Competition and antitrust in the digital age

OnDemand

May 25 2017

Competition & Antitrust Hungary

While the digital economy offers abundant opportunities to customers and retailers alike, it also raises a number of competition concerns, including the impact on bricks-and-mortar businesses, the potential for abuse of market power by major digital platforms and the challenge of fostering online competition while preventing free riding. Competition authorities must evolve and adapt traditional antitrust principles and approaches to meet the challenges of the rapidly changing digital market.

What impact has the rapidly changing digital market had on competition in your jurisdiction, and how have legislators and competition authorities responded?

In recent years, the digital market has expanded rapidly in Hungary in almost every sector. In some sectors, new players on the digital market have significantly reshaped the landscape.

This expansion was partly caused by bricks-and-mortar retailers entering the e-commerce market. From December 2014 to April 2016 a legislative act was in force which prohibited stores from opening on Sundays. As such, many bricks-and-mortar retailers entered the e-commerce market in order to compensate for the effects of the Sunday closure. During this period, major players such as Zara, H&M and Tesco opened their online stores, which instantly became popular. Despite the fact that the Sunday closure rule was rescinded in 2016, the popularity of online shopping continues to grow rapidly. However, this type of expansion has not significantly changed the existing competition landscape with regard to market players. The legal issues raised by the expansion of e-commerce mainly relate to consumer protection and the restriction of online sales in distribution systems.

Conversely, numerous companies (eg, Uber and AirBnb) have recently entered the Hungarian market and significantly changed the landscape of entire sectors with their innovative services. Some of these services instantly faced problems in the field of regulatory and administrative law, because it was hard to adapt these new types of service to the existing regulatory framework. The possible competition law issues concern the fact that these new innovative companies can quickly achieve a dominant position. Further, in some sectors, online platforms used by third parties can restrict competition between users (eg, a hotel booking platform could enhance price fixing between the hotels).

Neither the Hungarian authorities nor the legislature has dealt with the digital/online market as a whole. Rather, they have intervened on a sectorial level when noticing a possible issue or competition concern. For example, the Hungarian Competition Authority (HCA) conducted a sector inquiry into the online hotel booking sector, which ended in 2016,(1) and the legislature ended the debate between taxi and Uber drivers by effectively banning the operation of Uber.

In terms of market definition, are online services considered to be in the same market as traditional services in your jurisdiction? What impact has this had on competition?

The HCA addresses this matter on a case-by-case basis, as the question of whether online and offline services can compete against each other largely depends on the specific service. The mere fact that a market player operates online does not mean that it is operating on a different market.

A recent merger control decision(2) considered online media to be a separate market, while a recent cartel case found online and traditional distributors of contact lenses to be part of the same market.(3) In the latter case, discrimination between online and bricks-and-mortar retailers of contact lenses was found to be unlawful on the basis of applying different conditions to equivalent transactions.

What types of conduct constitute abuse of dominance in the online space and what practices are most likely to catch out unwary online players?

The HCA has yet to render a decision or conduct an investigation regarding a type of abuse of dominance that would be specific to the online marketplace. Therefore, it remains to be seen whether the business practices of online players on the Hungarian market could establish new types of abuse of dominance.

A possible form of abuse on the online market is the limitation of access to those platforms which dominate a certain sector. For example, if a platform with a position similar to that of AirBnb on the accommodation market suddenly tripled its commission, users would have to adapt, as losing access to the platform would essentially mean losing access to the market.

As mentioned above, there are no clear guidelines at present on (separate) market definitions for online players. It would therefore be a challenge to determine whether a business has a dominant position.

What steps are competition authorities in your jurisdiction taking to prevent online retailers and service providers from free riding on the investments of bricks-and-mortar retailers and service providers?

The HCA has yet to conduct a proceeding or impose a fine on this basis. However, in general, the HCA acknowledges that the prevention of free riding is a legitimate aim and can justify certain competition restrictions.

For instance, the HCA inspected the relationship between free-riding and price parity clauses in the contracts of hotel booking websites in its recent online hotel booking sector inquiry. The HCA acknowledged that booking platforms invest in promoting hotels, and that it would threaten the booking platform's investment if the rooms could be booked at a cheaper rate on a hotel's own website. Therefore, requesting a (narrow) parity between the prices on the booking platform and hotel websites may be a justifiable restrictive measure against free riding.

How can competition authorities best ensure that these steps do not hinder innovation or consumer choice and promote the continued evolution of online services?

Based on recent investigations and the focus of the discussions on the market, the more pressing issue for the Hungarian market seems to be market players' aim to restrict online distribution, rather than free riding. This is also in line with the preliminary findings of the European Commission sector inquiry into e-commerce.(4)

Therefore, the issue at hand is ensuring the development and expansion of the online market while simultaneously protecting the justified interests of bricks-and-mortar retailers (and not vice versa).

In line with the above, the HCA approaches the matter of online distribution in such a way that it considers unlimited online distribution as the general rule, which can be limited if duly justified (eg, to prevent free riding or in the case of special goods, such as medicine).

This is arguably a good approach, as it favours innovation and development, but also keeps other market players' interests in mind.

For further information on this topic please contact Anna Turi or Attila Jákói at Schoenherr by telephone (+36 1 8700 700) or email (a.turi@schoenherr.eu or a.jakoi@schoenherr.eu). The Schoenherr website can be accessed at www.schoenherr.eu.

Endnotes

(1) Available here.

(2) Vj/86/2016.

(3) Vj/55/2013.

(4) Available here.

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