Mandated interoperability has been used as a regulatory instrument in network industries. It is currently being discussed as a tool to ensure contestability and fairness in digital markets. The European Commission’s proposal for the Digital Markets Act foresees select vertical interoperability obligations for gatekeepers on ancillary services, app stores and side-loading of apps. The European Parliament’s amendments include horizontal interoperability obligations for messenger services and social networks.
Would those interoperability obligations really stimulate contestability in digital markets – or could some of them be harmful to competition and innovation?
To contribute to the debate, CERRE releases its latest report ‘Interoperability in Digital Markets‘, authored by leading academics Marc Bourreau, Jan Krämer and Miriam Buiten. This important work examines whether vertical and horizontal interoperability obligations are desirable policy objectives in the context of dominant online platforms, considering their impact on competition and innovation in the markets affected.
The authors draw three main conclusions from their study:
Firstly, policymakers must be very precise when defining interoperability and they need to differentiate between notions of horizontal and vertical interoperability. Horizontal (i.e., interoperability between substitutable services) and vertical interoperability (i.e., interoperability between complementary services) are structurally very different and so is their economic assessment. They should thus not be confused in the policy debate.
Secondly, mandated horizontal interoperability is not advisable to ensure digital markets contestability. In practice, horizontal interoperability will never be perfect and can only achieve limited interoperability between a set of common features. Thus, network effects for the dominant platform remain, while at the same time interoperability reduces the incentives of consumers to multi-home. This means that horizontal interoperability can be anti-competitive in digital markets and has the potential to enshrine the dominance of digital incumbents.
Finally, vertical interoperability may be a powerful instrument for regulating digital bottlenecks under specific conditions ensuring that its positive effects outweigh its negative effects. Mandated vertical integration should only be considered in the case the digital gatekeeper is vertically integrated and if there is evidence that vertical integration leads to discrimination or foreclosure of complementors that would not have occurred in the absence of vertical integration. Moreover, vertical interoperability should not be equated with “open access” and should involve a licensing regime and a pricing regime for third parties seeking access.
Join us on Monday 21 March at 15:30 CET for an open discussion on vertical and horizontal interoperability obligations in the Digital Markets Act, followed by a panel discussion with representatives from regulatory bodies, civil society and online platforms.
Marc Bourreau is a Academic Co-Director at CERRE and Professor of Economics at Télécom Paris (Institut Polytechnique de Paris). He is affiliated with the interdisciplinary institute for innovation (i3) for his research.
His research focuses on competition policy and regulation, digital markets, and telecommunications.
Marc holds a Ph.D. in Economics from the University of Paris Panthéon Assas.
Jan Krämer is an Academic Co-Director at CERRE and a Professor at the University of Passau, Germany, where he holds the chair of Internet & Telecommunications Business.
Previously, he headed a research group on telecommunications markets at the Karlsruhe Institute of Technology (KIT), where he also obtained a diploma degree in Business and Economics Engineering with a focus on computer science, telematics and operations research, and a Ph.D. in Economics, both with distinction.
He is editor and author of several interdisciplinary books on the regulation of telecommunications markets and has published numerous articles in the premier scholarly journals in Information Systems, Economics, Management and Marketing research on issues such as net neutrality, data and platform economy, and the design of electronic markets.
Professor Krämer has served as academic consultant for leading firms in the telecommunications and Internet industry, as well as for governmental institutions, such as the German Federal Ministry for Economic Affairs and the European Commission.
His current research focuses on the role of data for competition and innovation in online markets and the regulation of online platforms.
Miriam Buiten is a CERRE Research Fellow and Assistant Professor of Law and Economics at the University of St.Gallen, Switzerland. She leads a research team on “Platform Governance”, funded by the University of St.Gallen Basic Research Fund. Her research focuses on the legal issues surrounding new technologies and artificial intelligence and the role of competition law in regulating the digital economy.
Previously, Miriam was a Junior Professor of Law and Economics at the University of Mannheim. She has been involved in several policy studies for the European Commission and the Dutch government on topics such as the role of online intermediaries in the ecommerce sector and mechanisms to reduce regulatory burdens.
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Avenue Louise, 475 (box 10)
B-1050 Brussels – Belgium
T.: +3222308360
E-mail: info@cerre.eu
BE 0824446055 RPM Bruxelles
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