experiences from several countries, giving recommendations for Vietnam by professional solution method.

1.7 Thesis outline

Chapter 1: Introduction

Chapter 2: The principle of anti-competitive agreements, abuse of dominance

and the digital economy

Chapter 3: ANTI-COMPETITIVE AGREEMENTS OR ABUSE OF

DOMINANCE IN THE DIGITAL ECONOMY

Chapter 4: Dealing with anti-competitive agreements and abuse of dominance

cases in the digital economy for Vietnam Competition Authority

Chapter 5: Recommendation and conclusion.

CHAPTER 2: THE PRINCIPLE OF ANTI-COMPETITIVE AGREEMENTS,

ABUSE OF DOMINANCE AND THE DIGITAL ECONOMY

2.1 Anti-competitive agreements

2.1.1 The concept of anti-competitive agreements

In economics, anti-competitive agreement (Cartel) is seen as the unity of manybusinesses to reduce or eliminate the pressure of competition or limit the ability toact in a unique way set up among competitors Dictionary of International TradePolicy defines Cartel as a formal or informal agreement to achieve beneficial resultsfor related goods, but may be harmful to other parties Therefore, anti-competitiveagreement (cartel) is one of the competition restriction acts regulated byCompetition Laws of many countries

Paragraph 1 of Article 81 of the Rome Treaty2 prohibits any agreementbetween businesses, any decisions of the business association and any coordinatedaction that may affect trade exchanges between member states with anti-competitiveconsequences

According to Clause 3, Article 3 of the Vietnamese Competition Law, competitive agreements are acts of enterprises that reduces, falsifies or obstructscompetition in the market, including Anti-competitive agreements, abuse of marketdominance, abuse of monopoly position and economic concentration Although theCompetition Law does not directly provide a definition of Anti-competitiveagreement, but from the content of the above provisions, it can be understood that it

anti-is an agreement between two or more business entities in the market towards orhaving the effect of reducing, falsifying or obstructing normal competition in themarket

2.1.2 Characteristics of anti-competitive agreements

2 The Treaty on the Functioning of the European Union (TFEU; also referred to as the Treaty

of Rome) is one of two treaties forming the constitutional basis of the European Union (EU), the other being the Treaty on European Union (TEU; also referred to as the Treaty of Maastricht).

2.1.2.1 General characteristics of anti-competitive agreements

On the subject side

Subjects conducting anti-competitive agreements are businesses, those withthe form of business organizations or business associations

Laws against anti-competitive agreements in many countries usually includemeasures on the anti-competitive agreement behavior when the subjects conductingsuch behavior are businesses However, the subjects of the anti-competitiveagreements are also defined differently in each specific case But, there are stillsome things in common such as:

Enterprises conducting an anti-competitive agreement must be on the samerelevant market;

Enterprises must operate independently of each other The unified actions ofcorporations, of an economic group or of parent and subsidiary companies, are notconsidered agreements by the competition law, because of the fact that the above-mentioned economic groups, in spite of including many members, are also just aunified subject

In terms of forms

Anti-competitive agreements are agreements, contracts or same actionsbetween entities (called agreement parties) to limit competition between them, orreduce or deviate the competition on the market in general Anti-competitiveagreements occur in two forms: vertical agreements and horizontal agreements(vertical and horizontal cartels)

Horizontal agreement is an agreement made between entities of the same level

of business, so these types of agreements are often agreements involving pricefixing, market division, preventing other businesses from market entry

Vertical agreements are agreements made between entities at different levels

of business (manufacturers, distributors, retailers), so common behaviors in verticalagreements are resale price maintenance, exclusive distribution by territory, orcustomer group

2.1.2.2 Main types of anti-competitive agreements

According to the European Commission, agreements are almost always illegal

if the participants agree to:

- fix prices;

- limit production;

- share markets or customers;

- fix resale prices (between a producer and its distributors)

But an agreement may be allowed if it:

- has more positive than negative effects;

- is not concluded between competitors;

- involves companies with only a small combined share of the market;

- is necessary to improve products or services, develop new products orfind new and better ways of making products available to consumers

And Under Article 11 of Vietnamese Competition Law 2018, Anti competitive agreements include:

-1. Agreement to fix prices of goods or services directly or indirectly

2. Agreement to divide customers, divide consumer markets, supply goods andservices

3. Agreement to limit or control the quantity and volume of production,purchase, sale of goods and provision of services

4. Agreement for one or more parties to the agreement to win a bid whenparticipating in a bid to supply goods or provide services.

