Recent years have witnessed a remarkable increase in internet platform markets which have become the preferred venue of interaction amongst a growing number of buyers and sellers. The ability of the internet to enable sellers reach a greater number of consumers shows that there is a high potential for growth of the internet market, with effects on competition. Following a 2013 report by the German Antitrust Authority “Bundeskartellamt” on “Vertical Restraints on the Internet Economy”, it is clear that the internet significantly reduces transaction costs and thus increases competition to the benefit of consumers. The increase in competition among sellers, producers and retailers has led to an adoption of different forms of vertical restrictions on internet platforms which have come under the scrutiny of antitrust authorities. This thesis aims to analyze vertical restraints on internet platform markets based on the investigation of Amazon.com, Inc. by the “Bundeskartellamt” for its use of a price parity clause. This clause was introduced in Germany and in the United Kingdom in 2010 in the contract between Amazon and sellers using its platform and prohibited them from setting lower prices on other platforms, including their own websites, than the prices they set on Amazon.
Table of Contents
1. Introduction
2. Legal framework and case study
2.1 Legal perspective
2.2 The Amazon case
3. Platform Markets
3.1 Definition
3.2 Critical mass
3.3 Pricing
3.4 Multi-homing
4. Price Parity Clauses
4.1 General
4.2 Meeting-Competition
4.3 Most Favored Customer
4.4 Combinations
4.5 Exclusive contracts
4.6 Predatory pricing and limit pricing
5. Application on Internet Platform Markets
5.1 Meeting-Competition
5.2 Most Favored Customer
5.3 Exclusive contracts
5.4 Predatory pricing and limit pricing
6. Conclusions
7. References
Objectives and Topics
This master thesis investigates the economic and legal implications of price parity clauses used by internet platforms, specifically focusing on the landmark case of Amazon. The research evaluates whether such contractual restrictions lead to anticompetitive outcomes or if they can be justified under existing legal frameworks, aiming to determine if regulatory prohibition is appropriate.
- The economic theory of multi-sided platform markets and network externalities.
- Legal analysis of vertical restraints under Article 101 of the Treaty on the Functioning of the European Union (TFEU).
- Mechanisms of various price parity clauses: Meeting-Competition, Most Favored Customer, and exclusive contracts.
- Antitrust assessment of Amazon's price parity clause and its impact on competition.
- Strategic implications for platform operators and market entry for competitors.
Excerpt from the Book
2.1 Legal perspective
To answer the question of whether price parity clauses should be prohibited and, if so, which conditions are important, it is necessary to analyze the legal framework. Article 101 TFEU covers the "prohibition of anticompetitive agreements and concerted practices" (Article 101 TFEU). The article contains vertical as well as horizontal restraints (Bundeskartellamt, 2013a, p. 18). The first paragraph describes in which cases vertical or horizontal restraints are anticompetitive and hence should be prohibited:
"The following shall be prohibited as incompatible with the internal market: all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the internal market, and in particular those which: (a) directly or indirectly fix purchase or selling prices or any other trading conditions; (b) limit or control production, markets, technical development, or investment; (c) share markets or sources of supply; (d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; (e) make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts" (Article 101(1) TFEU).
Summary of Chapters
1. Introduction: Provides an overview of the rise of internet platforms and the emergence of competition challenges related to price parity clauses, using Amazon as a primary example.
2. Legal framework and case study: Examines the legal basis for prohibiting anticompetitive agreements under EU law and details the investigation and eventual termination of Amazon's price parity clauses.
3. Platform Markets: Explains the economic characteristics of platform markets, including indirect network externalities, critical mass, and the mechanics of multi-homing.
4. Price Parity Clauses: Presents a theoretical review of different types of clauses, such as Meeting-Competition and Most Favored Customer, and their potential anticompetitive or procompetitive effects.
5. Application on Internet Platform Markets: Applies the previously discussed economic theories to specific platform settings to analyze the legal and competitive implications of these clauses in practice.
6. Conclusions: Synthesizes the findings, confirming that while some antitrust decisions were correct in result, the reasoning regarding horizontal versus vertical restrictions requires nuanced legal evaluation.
7. References: Lists the comprehensive literature and data sources utilized throughout the thesis.
Keywords
Price Parity Clauses, Internet Platform Markets, Antitrust, Amazon, Vertical Restraints, Article 101 TFEU, Competition, Multi-homing, Critical Mass, Network Externalities, Meeting-Competition, Most Favored Customer, Exclusive Contracts, Predatory Pricing, Market Entry
Frequently Asked Questions
What is the core focus of this master thesis?
The thesis focuses on the competitive and legal impacts of price parity clauses used by internet platforms, analyzing how these clauses affect competition among retailers and between platforms.
What are the primary subject areas covered?
The work covers platform economics (two-sided markets), EU antitrust law (specifically Article 101 TFEU), and various types of pricing and vertical restrictions.
What is the main research question?
The central question is whether price parity clauses on internet platforms should be prohibited, and whether the antitrust actions taken against companies like Amazon were legally and economically justified.
Which scientific methods are applied?
The author uses a literature-based analysis of microeconomic theory regarding platform markets and combines this with a legal analysis of European competition law and specific case studies.
What does the main body of the work address?
It addresses the theory of platform markets, the classification of various pricing strategies, and an evaluation of how these strategies function within modern internet-based business models.
How would you describe the thesis using keywords?
The thesis is best described by terms such as Price Parity Clauses, Antitrust, Two-Sided Markets, Vertical Restraints, and Amazon Case Study.
How does the "chicken-and-egg-problem" relate to platform markets?
The chicken-and-egg problem describes the challenge of launching a new platform, as it requires a critical mass of users on both sides of the market simultaneously for the platform to provide value.
What is the significance of the Amazon case in this research?
The Amazon case serves as the primary practical example to illustrate the real-world application and legal dispute surrounding price parity clauses in the European e-commerce sector.
What conclusion does the author reach regarding the prohibition of Amazon's clause?
The author concludes that while the decision by antitrust authorities to prohibit the clause was correct, the classification of the restriction as a "horizontal" agreement was potentially flawed, favoring a "vertical" classification instead.
- Quote paper
- Holger Löhr (Author), 2014, Price Parity Clauses on Internet Platform Markets, Munich, GRIN Verlag, https://www.grin.com/document/335529
