December 2023
Aaron Chen, Oli Wong, and Angel Li
In recent years, with the rise of digital platform economies, the Taiwan Fair Trade Commission (hereinafter, the “TFTC”) has articulated its enforcement position and direction regarding the definition of the relevant markets in the context of the multilateral markets under the digital economy in the White Paper on Competition Policy in the Digital Economy[1] published in December 2022. Therefore, on November 8, 2023, the TFTC adopted the partial Amendments to the Principles of the Fair Trade Commission Regarding the Definition of the Relevant Markets (hereinafter, the “Amendments”) during its 1674th Commissioners’ Meeting on November 8, 2023, with the Amendments going into effect on November 22 of the same year. These Amendments are highlighted below:
I. The definitions of multilateral markets and indirect network effect (Point 2, Subparagraphs 6 and 7 of the Amendments)
In contrast to a traditional unilateral market structure, digital platform economies are bilateral or multilateral markets. The unique characteristics of multilateral markets, such as different user groups, the network effect between different user groups, and asymmetric pricing structures, affect the definition of the relevant markets. Therefore, the Amendments include the multilateral market structure and define it as “a market structure where platforms provided by businesses promote the interactions among over two user group users (such as credit card holders and merchants) through a platform (e.g., credit cards) with indirect network effect to create commercial value.” In addition, the Amendments define “indirect network effect” as the effect of the number of other user group users on the platform on the value of the goods or services that a specific user group user obtains through the platform” (e.g., the more the holders of a certain credit card, the more valuable the credit card is to merchants) for the sake of application.
II. The addition and revision of the consideration factors for the definition of the product market and the geographic market to accommodate the impact of the development of the digital economy
In view of characteristics such as the network effect among different user groups in multilateral markets and the existence of asymmetrical pricing structures, the Amendments added the following consideration factor for defining the product market and the geographic market: “the operating model of platform operators, the transaction relationships between user groups, or indirect network effects,” “the language used in the region where the platform operator’s products are located and the local culture,” “the pricing structure,” “the compatibility or complementarity formed by product technology, specifications, or standards,” etc. (Point 4, Subparagraphs 1, 3, and 4, and Point 5, Subparagraph 2 of the Amendments).
The Amendments further take into account and specifically include, as consideration factors for defining the product market and the geographic market, “the impact of product characteristics and usage on transaction behavior” and “the impact of relevant laws or administrative regulations on market competition” (Point 4, Subparagraphs 2 and 9, and Point 5, Subparagraph 7 of the Amendments).
III. The addition of the provision on market analysis using the hypothetical monopolist test under multilateral market structures (Point 9, Paragraph 3 of the Amendments)
The hypothetical monopolist test primarily defines the relevant markets by analyzing changes in product prices. However, it is possible that the relevant markets can no longer be defined by analyzing changes in product prices due to the potential indirect network effect that businesses may consider in the multilateral market environment of digital platforms, which causes some product prices to be set at “zero.” Therefore, the Amendments added a provision that allows the analysis of quality (such as satisfaction) or cost factors (such as user information costs and focus costs) as substitutes for analyzing changes in product prices to define the relevant markets.
Brief analysis
In the platform transaction model of the digital economy, which features indirect network effects and complementary products within an ecosystem, pricing is no longer the primary competitive factor for businesses. Cost reduction is not the only way for businesses to pursue higher profits. This shift has created challenges in traditional market definitions and market power measurements.[2] Following the publication of the White Paper on Competition Policy in the Digital Economy, the TFTC amended the Principles of the Fair Trade Commission Regarding the Definition of the Relevant Markets to address the challenges of defining markets and measuring market power in the digital economy. This is conducive to promoting the determination and predictability of market definition in the digital economy. How the TFTC will define the relevant markets in individual cases under such principles in the future is worthy of close observation.
[1] Regarding the introduction of the White Paper on Competition Policy in the Digital Economy, please refer to the LTP newsletter titled “The TFTC Announced the White Paper on Competition Policy in the Digital Economy” released in December 2022, for more details.
[2] Please refer to The White Paper on Competition Policy in the Digital Economy of the TFTC, pages 35-38.
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