The European Commission’s competition investigation into Google’s Android mobile operating system (OS) has unsurprisingly raised a lot of attention and commentary. It’s fair to say that so far most comments focused on the ‘abuse part’ of that investigation. That is the part which deals with the question whether certain provisions in the Mobile Application Distribution Agreement (MADA) relating to the bundling of Google apps and the anti-fragmentation agreement (AFA) constitute an abuse under Article 102 TFEU. In fact, the trade association I work for has addressed a letter to Commissioner Vestager explaining why the MADA and the AFA are key to the functioning of the Android ecosystem, spurring innovation and competition.
It goes without saying that readers who are more familiar with the details of competition law will know that the abuse part of any Article 102 investigation formally is the last step competition enforcers take (while arguably being the most interesting). Before one gets to the question of whether a company abused a dominant position, one has to find whether the company actually has a ‘dominant position’. After all, a company can only abuse a dominant position if it has one. This post will discuss this issue in the context of the Android investigation.
But first, let’s continue with competition law basics: how does one find ‘dominance’? Conceptually, a finding of dominance involves a two-stage assessment. First, one has to define the relevant market. While that definition can involve complex economic assessments, it is essentially a matter of substitutability. Where goods or services can be regarded as substitutes or interchangeable by the consumer, they are within the same product market. Second, competition authorities look at whether a given company has a ‘dominant position’ on the relevant market. For economists, companies with a dominant position are companies that have substantial market power. In the often recurring words of the Court of Justice of the EU (CJEU), a dominant position:
“relates to a position of economic strength enjoyed by an undertaking which enables it to prevent effective competition being maintained on the relevant market by affording it the power to behave to an appreciable extent independently of its competitors, customers and ultimately of its consumers”. (Case 27/76 United Brands v Commission, para. 65)
Importantly, the Commission explains in its Guidance on Article 102 Enforcement Priorities that the notion of ‘independence’ “is related to the degree of competitive constraint exerted on the undertaking in question” and where competitive constraints are ineffective, the “undertaking’s decisions are largely insensitive to the actions and reactions of competitors, customers and, ultimately, consumers” (para. 10).
With this in mind, let’s turn to the ongoing Android investigation. To most people, competition experts and non-experts alike, one aspect of the Commission’s investigation stands out: the market definition. When the Commission announced the Statement of Objections (SO) it sent to Google, it held that the company has a market share of more than 90% in the market for licensable smart mobile operating systems. The word ‘licensable’ is key because it means that Apple’s iOS which powers all iPhones and iPads is outside the scope of the relevant market. So are iPhones really not competing with Android-powered smartphones? (Leaving aside the question of whether tablets should be included in the market definition for now).