Press release 20/2021

In the context of the Issues Paper on Digital Ecosystems, Big Data and Algorithms, the AdC is launching today a call for information with the purpose of collecting comments from stakeholders in order to help identify possible barriers to entry and expansion of companies, exclusion strategies, as well as the use of algorithms, namely to monitor and set prices.

The last decade has seen a marked digitalization of the economy. The COVID-19 pandemic accelerated this digitalization trend, particularly with regard to communication services and distance learning, teleworking and e-commerce.

As part of the analysis, the Authority is launching today a call for information to collect comments from stakeholders, who are invited to respond to the AdC's questions until December 16, 2021.

The Issues Paper prepared by the AdC in 2019 addressed the challenges that the digital transition implies for competition policy and concluded that the digitalization of the economy has fostered the emergence of new business models, centered on digital platforms, leading consumption patterns to change dramatically: in 2018, 94% of Portuguese with internet access had already made at least one online purchase.

However, in digital markets, instead of competition being "just a click away", it may be exclusion that is "just a click away", as incumbent platforms may adopt competitor exclusion strategies based on the exploitation of consumer behavioral biases.

Digital ecosystems, big data and algorithms

Big data has enabled the development of pricing, monitoring, ranking or recommendation algorithms that can facilitate the creation and maintenance of collusive balances in the market, while having positive effects on product discovery and price comparability.

Pricing algorithms may also enable customized pricing strategies that, while expanding the volume of products transacted, may allow firms to extract more value from consumers.

Algorithms that monitor competitors' online prices are already a tool that businesses are using on a national level. About 37% of a sample of companies active in Portugal with digital presence surveyed by the AdC reported using this type of software, and these results are in line with the European Commission's e-commerce survey.

The AdC found no evidence of widespread use of pricing algorithms (7.9%) among the sample surveyed. However, the analysis shows that the use of pricing algorithms may already have implications for certain markets and marketplaces, and may pose a competition policy challenge in the future.

Digital and competition

The AdC's mission is to ensure the application of the rules for the promotion and defense of competition, with a view to the efficient functioning of markets, the optimal allocation of resources and the interests of consumers.

In fulfilling this role, it has been important to monitor the digital markets and their specificities. These include the emergence of new business models centered on multi-sided platforms that aggregate users, the creation of new markets or even disruption in established markets.

Digital markets tend to involve a large volume of data, network effects, economies of scale and scope, among other aspects, which raise new challenges and competition risks that need to be considered.

Digitalization has also led to an increased use of algorithms in the course of business activities, such as for market monitoring and to facilitate consumer demand for products. However, the prevalence of algorithms may also pose new challenges for competition enforcement.

The responses will contribute to the identification of possible barriers to entry or expansion, including operator strategies that may limit competition, in the digital sector in Portugal.

Questions in the call for information

To contribute to an environment that maximizes the benefits of the digital transition, the AdC is launching a market consultation to all interested parties, which includes a set of questions that the AdCinvites interested parties to answer, without prejudice to other information that they may consider relevant to transmit.

Barriers to entry and expansion, and exclusion strategies in the digital sector

1. What are the main difficulties experienced in setting up firms and in expanding into new digital markets in Portugal?
2. Which products/services do you use and for which you consider there is a reduced capacity for substitution by other products/services (including the possibility of self-supply)? 
3. If the respondent is a firm:
   1. How does your activity depend on the products/services you identified in question 2?
   2. What other alternatives are available in the market to the aforementioned services (including the possibility of self-supply)? What are your main advantages and disadvantages compared to the products/services your company uses?
   3. Is the acquisition of these products/services preceded by negotiation? If so, please describe the negotiation of the terms and conditions associated with these products/services.
   4. Do you consider that the terms and conditions for the use of these products/services limit, in any sense, competition in the market?
   5. Did the acquisition of these products/services imply any limitation in contracting alternative or related products/services (e.g., exclusivity clauses)?
   6. Do you consider that the company that provides these products/services uses them to favor other products/services of its own? How? What is the impact of this favoring on your company’s activity?
4. Do you consider that business activity in the digital sector is disturbed by any unnecessary legal or regulatory requirements? Why do you consider these requirements unnecessary?
5. Do you consider there are switching costs in the digital markets that you are concerned about? Which ones? What kind of intervention could reduce these costs and facilitate consumer mobility?
6. Are there entry costs in the digital sector that you are concerned about? Which ones? Do you think these entry costs have a negative effect on competition? What kind of intervention could minimize this impact?

Algorithms

7. Are there any examples of the use of algorithms by firms that you believe the AdC should pay attention to? If yes, why?
8. In your opinion, are there other pertinent benefits or concerns related to algorithms that you feel are important to highlight, in addition to those identified in this document?
9. With regard to the prevalence of monitoring and pricing algorithms, are the figures referred to, in this document, in line with your perception?
10. How do you expect the use of these type of algorithms to evolve in Portugal?
11. Is there any situation that has raised competition concerns associated with the use of algorithms?

12. Please share other relevant information

Call for information

Any interested party may submit comments and/or exhibitions concerning the documents, within a period of 30 working days (until December 16), to the email address consultapublica@concorrencia.pt.

Comments must identify the interested party, its postal address, e-mail, telephone or fax numbers. In the absence of a non-confidential version and reasons for confidentiality, comments will be made public.