FAS Russia at OECD reveals its approach to defining geographical markets’ borders on example of Google

On September 28, 2016 the delegation of the FAS Russia made a speech at the roundtable of Working Party on cooperation and enforcement of the OECD Competition Committee (Paris, France) that was dedicated to issues of determination of geographic borders by competition agencies. In the conditions of developing globalization leading to the increase in volumes of the world trade, enlargement of transactional corporations and growth in the number of transborder exchanges including by usual customers, the questions of borders in which the state of competition should be regarded are raised increasingly often. Definition of their local, national or global character may have a decisive impact on results of antimonopoly cases towards companies and lead to prohibition or permission of economic concentrations.

In this regard, it was important for the FAS Russia to share with its foreign colleagues its own experience in geographic borders’ definition on markets of information and communication technologies (ICT markets) towards which much of the FAS Russia’s attention is paid.

Andrey Tsyganov, deputy head of the FAS Russia and the head of the Russian delegation at the OECD competition events, first of all noted that definition of geographic borders (ICT markets) is exercised in compliance with the Federal Law of 26 July 2006 N 135-FZ "On Protection of Competition" and "Procedure of Analysing State of Competition on Commodity Markets" of April 28, 2010. This document establishes a clear procedure, is commonly accessible and includes the following steps:

- Preliminary determination of geographic borders of a commodity market;

- Identification of conditions of a good’s circulation that limit the economic possibility of acquiring the good by purchaser(s);

- Definition of territories included into the geographic boundaries of the relevant commodity market.

Mr Tsyganov emphasized that the FAS Russia in its practice had not experienced tough difficulties in determining geographical borders of ICT markets. The complexity of the market structure and considerable particularities of its functioning have not led to impossibility of its analysis by the FAS Russia’s specialists. The legitimateness of methodological approaches was approved by further courts’ decisions. The general approach implied that such markets’ borders, even if at the beginning they had been determined as global due to ICT goods’ particularities such as zero costs of spread and transportation, during the case’s consideration by the antimonopoly body were determined as national.

This was related to particularities of concrete ICT goods’ consumption and reaction of customers towards these particularities. As an example of implementation of such an approach can be mentioned the example of the market of app stores for mobile devices functioning on the Android operation system. Its research was carried out in the framework of the antimonopoly investigation related to the company Google. A specific feature of the good (app store) that determined its functionality is its interface’s language, which, taking into consideration of all the case’s circumstances, allowed to conclude on the national character of the product market’s geographic boundaries.

Mr Tsyganov further emphasized that if we talk about determination of geographic boundaries on the markets of sale of computer equipment and supplements through the Internet, the antimonopoly body noted absence of practicability in case of acquisition of the mentioned goods outside the territory of the Russian Federation. This is related to a considerable complexity of consumer rights protection if a good is purchased in a shop registered abroad; to duration of delivery and the need for customs clearance / declaration and payment of customs duties. Furthermore, it is necessary to take into consideration the product certification requirements  for their access to the national market that can be set by the state, as well as measures on adaptation of goods to consumers in different regions that are undertaken by producers themselves. All of the above creates the situation when geographic borders in such cases are determined by the FAS Russia as national, including with the consideration of customers’ opinions.

The Russian delegation’s head also noted on some specific questions considered by the FAS Russia in the frame of analysis of ICT markets. For instance, the experience of consideration of the Google case demonstrates the necessity of circulation of goods on markets tightly connected with the functioning of ICT markets: in the Google case such an interconnection was examined on the markets of software for mobile devices and the markets of mobile devices themselves. Besides, some types of software (namely application software) can not function without the basic software, i.e. operating systems. In such cases, when determining the geographic boundaries of the market of application software, the functioning of operation systems markets is taken into account. The latter, in their turn, are intrinsically connected to the hardware.

Thus, the FAS Russia’s presentation in the frame of the OECD roundtable allowed to reveal some details of the Russian experience of enforcement in the famous Google case. To remind, antimonopoly case concerning this company are currently also examined by authorities of different countires including for instance the South Korea and European Commission.

During the open discussion in the frame of the roundtable Andrey Tsyganov also turned the colleagues’ attention to the question related to enforcement towards companies using big data. A challenge for competition authorities today is presented by appearance of information asymmetry between competition authorities and such companies as the latter often enjoy more advantageous positions in collection of big data having an opportunity to provide them to the regulator after certain adaptation or adjustment.

The possible options of response to such a situation presented by Andrey Tsyganov included a sophistication of work of competition authorities, which includes expensive steps on eradication of information asymmetries or application of a simplified approach, i.e. unactive intervention into the field of big data and use of other methods of analysis as evidence on cases of violations of the antimonopoly legislation.

In the frame of the discussion provoked by this question the roundtable’s chairman Renata Hesse, Assistant Attorney General in the U.S.A. remarked that the Federal Trade Commission and Department of Justice of the U.S.A. uses the former of the presented approaches with attraction of a wide range of highest-level experts with allocation of relevant assignations on conducting big data analysis). A representative of the academic community though told that a better option under conditions of limited resources is the simplification of competition authorities’ work in the big data field. The effectiveness of such an approach was proved by representatives of a number of competition authorities who emphasized that extension of geographic markets borders and use of complicated methods of analysis for big amounts of information should not be the authorities’ goal per se. On the contrary, the analysis’ purpose is collection of information sufficient for making decisions.