5. Agreement to prevent, inhibit or prevent other businesses from entering themarket or developing business

6. Agreement to remove from the market those businesses that are not parties

9. The agreement does not deal with parties not participating in the agreement

10. Agreement to restrict consumption markets of products and sources ofsupply of goods and services provided by parties not participating in theagreement

11. Other agreements that impact or potentially cause limited competition

2.1.2.3 Anti-competitive agreements in terms of relevant market

Competition does not exist in a vacuum but in a marketplace For the purpose

of competition law, the 'marketplace' has to be defined with even more precision, interms of a 'relevant market', a market where the effect of competition takes place

The relevant market can be defined as an instrument to recognize and definethe limitations of competition between companies and can be determined bydefining the relevant product market or the relevant geographic market or withreference to both the markets The relevant geographic market illustrates thelocations of the producers or sellers of the product or service and whereas therelevant product market describes the market comprising of products or serviceswhich are regarded as interchangeable or substitutable by the consumer, by reason

of characteristics of the products or services, their prices and intended use

The need for defining the relevant market is for the purpose of drawingparameters of wrongdoing in the relevant market, the question is whether a relevantmarket must be defined in cases, which deals with anti-competitive agreements?The answer is 'no', in fact, competition policy of most countries do notrequired to identify the relevant market in all anti competitive agreement cases, buthave to see if the agreement has anti-competitive effect in any market and thismarket may be the market of the product/ service of any party entering into theagreement

However, it is impossible to completely deny the value of determining therelevant market in dealing with anti-competitive agreements Not defining therelevant market before undertaking analysis may be a substantive error that affectsthe validity of the analysis It is only those agreements between enterprises or

persons "engaged in identical or similar trade of goods or provision of services"

that attract the presumption contained therein For the purposes of determiningwhether goods or services are identical or similar to each other, it is necessary toexamine their demand side substitutability, which again involves looking at therelevant product and geographical markets

Market definition is a tool to identify and define the boundaries of competitionbetween firms It serves to establish the framework within which competition policy

is applied by the Commission The main purpose of market definition is to identify

in a systematic way the competitive constraints that the undertakings involved face.The objective of defining a market in both its product and geographic dimension is

to identify those actual competitors of the undertakings involved that are capable ofconstraining those undertakings behavior and of preventing them from behavingindependently of effective competitive pressure Therefore, the purpose of definingthe 'relevant market' is to assess with identifying in a systematic way thecompetitive constraints that undertakings face when operating in a market.Therefore, identifying relevant markets is an important first step that needs to betaken, before analyzing and evaluating competition cases in general andanticompetitive agreements in particular And indeed, many countries have used thecombined market share of businesses in the relevant market to screen competitivecases in the market, including agreements between businesses

2.1.3 Overview of Legislation on anti-competitive agreements in the market economy

Faced with a competition restriction agreement, each country must present itsown views While there are differences in details, in general, most countries agreethat not all competition restriction agreements are considered illegal, onlyagreements that cause drought Serious competition for third parties is prohibited.The important thing here is that each country sets its own criteria to determinedifferent levels of "serious competition restriction." This difference is oftenexpressed in the percentage of the combined market share of the relevant market inthe agreement that each country provides for each specific case On the other hand,the viewpoint of each country dealing with the competition restriction agreement isalso expressed by which states each impose an exemption on this type of agreement

The Competition Model Law of the United Nations Trade and DevelopmentOrganization sets out agreements that are considered to be the following restrictiveagreements: "Agreement on pricing or other sales conditions, including in tradeinternational trade; collusion bidding; dividing markets or customers; restrictproduction, limit sales, including quota use; refusing to purchase goods withcollusion; refusing to provide goods with collusion; denying the collectivepermission to participate in some agreements ”.

