Competition in digital ecosystems: the Google Android shutdown
In the Google Android judgment of 14 September 2022, the General Court of the EU addresses the treatment of competition within and between digital “ecosystems” under EU competition law.
At the heart of the €4.6 billion fine on appeal in this case was the European Commission’s finding that Google held a dominant position in the market for operating systems (OS) licensed for smart mobile devices. Google argued that this narrow market definition did not take into account the competition between, on the one hand, the Android ecosystem, made up of mobile devices and applications based on Google’s Android operating system, and , on the other hand, the Apple ecosystem based on Apple’s proprietary iOS operating system. system.
The General Court recognized both the potential difficulties of applying standard competition law principles of market definition in the digital economy, and the need to take due account of non-market constraints. Nevertheless, he ultimately confirmed the Commission’s approach.
The starting point for the Commission’s position on market definition and market dominance was the observation that smartphone manufacturers (OEMs) wishing to license an operating system had in fact only only choice, Android. Apple had its own proprietary iPhone operating system (iOS), but Apple chose not to license iOS to other OEMs. Google argued that its emphasis on choice open to OEMs ignores the stiff downstream competition between devices using the Android operating system and Apple’s iOS.
The Court agreed that since Apple did not license iOS, iOS and Android were not substitutable from an OEM perspective. The competitive relevance of Apple’s iOS therefore had to be assessed in downstream markets for phone users and application developers.
With regard to users, the Court found that users’ choice between ecosystems was based on multiple factors and could not be reduced to OS alone. The operating system was an important factor in choosing a smart phone, but not the only factor. The switch from one ecosystem to another was mainly driven by the launch of new devices, not changes to the operating system.
Android users showed significant loyalty to the Android ecosystem: 82% refused to switch to Apple when buying a new device in 2015. But this loyalty does not seem to be driven by the quality of the device. ‘BONE. Figures from May 2017 showed that just 7.1% of Android users were running the latest version of the Android operating system on their devices, six months after it became available. Similarly, only a very small proportion of users who switched to an Apple device said they did so because of the quality of the operating system.
Instead, user loyalty could be attributable to difficulties encountered when switching ecosystems, such as transferring personal data, having to repurchase apps, or having to relearn how their device works. The fact that Apple launched an application to facilitate the switch from Android to iOS seemed to show that switching costs were a concern. For low-end device users, Apple’s pricing policy also emerged as a barrier to change, with at least 50% of Android devices sold at lower prices than Apple devices.
Regarding possible coercion of app developers, the Court held that since users were unlikely to switch to another mobile operating system, so would app developers, who could not reasonably abandon the majority of their clients.
Overall, the Court concluded that the Commission was justified in treating the Apple ecosystem as an “indirect constraint” on Google and that this constraint was insufficient to challenge Google’s dominant position. When assessing the significance of the constraint, the Commission considered the likelihood of users (and app developers) changing in response to a small but significant non-transitory reduction in quality (SSNDQ). This is different from the traditional small but significant and non-transitory price increase (SSNIP) test. However, the Court upheld the approach. Competition can take place both in terms of quality and innovation and in terms of price. And it was a product that was unlikely to lend itself to a traditional, price-based SSNIP test. Indeed, Google seems to have argued that, for an OS, quality was the determining factor in consumer choice.
Conclusions and comments
In this case, as in all cases, the outcome on market definition and dominance depended heavily on the facts. However, for those wondering how to deal with competition between digital ecosystems – or even more traditional first- and second-market systems like razors and razor blades or copiers and toner cartridges – the Tribunal’s approach seems instructive. The Court was quick to define separate markets at the level of equipment manufacturers and users. He then asked if the competition taking place at the user level was driven solely (or at least very largely) by the quality of the operating system. Once the Court determined that several factors, including but not limited to the quality of the operating system, were relevant to the user’s choice, Google faced an uphill battle to demonstrate that Apple’s indirect restraint was sufficient to avoid a finding of dominance.
within the digital economy… traditional parameters such as the price of products or services or the market share of the company concerned may be less important