Online commercial harm: how consumers have been manipulated
By Jing Wang - Posted on 10 December 2021
Online platforms yield new ways to do business across the world, provide more opportunities to downstream operators, and offer better options and prices to consumers. However, without complying with competition rules, such as on price-fixing and abuse of dominant position, platform giants can do more harm than good, such as by restricting competition and manipulating consumers. Such concerns have been recognised by major antitrust enforcement agencies globally (e.g., UK, EU, US and China), and antitrust investigations against platform giants have been launched on an increasingly frequent basis in recent years.
The consumer interest can be harmed by online platforms globally, as evidenced by such as Meta (Facebook), Google, Amazon, Apple App Store and ComparetheMarket.com and in the UK, EU and US, as well as in China by China’s Amazon equivalent Alibaba’s Tmall.com. This blog post provides some analysis of recent developments, before offering some thoughts for the future.
Viewpoint Changes on Platform Giants
When new technology emerged and contributed towards business development, their benefits have been significant and highlighted. Taking online platforms as an example, Facebook and Google have made the world better connected socially and economically; Amazon has been considered as a platform to increase choice and competition to benefit consumers; Apple App Store’s 30% commission fee was described as the best deal going to distribute applications to mobile platforms; ComparetheMarket.com was treated as an excellent price comparison platform for consumers to promote competition between insurers and energy suppliers, and simultaneously help consumers to find the best bargains.
However, UK, EU and US antitrust enforcement agencies have changed their views and approaches in the past few years, because these platform giants have restricted competition and breached legal rules, such as, Sections 2 & 18 of the UK Competition Act 1998; Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU); Section 2 of the US Sherman Act 1890.
For example, in 2021, the European Commission opened an investigation to assess whether Facebook has breached EU competition rules by forming anti-competitive agreements with advertisement providers to gather advertising data and has abused its dominant position in the digital advertising market to distort competition (TFEU, Articles 101 and 102).
The European Commission in 2017 fined Google €2.42 billion euros (about $2.8USD billion) for abusing dominance as a search engine by ranking service providers unfairly by giving preferential treatment to its own price-comparison shopping service, and thereby limit consumers’ choice (TFEU, Article 102), and in 2021, Google lost its appeal against this massive antitrust fine.
In 2019, the European Commission observed that Amazon collects commercially sensitive data from retail distributors operating on Amazon in order to select the winners and then promote their products. In 2020, the European Commission carried out an in-depth antitrust investigation into Amazon’s selected winner activities which clearly restrict competition, and in 2021 the European Commission opened a second investigation into Amazon’s e-commerce processes (Abuse of dominant position: TFEU, Article 102).
Furthermore, Apple App Store’s commission fee has been challenged in many jurisdictions across the world, for example UK (2021), EU (2021), US (2013, 2019 & 2021), because Apple’s gatekeeper role for App distribution through its App Store harmed consumer welfare (Price-fixing: the US Sherman Act 1890, Section 2; Abuse of dominant position: TFEU, Article 102; the UK Competition Act 1998, Section 18).
Moreover, ComparetheMarket.com was fined by the UK Competition and Markets Authority (CMA) in 2020 for breaching Section 2(1) of the UK Competition Act 1998 on price-fixing: ComparetheMarket.com prevented home insurers from offering lower prices elsewhere including other price comparison websites and insurers own websites.
Online Consumer Manipulation Globally
These recent UK, EU and US antitrust investigations, infringement decisions and fines in digital markets highlight that consumers and Internet users can be and have been manipulated by platforms. For instance, although Google and Amazon offers millions of choice, consumers have been directed by the platform to purchase more products and select more services from the most popular sellers (in other words, the Google and Amazon selected winners). Amazon has done this via collecting and analysing consumer transaction data to gain market insights, which naturally distort conditions of competition for less popular sellers on Amazon. Indeed, the US House Judiciary Committee in 2020 identified that approximately 80% of Amazon sales go to the selected winners.
Taking Apple as another example, a 30% commission (reduced to 15% in some occasions) has been passed on to Apple users for every transaction they made to purchase an App from Apple App Store. This clearly results in higher App purchasing prices for all Apple users globally.
In the UK, consumers who were looking for home insurance quotes through ComparetheMarket.com thought (mistakenly) that the platform provided them the best deal. However, they did not realise that the home insurance prices had been fixed by the platform, and thereby, home insurers could not offer any lower prices to consumers via any other sales channel.
In parallel, China’s antitrust regulator – the State Administration for Market Regulation (SAMR) – opened an investigation against Alibaba in December 2020, and fined Alibaba the equivalent of $2.8USD billion in 2021 because of its anti-competitive practice, namely “choosing one from two”. Alibaba’s business to consumer (B2C) online shopping platform (i.e., Tmall.com) relied on its dominant market position in the B2C platform market to carry out anti-competitive activity which prevented businesses that sell their products on Tmall.com from selling their products on competitor’s platforms.
Similar to the UK users of ComparetheMarket.com, consumers in China who used Alibaba’s Tmall.com for shopping were manipulated by the platform in the mistaken belief that Tmall.com had offered them the best deal as no similar products (or better deals) were available from any other sales channel. Lacking awareness of Tmall.com’s anti-competitive tactics, consumers were unable to avoid such online commercial harm.
Anti-competitive concerns in digital markets provide a common ground for antitrust enforcement agencies across the world, and these enforcement examples merely showcase how platform giants have restricted competition globally (e.g., in the UK, EU, US and China). However, although antitrust enforcement actions against digital platforms have been conducted and further investigations will be undertaken in the next few years, this is insufficient for consumer awareness and consumer protection. In order to create an online environment where citizens understand the risks of online activity and public confidence and trust in online companies and services can be revitalised, it is vital to empower consumers by providing them knowledge on how they have been manipulated by the platform giants in the digital era.
Strathclyde recently launched a new, online LLM in Competition Law, with part-time and full-time options, where you can learn about topics such as the one covered in this blog post. You can find out more about our expertise and research at our Strathclyde Centre for Antitrust Law and Empirical Study (SCALES) website.