There is No Case for Economic Intervention in P2B

February 12, 2018

Paul MacDonnell, Executive Director, Global Digital Foundation

The suggestion in a European Commission public consultation that legislation is needed to protect online businesses from unfair platform trading practices is supported by neither the Commission’s own research nor by the platforms’ supposed victims, businesses trading online. A review of 57 responses from identified organisations shows that small businesses, which the Commission says are most vulnerable to unfair trading practices, are overwhelmingly satisfied with the current arrangements.

The Interactive Software Federation of Europe for example, which represents content providers like Sony, Nintendo, Games Ireland, Electronic arts, Warner Bros, and Microsoft, and which does not represent any of the major platforms, has found no evidence of "harmful trading practices between online platforms and our members". Developers Alliance, a pan-EU software industry representative body, surveyed over 110 European-based developers and publishers and found 81% “believe that the relationship between them and platforms is best handled within the industry, rather than through government intervention”.

For an economic perspective EPICENTER, a network of European think tanks, has pointed out that the questions asked in the Commission’s study into business’ experience of platforms were somewhat leading. For example ECORYS, which the Commission engaged to undertake its study, asked respondents whether more transparency is desirable in the relationship between platforms and businesses. EPICENTER pointed out that this clearly invites an affirmative response. Who on earth is going to say “No”? EPICENTER has also pointed out that the top two problems identified by surveyed businesses were “technical issues” and “a lack of customer support”, neither of which suggests that platforms are abusing market power. The Interactive Software Federation of Europe, Allied for Startups, and ACT, the App Association, all indicated in their comments to the Commission that the current contractual system is working well or can, without government intervention, be made to work better.

In other words the people who the Commission suggests may need their protection beg to disagree. Of those who are calling for Commission intervention to regulate the relationship the leading advocates are the European Trade Union Confederation (ETUC) which argues that, as they are now a focus for workers to find employment, platforms need regulation in order to protect their rights, Spotify, the music streaming service, and the German Hotel Association. The ETUC makes an interesting argument and it is, no doubt, worth discussing but it is not germane to the Commission’s current consultation. Spotify and the German Hotel Association are concerned that platforms restrict their business. It’s not clear whether Spotify can claim to have suffered significant harm. Apple doesn’t want Spotify to use its iPhone app to sell its services but Spotify users with an iPhone can use the app to play music without hindrance. Spotify’s argument does not prove that there is a systemic problem in the relationship between platforms and businesses. Furthermore, a stand-off between two companies cannot justify a regulatory intervention threatening the entire EU innovation ecosystem, a large part of which are European platforms which have become worldwide successes such as Booking, Zalando or BlaBlaCar.

IndustriAll, another pan-EU trades union organisation, provides the Commission with a sweeping analysis concerning the power of big data and the supposed abuse of traders by platforms’ discriminatory practices. It calls for an effective dismantling and remaking of the platform economy along "fair" lines. This is a cogent critique of the platform economy from a neo-Marxist perspective but it falls far outside of the scope of the consultation.

The ECORYS study found that the majority of businesses that use platforms are either happy with their current arrangements or believe that any disagreements or problems can be worked out within the existing relationship without intervention by the European Commission. Finally the key question that needs an answer is the impact on market participants of the current contractual arrangements. ECORYS has conspicuously failed to answer this question, confessing that its question with regard to impact was ‘misunderstood’ by survey participants and hence answers have not been included in the report.

The Commission’s own data, and its November consultation have provided a clear answer: the system ain’t broke. So please don’t fix it.

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Views expressed in this article are those of the authors and not those of the Global Digital Foundation which does not hold corporate views.