This law allows an exemption for all of the above restrictive agreements ifthese actions are notified in advance or the authorities believe that these behaviorsmay bring public benefits If it does not fall under the exemptions, all of the aboveagreements are prohibited, whether they are in any form and are formal or informal.Thus, in contrast to the laws of some other countries, this Law does not provide for

a distinction between agreements to restrain legitimate competition and illegalagreements (regardless of exemptions) In the spirit of this Law, all restrictiveagreements are illegal and prohibited This law does not care about the criteria such

as the combined market share of the parties to the agreement, but only interested inhow the parties themselves agree with each other to determine legality ofcompetition restriction agreement

Canada's competition law has no concept of restraint agreement but has theconcept of "collusion" and "collusion bidding" In fact, the term collusion is usedwith the Competition Law, while in most other countries, the Competition Lawconsiders collusion bidding to be among competition restriction agreementsmeaning of more negative agreements than positive and that is another way oflimiting competition agreements "Collusive bidding" is separated into anindependent act by Canada's

In Vietnam, Vietnam's Competition Law was passed by the 12th NationalAssembly, the 6th session in 2018 and came into effect on January 7, 2019,providing detailed provisions on anti competitive agreements

Under Vietnam's Competition Law, the three types of final competitionrestriction agreements mentioned in section 2.1.2.2 are strictly prohibited, theremaining agreements are still accepted if the parties agree to have a combinedmarket share in the relevant market is less than 30% Among agreements that areconsidered to be restrictive of competition, only agreements that are not strictlyprohibited are entitled to exemptions with certain conditions and exemptions arealways valid The parties to the competition restriction agreement will have to meetone of the conditions set out by the Competition Law to enjoy an exemption.Exemptions are mainly based on the purpose of the competition restrictionagreement set by the parties More specifically, if that agreement is to eitherstreamline the organizational structure, business model, improve businessefficiency; or promote technical and technological advances, improve goods andservice quality; or promote the uniform application of quality standards, technicalnorms of product categories; or unify the conditions of business, delivery, andsafety but not related to the elements of the family; or enhance the competitiveness

of small and medium enterprises; or enhance the competitiveness of Vietnamesebusinesses in the international market

- the ability to behave independently of its competitors

In general, the concept of “dominance” or “dominant position” literally meanscontrol “Dominant” is an adjective that refers to ruling or governing To dominate

is to exercise control over or to govern “Dominance” as it is widely known is aconcept, which frequently occurs when a player (or a licensee) has monopoly in aparticular market Dominant position relates to the possession of sufficient marketshare that enables an undertaking to act independently without taking account of thelikely behavior of competitors

Concept of abuse of dominance

According to OECD definition, “The term abuse of dominant position refers

to anticompetitive business practices in which a dominant firm may engage in order

to maintain or increase its position in the market.” 3

According to European commission4, Abuse of a dominant position means that

A company can restrict competition if it is in a position of strength on a givenmarket A dominant position is not in itself anti-competitive, but if the companyexploits this position to eliminate competition, it is considered to have abused it

In Vietnam, In paragraph 5 of Article 3 of the Competition Law 2018: “Abuse

of dominant market position, abuse of monopoly position is the behavior of an enterprise with dominant market position, exclusive position of impact or potentially to limit competition.”

