POLITECNICO DI TORINO Collegio di Ingegneria Gestionale Corso di Laurea Magistrale in Ingegneria Gestionale Tesi di Laurea Magistrale Market dominance of GAFA companies and challenges posed to competition policy Relatore estero prof. Rafael Ramos Relatore Politecnico di Torino Candidato prof. Carlo Cambini Jole Seminara Aprile 2019 Table of contents 1. Introduction ............................................................................................................................ 7 2. Digital platform companies .................................................................................................... 8 2.1 Two-sided markets ........................................................................................................... 8 2.1.2 Surplus ..................................................................................................................... 11 2.1.2 Examples .................................................................................................................. 12 2.2 Types of online platforms ............................................................................................... 12 2.2.1 Types of platforms’ business models ....................................................................... 12 2.2.2 Characteristics of digital economy ........................................................................... 19 2.2.3 E-commerce marketplace ......................................................................................... 21 2.2.4 App Stores ................................................................................................................ 22 2.2.5 Social Media ............................................................................................................ 22 2.2.6 Online Advertising ................................................................................................... 22 2.2.7 Competitive landscape ............................................................................................. 23 2.3 Market dominance of digital platforms .......................................................................... 24 2.3.1 Growth analysis ....................................................................................................... 24 2.3.2 Market power calculation ........................................................................................ 27 2.3.3 Consequences on consumers’ welfare ..................................................................... 29 3. GAFA Companies ................................................................................................................ 31 3.1 Amazon ........................................................................................................................... 31 3.1.1 History ...................................................................................................................... 31 3.1.2 Business strategy ...................................................................................................... 33 3.2 Apple .............................................................................................................................. 35 3.2.1 History ...................................................................................................................... 35 3.2.2 Business strategy ...................................................................................................... 37 3.3 Facebook ......................................................................................................................... 38 3.3.1 History ...................................................................................................................... 38 3.3.2 Business strategy ...................................................................................................... 40 3.4 Google ............................................................................................................................ 41 3.4.1 History ...................................................................................................................... 41 3.4.2 Business strategy ...................................................................................................... 42 3.5 GAFA’s dominance: challenges to competition ............................................................. 43 3.2.1 The importance of data ............................................................................................ 44 3.2.3 Political implications ............................................................................................... 44 4. Competition authorities and case studies ............................................................................. 46 3 4.1 Antitrust in the world ...................................................................................................... 46 4.1.1 US Antitrust ............................................................................................................. 46 4.1.2 EU Antitrust ............................................................................................................. 46 4.2 EU Regulatory framework.............................................................................................. 47 4.2.1 Article 101 TFEU .................................................................................................... 47 4.2.2 Article 102 TFEU .................................................................................................... 47 4.2.3 EU Merger Regulation ............................................................................................. 48 4.2.4 General Data Protection Regulation (GDPR) .......................................................... 48 4.3 Problems detected in applying the regulation to digital platforms ................................. 48 4.3.1 Article 101 TFEU: Establishing collusion ............................................................... 48 4.3.2 Article 101 TFEU: Restriction by object or effect ................................................... 49 4.3.3 Article 102 TFEU: The definition of the relevant market ....................................... 50 4.3.2 Article 102 TFEU: Proof of dominance ................................................................... 50 4.3.3 Challenges in detecting anti-competitive behaviors ............................................... 51 4.3.4 Conclusions .............................................................................................................. 52 4.4 Google cases ................................................................................................................... 53 4.4.1 Google Search/Shopping (closed) ............................................................................ 53 4.4.2 Google Android (closed) .......................................................................................... 56 4.4.3 Google Search/AdSense (pending) .......................................................................... 59 4.4.4 Google cases analysis .............................................................................................. 60 4.5 Apple case: Apple’s state aid in Ireland ......................................................................... 66 4.5.1 Apple’s tax structure in Ireland ................................................................................ 66 4.5.2 European Commission allegations ........................................................................... 67 4.5.3 Final decision ........................................................................................................... 68 4.6 Amazon cases ................................................................................................................. 68 4.6.1 Amazon e-books ...................................................................................................... 68 4.6.2 Amazon’s state aid in Luxembourg ......................................................................... 70 4.7 Apple and Amazon case analysis: Taxation in digital economy .................................... 71 4.7.1 Apple after 2015 ...................................................................................................... 72 4.7.2 General overview ..................................................................................................... 74 4.8 Facebook case: the merger with Whatsapp .................................................................... 75 4.8.1 Relevant markets ..................................................................................................... 75 4.8.2 Commission investigation ........................................................................................ 76 4.8.3 Final decision and 2017 fine .................................................................................... 77 4.8.4 Case analysis ............................................................................................................ 77 4 4.9 Other relevant digital platforms cases ............................................................................ 78 4.9.1 Booking.com case and price parity clauses ............................................................. 78 4.9.2 Consumer electronic companies and vertical price fixing ....................................... 79 4.9.3 Cases analysis: Most Favorite Nation clauses ......................................................... 80 5. GAFA’s new weapons for competitive dominance ............................................................