A new era for competition policy in the digital economy in Taiwan

June 2023 | EXPERT BRIEFING | COMPETITION & ANTITRUST

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In the digital economy era, antitrust agencies worldwide are actively establishing measures to address key issues arising from new business models. Novel enforcement tools are needed to protect market competition without stifling innovation.

Following this trend, the Taiwan Fair Trade Commission (TFTC) established a task force in March 2021, to prepare a white paper discussing digital economy antitrust issues. A draft version was released in March 2022 for public comment. To this end, the TFTC sought opinions from various trade associations, bar associations, private businesses and academic scholars, among others, hoping to understand the views of all stakeholders. In December 2022, the final version of the White Paper on Competition Policy in the Digital Economy was published, marking the TFTC’s first comprehensive overview of competition issues specific to the digital economy, along with its enforcement stance and policy direction.

The white paper identifies a total of 14 competition issues in the digital economy and provides the TFTC’s current position and guiding principles of enforcement for these issues, as outlined below.

Definition of market and assessment of market power

By analysing the substitutability of the product in question, the TFTC may define the ‘relevant market’, based on the product on one side of a digital platform or the product on multiple sides of a digital platform, taking into consideration the interrelationship between or among each side of the market and their impact on one another.

‘Relevant markets’ will be defined based on a reasonable interchangeability of use test and by applying the modified ‘small but significant and non-transitory increase in price’ (SSNIP) method where appropriate.

‘Geographical markets’ will be defined based on a comprehensive assessment that considers factors such as language, local culture, community relationship, after-sale services and so on. Thus, it is possible to define a geographic market broader than Taiwan.

‘Market power’ will first be measured based on static indicators, and then the impact of the indirect network effect of the digital economy will be taken into consideration; dynamic indicators of market competition will then be considered on a case-by-case basis.

Self-preferencing and search bias

Self-preferencing and search bias are not illegal per se; rather, their ‘reasonableness’ and their impact and effect on market competition must be taken into consideration.

If the digital platform operator is a monopolistic enterprise and the platform constitutes an essential facility, the chance of its self-preferencing and search bias being illegal would be relatively higher.

When determining whether a platform is self-preferencing or has search bias, the TFTC may look at whether the platform is engaging in tying, price discrimination or refusal to deal, and whether such a practice raises its competitors’ costs.

Tie-in

A tying practice constitutes a violation only when the market power of the main product has been leveraged into the market of the ‘tied product’, and anti-competition concerns have arisen therefrom.

When a platform engages in tying, other enterprises may be locked in due to the dominant position of the platform on the main product market. However, having the effect of lock-in does not necessarily mean that the platform has dominant position or its tying practice constitutes a violation. Further analysis must be done to determine the cause and impact of the lock-in effect.

When examining leveraged market power or lock-in effect, their impact on the efficiency of market competition and the reasonableness of the tying practice must be assessed.

Predatory pricing and inducement of low price

Anti-competition concerns only arise when a platform with a monopoly or substantial market power has been consistently selling its products or services below cost without a legitimate reason.

When considering the overall profit and loss of the platform to determine whether there is predatory pricing or inducement of low price, the loss incurred by one side of the platform will not be the sole basis for determining the illegality of the conduct; instead, the overall profit and loss of all sides of and the entirety of the platform will be considered. To determine whether there is predatory pricing or inducement of low price, it may be advisable to consider whether the short term low price offered by the enterprise will result in a longer term high price that will successfully cover the losses incurred during the low price period.

Price discrimination

As there have been no disputes involving business-to-consumer (B2C) price discrimination, B2C relationships are currently not the TFTC’s main focus.

When determining whether using the pricing strategy of offering ‘loyalty rebates’ has the effect of ‘foreclosing competitors’, the market position of the platform, its network effect and whether the products or services concerned constitute ‘essential facilities’ will all be taken into account.