2.2.2 Characteristics of abuse of dominance

2.2.2.1 General characteristics of abuse of dominance

3 OECD, ABUSE OF DOMINANT POSITION – Grossary of statistical terms

See https://stats.oecd.org/glossary/detail.asp?ID=3136

4 OECD, ABUSE OF DOMINANT POSITION

http://ec.europa.eu/competition/consumers/abuse_en.html

First of all, it is necessary to identify the dominant position, or monopoly inthe market Dominant position is understood as superior competitiveness to be able

to manipulate the relevant market for a group of goods or services of one or a group

of enterprises A monopoly position occurs when there is only one business doingbusiness in a related goods or service sector in the market, or there exists acompetition there, but at negligible levels However, the determination of thedominant position, or the monopoly position of the business, must be determinedwithin the relevant field In other words, the goods / services of a dominant position

or monopoly position are in a competitive relationship in the relevant market

In terms of subjects:

The subjects of abuse of dominance, or the monopoly position are specialsubjects, meaning that not all businesses can conduct this behavior These arebusinesses that have enough market power, reach a certain threshold in accordancewith market laws, or other evaluation criteria Assuming that under Vietnamesecompetition law, for dominant positions, enterprises are considered to have adominant market position if they have a market share of 30% or more in therelevant market, or are likely to cause restrictions Significant competition Thus,only if the enterprise has a market share of 30% or more, or is likely to causesignificant competition restrictions, it is considered to be the only application of thelaw In the absence of these two conditions, even if there are signs of unilateralrestriction of competition, the subject of the conduct shall not be considered to beabusing the dominant position in the market

2.2.2.2 Main types of abuse of dominance

When having dominant position or a monopoly position, businesses alwaystend to abuse that position to maintain (or even improve that position) to obtain anabsolute competitive advantage With other competitors, can manipulate themarket

According to the Law on Competition of the United Nations Trade andDevelopment Organization (UNCTAD), for example, the following acts areconsidered acts of abuse of the dominant market position:

- Selling low prices to attract customers, expanding market share and therebyeliminating competitors;

- Discrimination (such as inadequate treatment of valuation or imposition ofgeneral conditions of supply, or purchase of goods and services, including pricingpolicies in transactions between business members of a company with the price to

be purchased, or sold at a price lower or higher than the price applied to similartransactions with outside businesses;

- Fix the price at which the sold goods can be resold, including export andimport goods

According to OECD, acts of abuse of dominant position are often in thefollowing forms:

- depriving smaller competitors of customers by selling at artificially low prices theycan't compete with

- obstructing competitors in the market (or in another related market) by forcingconsumers to buy a product which is artificially related to a more popular, in-demand product

- refusing to deal with certain customers or offering special discounts to customerswho buy all or most of their supplies from the dominant company

- making the sale of one product conditional on the sale of another product

2.2.2.3 Abuse of dominance in terms of relevant market

The dominance of an enterprise is always determined with respect to aparticular relevant market The concept of the ‘relevant market’ is important tocompetition law, and in the case of an abuse of dominance investigation, set theparameters for the determination of dominance

Methodologies for defining markets and assessing market power

Market definition in digital markets

The definition of the market in the traditional way is usually taken place bycompetition agencies, by measures such as SSNIP Test to assess the difficulty ofentering the market of new businesses, thereby determining market limits Thedigital market, in theory, will also be defined as such, but there are very differentpoints of this market that need to be mentioned to define it correctly

Digital markets are frequently “two-sided”, which means that the market is usually

include two or more groups of consumers through a digital platform The value toconsumers on one side depends on the number and/or types of users on the otherside As a result, prices set by digital platforms can be zero on one side Marketdefinition should be considered for both sides and must reflect theinterdependencies of the two sides, If not, it will tend to define too narrow a market

Digital markets frequently exhibit “competitive frictions”:

The SSNIP test:

Undue prominence? One common approach to defining a relevant market isthe SSNIP or “hypothetical monopolist” test, which focuses the definition of arelevant market on the smallest set of products/services, such that a hypotheticalmonopolist would not find it profitable to increase prices above competitive levels

by five to ten percent The SSNIP tests features prominently in the guidelines ofvarious jurisdictions

(1) Regulatory and competition authorities generally consider theconceptual framework provided by the SSNIP test “as a way of approachingmarket definition, rather than a tool to definitively determine marketboundaries.”

