Ministry of Economy of Mexico-OECD Co-operation to Strengthen Competitiveness in Mexico Digital Platforms and Competition in Mexico 2018 2 │ Please cite this publication as: OECD (2018) Digital Platforms and Competition in Mexico. http://oe.cd/dpc This work is published under the responsibility of the Secretary-General of the OECD. The opinions expressed and arguments employed herein do not necessarily reflect the official views of the OECD or of the governments of its member countries or those of the European Union. This document and any map included herein are without prejudice to the status or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city, or area The OECD has two official languages: English and French. The English version of this report is the only official one. © OECD 2018 DIGITAL PLATFORMS AND COMPETITION IN MEXICO © OECD 2018 FOREWORD │ 3 Foreword Digitalisation is revolutionising our lives, both by multiplying business opportunities for firms and by extending the range of products and services available to consumers. Many market players in the digital economy act as platforms facilitating transactions between two or more sides. The continuous ascent of digital platforms and their disruptive character is radically changing the way consumers behave in areas that were previously the domain of offline markets. Mexico is following this global trend, facing a dramatic uptake of online businesses which act as platforms most of the time. From ride-sourcing applications to e-commerce websites, Mexicans are increasingly relying on the digital ecosystem to carry out many of their day- to-day activities. The rise of these firms raises new regulatory and competitive challenges. Authorities and regulators around the world are trying to address these challenges in order to ensure the best outcome for consumers. In Mexico, for instance, the Congress and the Competition and Regulatory Authorities are focusing part of their activity on digital platforms, issuing new laws (e.g. Fintech Law), adapting existing laws and exerting a pervasive advocacy effort. This report analyses the concept of digital platforms, with a particular focus on the development of these players in the Mexican economy, and the main challenges they raise from a competition enforcement perspective. Chapter 1 presents the concept of digital platforms, highlighting the main characteristics that differentiate them from traditional companies and make their economic analysis particularly interesting. Chapter 2 reviews the digitalisation process in Mexico, focusing on the key sectors of ecommerce, commercial transport apps and Fintech. Chapter 3 illustrates the main challenges raised by the uptake of digital platforms, discussing the main competition cases in the field. DIGITAL PLATFORMS AND COMPETITION IN MEXICO © OECD 2018 4 │ ACKNOWLEDGMENTS Acknowledgments This report was prepared by Niccolò Comini, Competition Expert at the OECD, under the supervision of Sean Ennis, Senior Economist at the OECD; it also benefitted from comments from Pedro Gonzaga and Chris Pike. The OECD Secretariat thanks the Ministry of Economy for its inputs, review and fruitful co-operation, in particular Rocío Ruíz Chávez, Under-Minister for Competitiveness and Business Regulation; David López Victoriano, Head of the Unit of Competition and Public Policies for Market Efficiency; Alín Martínez Morales, Area Director in the Unit of Competition and Public Policies for Market Efficiency; Aurelio Limón Cruz, Area Director in the Unit of Competition and Public Policies for Market Efficiency. Furthermore, the OECD recognises the contributions of José Eduardo Mendoza Contreras and Gustavo Rodrigo Pérez Valdespín. The OECD acknowledges the valuable review, the quality of comments and the richness of information provided by Alejandra Palacios Prieto, President Commissioner of the COFECE, Gabriel Oswaldo Contreras Saldivar, President Commissioner of the IFT, Georgina Kary Santiago Gatica, Head for the Unit of Economic Competition of the IFT, Adalberto González Hernández, Manager of Transparency and Competition in the Financial System at the Central Bank of Mexico and Federico Borrego Meriodo, General Director of Supervision of Participants in Networks at the National Banking and Securities Commission. DIGITAL PLATFORMS AND COMPETITION IN MEXICO © OECD 2018 TABLE OF CONTENTS │ 5 Table of contents Chapter 1. What is a digital platform .................................................................................................. 7 1.1. Direct and indirect network effects ............................................................................................... 8 1.2. Transaction and non-transaction platforms ................................................................................... 9 1.3. Single and multi-homing............................................................................................................... 9 1.4. Data ............................................................................................................................................. 10 1.5. Pricing ......................................................................................................................................... 11 1.6. Fast moving nature ...................................................................................................................... 12 Chapter 2. Digital platforms in Mexico ............................................................................................. 13 2.1. E-commerce platforms in Mexico .............................................................................................. 15 2.2. Fintech in Mexico ....................................................................................................................... 24 2.3. Commercial transport apps in Mexico ........................................................................................ 31 Chapter 3. Competition challenges in digital platforms .................................................................. 37 3.1. Market definition ........................................................................................................................ 38 3.2. Market power .............................................................................................................................. 42 3.3. Mergers and Acquisitions ........................................................................................................... 45 3.4. Unilateral conducts ..................................................................................................................... 50 3.5. Vertical restraints ........................................................................................................................ 59 3.6. Collusive conduct ....................................................................................................................... 66 Chapter 4. Conclusions ....................................................................................................................... 69 References ............................................................................................................................................ 71 DIGITAL PLATFORMS AND COMPETITION IN MEXICO © OECD 2018 6 │ TABLE OF CONTENTS Tables Table 2.1. Local Regulation applied to CTAs ....................................................................................... 34 Figures Figure 2.1. Mexican fixed broadband penetration rate .......................................................................... 13 Figure 2.2. Mobile broadband penetration rate ..................................................................................... 14 Figure 2.3. E-commerce sales as % of total retail ................................................................................. 16 Figure 2.4. Average of Desktop vs. Mobile Purchases ......................................................................... 17 Figure 2.5. Online Payment Types ........................................................................................................ 18 Figure 2.6. Offline Payment Types ....................................................................................................... 18 Figure 2.7. Visits and purchases online ................................................................................................. 19 Figure 2.8. Principal reasons why consumers don’t trust online sales .................................................. 21 Figure 2.9. Cybernetic frauds ................................................................................................................ 22 Figure 2.10. Financial Inclusion in Mexico ........................................................................................... 22 Figure 2.11. Fintech Radar Mexico ....................................................................................................... 25 Figure 2.12. Mexico CTAs’ map ........................................................................................................... 33 Boxes Box 2.1. Regulatory Sandbox in the UK ............................................................................................... 27 Box 3.1. Relevant market definition in merger cases ............................................................................ 38 Box 3.2. Ohio et al. v. American Express CO. et al. ............................................................................