The e-commerce inquiry:
What, why and how?
James Webber
Partner
Shearman & Sterling LLP
75th GCLC Lunch Talk, 22 May 2015
Evidence of a problem?
 Commission frequently cites a low figure for cross-border trade ("only 15% of consumers reported
having bought online from other EU countries in 2014”)
 Statistic appears to be from a Eurostat survey, based on responses to a questionnaire collected separately by
national bodies using different survey methodologies:
From whom did you buy or order goods or services for private purpose
over the Internet in the last 12 months?
(tick all that apply)
a) National sellers………………………………………………………………………………..
b) Sellers from other EU countries……………………………………………………………..
c) Sellers from the rest of the w orld…………………………………………………………..
d) Country of origin of sellers is not know n………………………………………………….
 Consumers asked to remember the nationalities of the online sellers used over last 12 months
 How did consumers decide on their answers?
 Websites may have a national domain name (e.g. “e-commerceinquiry.co.uk”) but registered in/administered from another
Member State (e.g. Luxembourg), with a warehouse in another Member State (e.g. France);
 Do sales by Amazon.co.uk always get allocated to the UK? Or to the country of origin of the seller on the Amazon
platform?
 Depending on how the statistics were compiled and analysed, platforms like Amazon may be disguising a
significantly higher level of cross-border trade
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The Commission’s e-commerce inquiry | 22 May 2015
Extent to which a territorial segmentation problem is an antitrust problem
 Assuming there is a material issue with company erected barriers to cross-border trade
(territorial restraints)
 The Commission’s DSM strategy consists of 16 initiatives across the 3 “pillars” of the DSM
 Even within the “access” pillar (in which the sector inquiry sits), the Commission has a
number of separate free movement legislative initiatives that will contribute to increasing
cross-border online trade and removing territorial restraints:
 Proposals to “end unjustified geo-blocking” (presumably via a strengthened Services Directive?)
 Copyright proposals. The root of the frustration Commissioner Vestager had with accessing her
Danish pay TV channels on her tablet in Brussels?
 Review of the CabSat Directive – specifically to consider enlarging scope to cover online distribution
 Reduce VAT burdens – a key issue particularly for SMEs
 To what extent will the e-commerce sector inquiry be genuinely incremental?
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The Commission’s e-commerce inquiry | 22 May 2015
Nature of the antitrust issue – territorial restraints / internet sales bans
 “We are designing this sector inquiry with one main goal in mind. We intend to identify what hampers
competition in e-commerce when sales straddle national borders” (Commissioner Vestager “Competition policy for the Digital
Single Market: Focus on e-commerce”, 26 March 2015)
 This is overtly about territorial restraints on the internet. It is not about RPM or MFN or other
current antitrust issues in vertical agreements
 Also assume this will not be a re-run of the current Commission cases (cross-border pay TV and
online electronics):
 Although cf. statements about portability of online subscriptions and focus on content industry?
 All other vertical cases have been taken by the NCAs. Only some of which are about territorial
restraints / Internet sales bans. For example




Adidas, Asics (DE) (internet sales);
Pierre Fabre , Bang & Olufsen (FR) (internet sales);
Hotel (FR, DE, SW, IT, UK) (MFNs)
Mobility scooters (UK) (RPM)
 Law on absolute territorial restraints and internet sales bans for goods is already clear?
 Consten and Grundig C-54/64 / Pierre Fabre C-439/09
 2010 Guidelines para 52 – internet is a passive sales tool
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The Commission’s e-commerce inquiry | 22 May 2015
Nature of the antitrust issue – territorial restraints / internet sales bans
 It is likely that the Commission has relatively little idea what is going on in vertical agreements
 No concluded vertical cases in recent years
 No notification of vertical agreements for over a decade
 Technological change in goods distribution
 Role of inquiry may be therefore simply to learn what’s going on. In particular:
 Is there a widespread enforcement gap in respect of the existing law? or;
 Is there a problem with the current rules?
 If an enforcement gap, do you need a sector inquiry to fix that? Or just a re-orientation of
enforcement priorities of NCAs and the Commission to root out hardcore territorial restraints via
complaints and ex officio action?
 If the current rules are deficient, much more interesting. Does the Commission suspect that the
currently permitted territorial or internet sales restrictions on goods within the EU need to
change?
 Where does that leave exclusive and selective distribution systems?
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The Commission’s e-commerce inquiry | 22 May 2015
Limits of antitrust as a tool to promote single market
 If the current rules are insufficient, the Commission will need to consider if there is a limit to
the extent to which territorial restraints and internet sales bans can be treated as antitrust
rather than single market issues.
 Does the Commission risk creating perverse incentives by using antitrust to attempt to iron
out genuine territorial difference or to achieve a single market objective?
 For example, there are ways in which territorial restraints, internet sales bans etc. can be
pushed beyond the reach of Art 101 which might result in less efficient distribution:
 Use of agency distribution models – with resulting inefficiencies
 Unilateral discriminatory conduct by non-dominant firms
 Direct agreements with consumers – perhaps more relevant in respect of online distribution where
wholesale intermediaries are unnecessary and a more immediate connection to consumer is possible
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The Commission’s e-commerce inquiry | 22 May 2015
And finally, a thought on outcomes / remedies
 We generally assume that competitors and consumers behave in a rational manner
 However, insights from behavioural economics suggest that this is often not the case
 Humans’ capacity to process and compute information is imperfect
 Who actually reads all the terms and conditions when buying online?
 Consumers’ decisions are susceptible to price “framing”
 We may be more likely to purchase a product at €10 if it is advertised as reduced from €20
 “Drip pricing” i.e. headline price and add-ons
 “Consumers are not just not neoclassically rational, but that they are predictably so – their
deviations from neoclassical rationality are predictable. And smart clued-up companies can and will
exploit these predictable deviations. And their capability to do so has increased with the rise of big
data and the huge computing power that can now be deployed” (Lord Currie, CMA Chairman,
April 2015)
 “The design of … remedies is not easy because all too easily interventions can have counterproductive effects” (Ibid)
 An e-commerce competition inquiry that focused on understanding how these features affected
choice and competition – that could make a very interesting contribution to antitrust, merger control
and legislative intervention in digital markets
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The Commission’s e-commerce inquiry | 22 May 2015
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