Most favoured nation clauses (MFNs)

As different types of MFNs create varying degrees of anti-competitive effects, the characteristics of the exact types of MFNs involved must be identified.

Because the current regulations on concerted actions under the Taiwan Fair Trade Act (TFTA) only address horizontal concerted actions and do not deal with vertical collusion between upstream and downstream vendors, the TFTC will evaluate whether to amend the laws to bridge the gap.

Resale price maintenance (RPM)

The market power of the enterprises involved in the relevant market should be taken into consideration when analysing any RPM issue.

It is necessary to analyse the vertical relationships of enterprises and the positive effects, such as promoting intra-brand competition and preventing ‘free-riders’, and negative effects, such as facilitating retail price collusion, on overall market competition.

Restrictions on online sales channels

When determining whether exclusive dealing is in violation of the law, a comprehensive assessment should be conducted, based on the relevant business relationship, purchase pattern, network effect, economy of scale and the impact on consumers.

When determining whether ‘preventing free riders’ can be a legitimate reason for implementing selective distribution, the decision may be based on how many consumers opted for a platform ‘with pre-sale service and high prices’ and how many for a platform ‘with no pre-sale service and low prices’.

Data privacy and market competition

Where a platform operator has infringed upon consumers’ privacy, the TFTC can intervene only when such infringement also results in undue restriction of market competition.

‘Privacy protection’ can be considered as a parameter of ‘quality’ which will affect the demand of end products or services.

Profit-sharing in digital advertising and payment to news media

The TFTC will actively follow the lead of the government agency in charge of this issue and provide opinions on competition topics.

If the news media or publishers wish to pool their bargaining power through collective bargaining, they may apply with the TFTC for a concerted action exemption pursuant to paragraph one, article 15 of Taiwan’s Fair Trade Act.

The TFTC will try to facilitate negotiation between the news media or publishers and the digital platforms as a part of its duties as the competent authority of competition laws.

Killer acquisition

It is necessary to determine whether the acquired start-up is a future competitor of the technology giant.

The benefits of the acquisition and the impact on technological innovation must be considered when examining killer acquisitions.

Role of privacy in merger review

The TFTC is evaluating how to conduct merger reviews from the perspective of considering privacy protection as a ‘quality’ competition.

Whether competition based on privacy protection exists is a prerequisite for considering privacy rights in a merger review.

It is necessary to consult with privacy and consumer protection authorities in order to gain a more comprehensive perspective on merger review.

Algorithm and concerted action

The TFTC should familiarise itself with market conditions by conducting more intensive market research and seek the assistance of technical experts in reviewing algorithms-based programmes or commands, if needed.

The TFTC is considering strengthening its authority over market investigations through amendments to laws and regulations.

Online false advertising

The TFTC plans to take enforcement action on new forms of advertising activities and regulate such activities through amendments to laws and regulations.

It is imperative to coordinate with other administrative agencies to raise the general public’s awareness of laws and regulations.

Regarding one-page online false advertising, the TFTC has worked with the National Policy Agency and the Consumer Protection Agency to conduct anti-fraud campaigns in the expectation that such false advertising can be halted through the coordination of cross-agency powers.

Outlook

As antitrust issues within the digital economy continue to evolve, opinions on how to address such issues vary among antitrust agencies. Thus, the white paper only presents the TFTC’s current enforcement direction and position, which are subject to adjustments. Particularly, while antitrust agencies in certain countries may have extensive experience handling cases against big digital platforms, it would be inappropriate for Taiwan to unequivocally follow case precedents or regulatory approaches in those countries. Instead, the TFTC emphasises that local nexus is more important. In any event, the white paper signals the TFTC’s growing focus on this area. It remains to be seen how the TFTC’s enforcement direction evolves alongside the rapid growth of the digital economy.

Wei-Han Wu is an associate partner at Lee and Li. She can be contacted on +886 2 2763 8000 or by email: weihanwu@leeandli.com.

Wei-Han Wu

Lee and Li