(2) Through a process of narrowing or widening the market,authorities then derive the relevant geographic and product market, whichcomprises all goods/services that are interchangeable and thereby place acompetitive constraint on one another However, its prominence does notmean that a SSNIP test is necessarily the most appropriate tool in everycircumstance, and there are risks of using it to define a relevant market Thehypothetical monopolist test is set forth as “one way of making thisdetermination” (emphasis added) in the European Commission Notice onmarket definition In practice, it is seldom that the SSNIP test is formallyapplied A 2003 study for the European Commission states that the EC hasonly used the SSNIP test in 11% of its definitions of relevant productmarkets

However, the determination of the relevant market for the digital economy hasyet to be a concrete method of efficiency, due to differences in the nature of thedigital market, such as measures such as SSNIP test cannot be carried out show.Difficulties in identifying relevant markets for the digital economy will be furtheranalyzed in the following section of this thesis

2.2.3 Overview of Legislation on abuse of dominance in the market economy

Basically, competition law is based on the market share of the enterprise todetermine the dominant position or monopoly position (even when applied to theposition of leader of a group of enterprises acting together) Under German LAW,Competition Restriction Law (GWB) is the dominant market position (includingmonopoly) when there is no competition or competition but not significant in themarket However, this Law also allows for position speculation when the marketshare of an enterprise has more than one third of the total market share of theenterprise in the relevant market

The process of determining the existence of dominance in a firm under Article

102 of the TFEU, as applied in the EU also involves three stages:

(1) Defining the market: define the relevant product market and the relevantgeographical market of which must comprised at least a substantial part of thecommon market;

(2) Analyzing the market share: establish the market share of the undertaking

in question on the relevant market defined above;

(3) Analysis of competitive constraints: assess the significance of the marketshare and whether actual or potential competitors may affect this position (Roth,2001)

In the EU, Article 102 of the TFEU Treaty prohibits the abuse of dominantposition It provides that, “any abuse by one or more undertakings of a dominantposition within the common market or in a substantial part of it shall be prohibited

as incompatible with the common market insofar as it may affect trade betweenMember States Such abuse may, in particular, consist in:

(a) Directly or indirectly imposing unfair purchase or selling prices or otherunfair trading conditions;

(b) Limiting production, markets or technical development to the prejudice ofconsumers;

(c) Applying dissimilar conditions to equivalent transactions with othertrading parties, thereby placing them at a competitive disadvantage;

(d) Making the conclusion of contracts subject to acceptance by the otherparties of supplementary obligations which, by their nature or according tocommercial usage, have no connection with the subject of such contracts.”

There are three elements needed to establish a breach under Article 102:

- A dominant position in the common market or substantial part thereof;

- An abuse of that dominant position;

- An actual or potential effect on trade between Member States

In contrast, Australia applies the concept of “misuse of market power”.Section 46 of the Australian Competition and Consumer Act 2010 provides that,

“(1) A corporation that has a substantial degree of power in a market shall not takeadvantage of that power for the purpose of:

(a) Eliminating or substantially damaging a competitor of the corporation or of

a body corporate that is related to the corporation in that or any other market;

(b) Preventing the entry of a person into that or any other market; or

(c) Deterring or preventing a person from engaging in competitive conduct inthat or any other market.”

In Vietnam, according to Competition Law 2018, in Article 24 there areprovisions:

1 An enterprise which is considered to have a dominant market position if ithas a significant market power shall be determined in accordance with Article 26 ofthis Law or has a market share of 30% or more in the relevant market

2 The group of enterprises considered to have a dominant market position ifthey jointly act to limit competition and have considerable market power shall bedetermined according to the provisions of Article 26 of this Law or have a generalmarket part of one of the following cases:

a) Two enterprises with a total market share of 50% or more in the relevantmarket;

b) Three enterprises with a total market share of 65% or more in the relevantmarket;

c) Four enterprises with a total market share of 75% or more in the relevantmarket;

d) Five or more businesses have a total market share of 85% or more in therelevant market

3 The group of enterprises with a dominant market position specified inClause 2 of this Article does not include enterprises with a market share of less than10% in the relevant market.

