Internet Platforms and Non-Discrimination

Abstract

This report evaluates whether non-discrimination obligations for online platforms are warranted from an economic and legal point of view. Thereby, the focus of this report is on online platforms that employ a multi-sided business model. Based on several case studies encompassing operating systems, app stores, search engines, e-commerce platforms and ad-blocking, the report identifies (i) (paid) prominence of some third parties over others and (ii) the favouring of a platform’s integrated services over independent entities as possible concerns across the internet with respect to discrimination in online platforms. In the extreme, such discrimination may even take the form of blocking of specific third-party products, content or services. Within this scope, both the current legal framework that applies to online platforms at the EU level, as well as the insights of the economic literature regarding the welfare effects of discrimination with respect to prominence are reviewed in this report. From an economic perspective, the literature finds that discrimination in the form of paid prominence may often be in the interest of consumers. In the case where content providers’ quality is pivotal, static efficiency is maximized if the platform can offer content providers paid prominence; in the other case, where content providers differ mainly by price, welfare results may reverse. In both of these cases smaller or low-quality content providers are worse off if platforms can offer paid prominence. This gives rise to concerns regarding dynamic efficiency and long-term variety in those markets. Additional problems may arise if platform operators are vertically integrated with content providers. In summary, from a static efficiency perspective, the economic findings do not support a general theory of harm with respect to the considered discriminatory practices that would warrant a wide ex-ante application of a non-discrimination rule. From a dynamic perspective, a non-discrimination rule may be more appropriate, but currently there is a lack of economic research to thoroughly support this claim. Although the report finds that there is no sufficient basis for a general ex-ante non-discrimination obligation for platforms, there are economically valid concerns with respect to SMEs and long-term effects that would warrant additional safeguards for the enforcement of the general rules against unjustified discrimination. Thus, the policy framework should aim at making those general rules, such as competition law or consumer protection, more effective and the report makes several suggestions to this end.