About a month ago the European Commission announced that it was prohibiting the acquisition of eTraveli by Booking Holdings (Booking.com). The prohibition, which is a rare occurrence in itself, did not attract much attention beyond comments on the ‘ecosystem’ theory of harm which it may have introduced. But this case offers more than that. First, it shows that current practice is finally adapting to the realities of multisided platforms by essentially translating the concept of conglomerate effects to platform set-ups. Second it also shows that the difference between the concepts gatekeeper (platform) and dominant (platform) is far from clear.
Background to the case
The proposed transaction was notified to the Commission on 10 October 2022, with no commitments offered at that stage. Shortly afterwards, on 16 November 2022, the Commission announced that it had opened an-in depth investigation into the proposed acquisition, as it was concerned that it may (significantly) strengthen Booking’s position in the market for accommodation online travel agencies OTAs. This concern arose from the fact that Booking and eTraveli are both active in different segments of this market, namely accommodation OTA (Booking) and flight OTA (eTraveli).
According to the Commission’s investigation Booking would already be dominant in its respective segment of the market. The acquisition of eTraveli would then only strengthen this position, and essentially extend it across two segments, making more difficult for competitors in both segments to attract new customers and potentially leading to higher prices for accommodation owners and end-consumers.
These concerned were confirmed in the press release announcing the prohibition of this acquisition. According to the press release Booking’s market share has grown steadily over the past 10 years and is currently about 60%. The acquisition of eTraveli would allow Booking to get a hold of a main customer acquisition channel. According to the Commission, by adding the two services together, Booking would be able to become the leading (flight and accomodation) OTA in Europe. In other words, the acquisition would allow Booking to leverage its market power from one segment of the OTA market to another. This leveraging risk was framed by the Commission as a ecosystem risk, where the acquisition was said to reinforce the network effects on Booking’s platform(s) and increase barriers to entry and expansion for competing OTAs.
During the second phase of the investigation Booking offered a number of behavioral commitments, which the Commission rejected as insufficient to address the identified concerns. This is in away not entirely surprising as the overall logic behind the prohibition was a market structure concern whereas the remedies offered consisted of (quite limited) market access measures.
Overall, when looking at the Commission’s press release, the prohibition does not appear to offer anything exciting, at least not at a first sight. However, a look at the more conceptual issues implicitly covered by it reveals some interesting insights into what is to come.
Platform envelopment and market power leveraging – enter the ecosystem argument
The case of Booking and eTravelli is a prime example of what is known in academic literature on multisided platforms as a case of an envelopment strategy (or attack). The idea behind such strategies is that a leading platform in a given (segment of the) market expands its service (or product) offering into other (segments or) markets that have a high degree of overlap with respect to one or more of the customer groups already served by the platform. Such expansion can in principle take place naturally through the launch of new services (e.g. Google+ which did not take off) or through M&A. In general, the degree of overlap will depend on the commercial / functional relationship between the services already offered and those that are to be added. This relationship can generally be described as on of: complements (EBay and PayPal), weak substitutes (Facebook and WhatsApp) or non- related (Windows and LinkedIn). While the order of these categories usually indicates the degree of overlap, particularly on the end-consumer side of the platforms, exceptions can be found in practice (the most notable being Windows & LinkedIn).
Envelopment strategies allow the concerned platform to benefit from the (indirect) network effects at play that contribute to its overall strength across multiple markets. In the case of EBay and Paypal for example, the addition of PayPal to the marketplace service of EBay helped make EBay more popular for consumers and merchants. At the same time, this action also allowed PayPal to become a major player in the market for (online) payment processing services allowing it eventually to operate viably outside of EBay. By linking the two (platform) services together both entities were not only able to enhance the positive feedback loop at play on each of the platforms but also allow them to feed off each other, amplifying their growth potential in tandem.
The rationale behind such strategies can be said to be two fold: (i) a significant (short term) increase in revenues; and (ii) a strategic move to fend off competitors and potential competitors. In the case of platforms, competitive threats come not only from direct competitors operating in the same relevant market, but also from potential competitors which share a great deal of customer overlap that can be leveraged across markets. In the case of OTA markets, it is not only Booking that can extend to the flight OTA market, but also eTravelli and the like that can extend to the accommodation OTA market, as both segments of the OTA market essentially serve the same end-consumers.