2.3 The digital economy

2.3.1 The concept of the digital economy

Digital economy refers to an economy that is based on digital computing

technologies, although we increasingly perceive this as conducting business throughmarkets based on the internet and the World Wide Web The digital economy is also

sometimes called the Internet Economy, New Economy, or Web Economy.

Increasingly, the digital economy is intertwined with the traditional economy,making a clear delineation harder.5

The term 'Digital Economy' was first mentioned in Japan by a Japaneseprofessor and research economist in the midst of Japan's recession of the 1990s Inthe west the term followed and was coined in Don Tapscott's 1995 book The Digital Economy: Promise and Peril in the Age of Networked Intelligence 6 This wasamong the first books to consider how the Internet would change the way we didbusiness

Three main components of the 'Digital Economy' concept can be identified:

- e-business infrastructure (hardware, software, telecoms, networks, humancapital, etc.),

- e-business (how business is conducted, any process that an organizationconducts over computer-mediated networks),

- e-commerce (transfer of goods, for example when a book is sold online).But new applications are blurring these boundaries and adding complexity; forexample, consider social media and Internet search

5 Digital_economy https://en.wikipedia.org/wiki/Digital_economy

In this new economy, digital networking and communication infrastructuresprovide a global platform over which people and organizations devise strategies,interact, communicate, collaborate and search for information More

recently, Digital Economy has been defined as the branch of economics

studying zero marginal cost intangible goods over the Net.

2.3.2 Characteristics of the digital economy

Over the past decade there have been significant changes in how people andbusinesses connect Building on the popularity of social networks, enterprises haveestablished their own business networks to connect suppliers, customers andinternal systems The result is a growing global trade that is estimated to reach $65trillion by 2020 (SAP Business Trends) Add to this, the rise of the Internet ofThings with an estimated 45 billion connections between devices by 2020, and youhave a business environment of endless possibilities To successfully adapt, onemust first understand the five main attributes of the digital economy:

Figure 1 The features of the digital market call for a different and more nuanced approach to competition policy

economy-and-what-it-means-for-og/

Source:https://blogs.sap.com/2016/03/08/5-characteristics-of-the-digital-Competition in digital markets is characterized by waves of investment andinnovation and rapid technological progress Competitive dynamics are changing,with digital technologies reshaping existing markets and giving rise to new services.Consumers in digital markets often value quality and product features over lowprices The supply of digital services tends to be characterized by scale economiesand strong network effects Digital platforms can be two-sided or multi-sided, withdistinct groups of users benefitting from the presence of the other Collecting andanalyzing customer and supplier data may create a strategic advantage, especiallywhen it helps to improve the quality of services.

These new features of the digital market call for a different and more nuancedapproach to competition policy Governments should ensure their competition andregulatory frameworks reflect how the market has evolved and provide a soundfoundation for ongoing competition, investment, and innovation that benefitseveryone

2.3.2.1 General characteristics of the digital economy

Developing as a breakthrough step from the traditional economy, the digitaleconomy has different characteristics, such as:

Digitized and Tracked: In a digital economy, analog objects generate digital

signals that can be measured, tracked and analyzed for better decision making.While the oil and gas industry has been ahead of the curve on digitization for over

30 years, digitalized assets have been limited to high-value equipment andmachinery Now, however, lower costs for sensor technology are allowing operators

to push more processing out into the field For example, companies could connectmultiple oilfields to improve forecast accuracy and increase profitability on a welllevel basis

Connected: Linking assets, suppliers, workers and stakeholders by wireless

communications allows people to make data-driven decisions, thereby improvingsafety, efficiency, and visibility across the enterprise By connecting remotepipelines to each other and leveraging predictive maintenance, oil and gascompanies are eliminating unexpected failures, improving asset integrity, andincreasing asset uptime

Shared: The digital economy operates on sharing Soon, companies will buy

only what is needed and pay as they go Purchasing what is needed lowersinventory costs, while buying usage as a service allows companies to pay only forthe time used and value received Consider the possibilities of true collaborationamong service station operators, third-party carriers, refineries and terminals toconsumers Oil and gas companies could automate the replenishment of tanks, usebest-buy scenarios, and plan optimized truck routes for deliveries to servicestations

