Berlin, Munich The President of the Federal Cartel Office, Andreas Mundt, suggests new rules for competition proceedings against digital companies such as Google, Amazon or Facebook. In an interview with the Handelsblatt newspaper, he said that consideration should be given to “putting companies with cross-market importance such as Google under a stricter regime and adjusting the burden of proof”.
The corporations would then have to prove that their takeover plans would not harm competition. Authorities such as the Cartel Office are currently having to prove that a company’s actions are damaging to competition.
Meanwhile, the digital corporations from the USA are already dividing up the next future market among themselves: the “metaverse”, the virtual replica of reality. Mundt warns that both regulators and politicians must prepare well for this. “Regulating the big platforms has taken us too long to get going,” he said.
Mr. Mundt, is a new monopoly permeating the economy worldwide?
You have to see that differently. There is of course “Gafam”, the big American internet companies Google, Apple, Facebook, Amazon and Microsoft. And their Chinese counterpart “Bat”: Baidu, Alibaba and Tencent. None of these are “natural monopolies”, but data-based business models that grow out of themselves due to network effects. In other sectors of the economy, we generally do not have comparably strong positions held by individual companies.
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So isn’t this digital monopoly defining the style of other industries?
In the US, concentration has increased in 75 percent of the economy over the past two decades. At the same time, profit margins have also increased. Investor Warren Buffett, for example, is a walking entity for the measure of competitive intensity. He often puts his money in highly concentrated markets where few players can set high prices. We have not seen such an increase in company concentration in Europe as in the USA.
The digital giants from the USA are already dividing the next future market among themselves: “Metaverse”, the virtual replica of reality. That’s why Microsoft bought the video game provider Activision Blizzard for 70 billion euros.
We must take merger control very seriously. She’s back in the spotlight. The competition authorities are much more alert here than they used to be. Everyone knows that the permission for Facebook to buy the promising start-ups Instagram and Whatsapp has contributed significantly to the tipping of the markets. The legislative machinery to safeguard competition is in operation worldwide.
Specifically: You have been investigating for some time whether Facebook may in future restrict the use of Oculus glasses for virtual reality to those people who have a Facebook account. A first step towards competitive control of the Metaverse?
This process involves linking virtual reality products to the group’s social network. It’s already hard to get out of an ecosystem of digital corporations once you’re in. The vision of a metaverse goes even further. In the virtual world of a provider, users may one day go to both the virtual bank and the virtual shopping mall. This creates new dependencies.
How do regulators have to deal with these new opportunities for power?
We should prepare well for this and help shape upcoming developments. Not only the competition authorities, but also politicians have to support these new ideas from the start. Regulating the big platforms took us too long to get going.
Since 2020, you want to ban the Facebook group, now called Meta Platforms, from an important business practice: linking user data generated on Facebook, Instagram and Whatsapp as well as on third-party sites. The Federal Court of Justice finally agreed with you.
The case has received a great deal of international attention. It is about a core question, namely the connection between data and market power. If we finally prevail in the European Court of Justice after a never-ending judicial saga, we will have really achieved something for consumers. The foundation of market power on the web is based on data ownership. While some of us still think in terms of markets, the digital corporations think in terms of processes. The new paragraph 19a in the law against restraints of competition focuses on cross-market importance.
Is Metaverse Conqueror Microsoft a company within the meaning of this paragraph?
With a “yes” without completing a corresponding procedure, I would lean very far out of the window.
The Stuttgart software company Nextcloud has lodged a complaint against Microsoft with the Federal Cartel Office. The group is building an unassailable ecosystem around its Windows monopoly, for example with One Drive, LinkedIn or Teams.
Microsoft is an old customer of the competition authorities. We’re looking at that. We are currently evaluating how to deal with this complaint. But that is also a question of resources. The new law has given us a lot of powers. But how many new employees did we get? There weren’t many.
In 2021 you also tested the power of the other digital giants. But only in the case of Google did you officially establish cross-market importance. Why was this easier?
There’s no such thing as “simple”. Our decision is documented on more than 200 pages. Corresponding proceedings against Amazon, Apple and Meta are still ongoing. At Google/Alphabet, we were able to draw on our preparatory work for a study of the online advertising market, which we intend to publish soon.
Would it be good if China’s corporations Baidu, Alibaba and Tencent competed with the US giants in this country?
The big question is: how to counteract the network effects? Why are 80 percent of the world’s online users on Instagram or Facebook? Because they meet the others there too. Can two or more large networks exist side by side in the long run and compete with each other? If the Chinese platforms were added, the problem would only shift. That is why we need effective supervision and regulation.
Corporations like Google, Facebook and Amazon provide an infrastructure for billions of people. At the same time, they are pushing competitors there with their own products. Shouldn’t the legislature separate this structurally?
The new antitrust instruments in Germany and the planned Digital Markets Act (DMA) at European level contain many structural rules, such as the ban on self-preference. We should now apply these new rules consistently. Then we’ll see. As a last resort, a demerger cannot be ruled out from the outset. In the US, individual demands from politicians go in this direction.
As early as 1911, the USA smashed up a monopoly like Rockefeller’s Standard Oil.
That’s history. Recently, little has happened in competition law in the USA for a long time. The cases that we know of come mainly from Europe. Thinking overseas was until recently dominated by Chicago School economists: Markets will take care of themselves. Today we are again discussing democratic deficits and freedom of expression. The pendulum swings back. However, there is still no innovative process that is successful.
Facebook is to be broken up. The process in the USA has been running since November 2020 …
… and will probably drag on for some time. You will probably also have to go through the courts with such procedures. When it comes to Big Tech, this is still unexplored territory in the USA.
Do you see the EU Commission’s planned Digital Markets Act (DMA) as a great way to make your work easier?
In contrast to existing options for intervention, the DMA is associated with the hope that the rules will be “self-enforcing” – i.e. prohibitions that are as clear as possible and that companies must comply with. I’m still a bit skeptical about that. After all, what do we do when Google, Apple and Facebook, despite serious doubts about their practices, claim to always act in accordance with the DMA? My life experience is: if you want to enforce something, you have to conduct proceedings and have evidence that will stand up in court. But procedures with the DMA behind it are certainly easier to carry out than without.
The DMA is even discussing a general ban on the internet giants’ acquisitions.
Such a project is difficult for a liberal economy. It would be worth considering whether, in the future, we would place corporations with cross-market importance, such as Google, under a stricter regime and adjust the burden of proof in stricter competition law. The corporations would then have to prove that their takeover plans would not harm competition.
One major asymmetry remains: no antitrust authority in the world knows what really happens to Gafam’s secret algorithms.
Sure, if one of the five major digital companies changes just a little thing in the algorithm, it can have a big impact on competitors and market partners. That is why there is also the idea of an algorithm TÜV.
The US investor Peter Thiel, once Mark Zuckerberg’s financier, thinks monopolies are good because they could dare more. He says: “Competition is for losers.”
Nonsense. Of course, if you have a monopoly, you think it’s great and dare to do something. But that’s not how the market economy works. The example of Microsoft’s Internet Explorer shows what monopolies mean. When it had more than 90 percent market share, it was not updated once for many years. When Firefox started, we were able to enjoy a second browser window for the first time. Nobody should tell me that a monopoly is good for innovation.
More: Why the head of the cartel office, Mundt, wants to expand the leniency program