The strategic motive behind such actions is the one that raises concerns from a competition law perspective, especially when done trough M&A rather than organically, and even more so when it involves dominant players. This is essentially what the prohibition of Booking’s acquisition of eTraveli intended to prevent (with good reason) and probably also the reasoning behind Booking’s intention; to fend off future challenges from other accommodation and/or flight OTAs or even Google. If Booking were allowed to go ahead with the acquisition, it is easy to see how it would be able to extend its market power across OTA market segments and benefit from both OTA services increasing each other’s popularity with end consumers.
The fact that the Commission has also identified this risk, albeit in a different way, indicates a growing awareness of the anti-competitive risks inherent in platform structures. Hopefully the official decision, when published, will provide more detail on the scope of the analysis and the methods used to identify the competitive risk in this case. In this regard also the analysis of the remedies offered could also provide very interesting insights when it comes to the match between remedies and the potential envelopment risk. By way of comparison, previous concentrations such as Microsoft/LinkedIn and Facebook/WhatsApp posed comparable concerns and yet these were cleared (for better or worse) subject to behavioral remedies.
A dominant platform which is not (yet) a gatekeeper – is there such a thing?
The Commission’s press releases in this case revel something interesting and concerning at the same time. It appears that the qualification of gatekeeper platform under the DMA and dominant (platform) undertaking under EU competition law are not yet in sync.
In its press releases, the Commission noted that Booking appears to be dominant in the market for accommodation OTAs. It goes without saying that such services are platform services and would typically qualify as ‘online intermediation services’ as covered by the art. 2(2)(a) of the DMA. This then begs the question of why hasn’t Booking been designated as a gatekeeper platform under the DMA.
The term gatekeeper under the DMA and dominant undertaking under EU competition law are of course not synonyms. That would defeat the whole purpose of introducing the term gatekeeper. The idea was to have a concept that would allow for quicker intervention, as dominance was considered to be very difficult to establish in the case of platforms. Nevertheless, both concepts are used to indicate a significant degree of market power. The concept of dominance deals exclusively with relative market power as focuses on the position of the concerned undertaking in relation to its direct and potential competitors, which is mapped out with the market definition process. The concept of gatekeeper platform, is a much narrower concept that applies only to entities that provide core platform services as defined in art. 2 of the DMA. At the same time, it is also constitutes a threshold concept for relative market power as indicated by art. 3(1) of the DMA.
However, in contrast to the concept of dominance, the qualification of gatekeeper can be met by using evidence of absolute market power covering the number of users and business parties served by the platform as well as figures indicating the financial strength and/or value of the platform. Where these benchmarks of art. 3(2) of the DMA are not met, the designation of a gatekeeper must to be based on qualitative evidence (i.e. evidence of relative market power). However, the idea remains that in both cases it should be easier to designate a gatekeeper than to establish dominance.
Consequently, it is not clear how it is possible for a platform which provides a core platform service covered by the DMA, and is considered dominant under EU competition law, not to be designated as a gatekeeper under the DMA. If the rationale behind the introduction of the concept of gatekeeper is followed, such a situation cannot exist or is at best (very) temporary. The asymmetry between the two concepts can only be the opposite when it comes to services covered by the DMA, namely that a platform is designated as a gatekeeper but does not have sufficient market power to be dominant in the relevant market of the core platform service it provides.
It is not clear how the current situation has materialized but one should hope that this apparent mismatch between the concepts is resolved. In the case of Booking, this would entail that it would be one of the next gatekeepers to be added to the Commission’s list.
The blocked acquisition of eTraveli provides some interesting insights into the Commission’s process of adapting to the realities of online platforms, which is still not entirely on track. On the one hand, the identification of market power concerns implies the adoption of a more platform-oriented approach. On the other hand, the finding that a platform is dominant in relation to a service covered by the DMA, without designating it as a gatekeeper, implies a lack of consistency and/or internal coordination. Time will tell how such matters are resolved in the future as the parallel enforcement of the DMA and EU competition law takes shape.