Personalized: Another characteristic of the digital economy is customer

personalization Personalization means customers get tailored products andexperiences from their favorite brands when and where they want them Imaginedelivering the specific type of fuel a gas station prefers at the exact moment it runsout Or providing fleet drivers with specific routes optimized to their personalpreferences and driving habits

Direct: The digital economy also allows oil and gas companies to by-pass the

middleman, eliminating unnecessary intermediaries or channels and creating a moredirect relationship between buyer and seller A simplified ecosystem has less frictionand lowers the barrier to entry for players in another part of the value chain Remoteservice monitoring is a good example of more direct operations Leveraging remoteintelligence to track, monitor, manage, report, and resolve asset issues throughoutthe service lifecycle eliminate the need to have full-time, local personnel

Digital technologies are rapidly reshaping existing markets, as well as givingrise to new markets based on innovative services and applications Whilecommunication networks are the core infrastructure of the digital ecosystem, digitalservices are transforming industries across the economy by providing new ways toconnect customers with suppliers, businesses with businesses, individuals withindividuals and machines with machines.

Digital markets often give rise to competition driven by innovation,investment and entrepreneurship Schumpeter has described this process of dynamiccompetition as “creative destruction”, whereby innovation and entrepreneurshipcreate new industries, often with just one or a few large firms The ‘Schumpeterian’nature of competition for the market as opposed to competition in the market is arecurring theme in the literature on the digital economy

2.3.2.2 Objects in the digital economy and the relationship between them

In every economy, there are many subjects that exist and in the digitaleconomy too However, only a few main subjects of the digital market arementioned in this dissertation, due to the direct impact of these actors oncompetition

Products in the digital economy:

First of all, it is necessary to clarify what kinds of products are available in thedigital economy, from which we can analyze the market competitiveness of thoseproducts The digital economy basically consists of two main products:

(1) Digital products, stored on computer, phone, internet, andcloud devices These products can be drawings, images, articles, videos,parts soft, application or anything that people can digitize andcommercialize them There are countless examples of these products such asonline lectures, online design drawings, online translation, customer data therefore, there are also customer groups in the digital market, who supplythese products

(2) The second type of product is digital platforms, helping tosupport the circulation of goods and services, including traditional goods andservices and digital goods and services Referring to the companies providingthis platform must include famous names like Facebook, Amazon, YouTube,Google, Umber, Air BnB

in the Digital economy, based on a digital platform provided by Amazon

(2) Business provides a platform for other businesses andconsumers to access and conduct sales and purchase of goods and services.These digital firms brings lower costs, in particular for transactions, byfacilitating interactions; and it helps match supply with demand by processinginformation This advantage brings another source of efficiency owing to increasedeconomies of scale or higher productivity: the more customers a company has, themore capable it is of offering them a service of better quality at the same price.Due to the superiority of digital technology, everyone can become a smallbusiness by selling their products through digital platforms provided by anotherbusiness On the other hand, enterprises with a background can be likened to speciallegislators when they can regulate how businesses and consumers use theirplatforms to buy and sell goods online This is also one of the things that make thecompetition in the digital market become complicated

Consumers:

In a digital economy, consumers can search for products they need onlythrough a few small tasks with a computer or phone Digital technology givesconsumers unprecedented convenience, but that convenience makes consumers themost vulnerable in this digital market

The online consumption makes consumers unable to verify product qualitydirectly by senses before they purchase All information about goods, productquality and price is easily created by enterprises to create asymmetric information tosell more goods On the other hand, in the process of purchasing goods and services

on digital platforms, consumers unintentionally leave information about theirbehavior, this information is thoroughly utilized by businesses to build battlefields.Effective sales strategy It is the information about this consumer behavior thatbrings the difference in competition among digital businesses

Competent state agencies:

To ensure a competitive and equal business environment on digital platforms,while protecting the interests of consumers, competition management agencies,digital market management agencies play very important roles

Relationship between objects of the digital economy

Two-sided market:

A two-sided market, also called a two-sided network, is an intermediaryeconomic platform having two distinct user groups that provide each other withnetwork benefits The organization that creates value primarily by enabling directinteractions between two (or more) distinct types of affiliated customers is called amulti-sided platform (MSP)

Two-sided networks can be found in many industries, sharing the space withtraditional product and service offerings Example markets include credit cards(composed of cardholders and merchants); HMOs (patients and doctors); operatingsystems (end-users and developers); yellow pages (advertisers and consumers);video-game consoles (gamers and game developers); recruitment sites (job seekersand recruiters); search engines (advertisers and users); and communicationnetworks, such as the Internet Examples of well known companies employing two-sided markets include such organizations as American Express (creditcards), eBay (marketplace), Taobao (marketplace in China), Facebook (socialmedium), LinkedIn (professional medium), Mall of America (shopping mall), Match.com (dating platform), AIESEC (leadership development for youth byplacing talent in companies), Monster.com (recruitment platform), and Sony (gameconsoles).

Figure 2: Two side market

Source: https://en.wikipedia.org/wiki/Two-sided_market

The market economy is outstanding for the fact that the perceived quality of aservice depends directly on the number of users; whence a network effect Althoughthis phenomenon already exists in the traditional economy, digital firms draw more

profit from it by bringing into relation two or even several types of users via

two-or multisided platftwo-orms This is not a direct netwtwo-ork effect, whereby each user

benefits from the presence of others, but an indirect network effect, wherebydifferent categories of customers (or rather of buyers and sellers) are broughttogether via the platform Each category thus benefits from the categories ofcustomers/users present on the other “side” of the market This generates crossedexternalities since at least one side of the market is normally a positive externalityfor the other(s) There are many examples: newspaper readers attract advertising,cybernauts attract advertisers, etc

The reality of these crossed (or cross-sided) externalities underlies thebusiness model adopted by service platforms: the side of the market generating theexternality is subsidized by offering services at a very low price or for free, so as toconsolidate a sizeable customer base and exert a strong attraction on the other side

of the market

The digital economy thus has two noticeable characteristics relevant tocompetition First of all, on one side of the market, extremely low prices are set thatarouse a strong suspicion of predatory behavior Only an examination of prices onall the markets (or sides of the market) can clear up this suspicion The secondcharacteristic is the tendency toward a concentration of markets and the creation ofdominant positions, reinforced by economies of scale and direct network effects anddriven by the necessity to form a sizeable user base Here are some key competitiveissues that often arise from the interaction between the subject in the digitaleconomy:

Price-fixing agreements

The economic analysis of the factors that incite platforms to enter into fixing agreements is still very limited Collusion between platforms wouldnecessitate simultaneous price-fixing on both sides of the market This wouldstrongly impair the colluding firms’ ability to implement it and sustain theagreement

price-A few empirical studies have tried to test how easy or difficult it is to sustaincollusion in two-sided markets According to a study on Italian newspapers(ARGENTESI & FILISTRUCCHI 2007), it was easy to fix prices on the side of themarket turned toward readers; but it was much harder for dailies to simultaneouslycoordinate their actions on the advertising market, where rates were normally

negotiated and frequently subject to rebates Price-fixing agreements will be discussed deeper in the next chapter of this dissertation.

How do digital business models compete?

Irrespective of the business model used, many online business models depend

on attracting the attention of end-users As such, they compete with each other for

an audience More specifically, they compete for the personal data obtained fromthe audience while using the service At the same time, online business modelscontinuously develop new products and services as well as improve existing ones

By doing so, online firms constantly redefine the boundaries of digital markets andtend to compete for markets — or aim at creating new markets — rather thancompete which each other in existing markets

The competition for an audience is based on maximizing the consumer’s value

of the total proposition offered This translates in a marketing mix comprising offour main dimensions: ‘Enable&Connect’ ‘Find&Obtain’ ‘Function&Content’ and

‘Experience’ – see Figure 4 below Price is presented as a smaller fifth dimension,

we elaborate on this in the text below the figure

Figure 3: Marketing mix of digital platforms