Competition law and digital markets – what companies need to consider when setting up a hybrid platform

Hybrid platforms are digital marketplaces on which, in addition to manufacturers and retailers (the platform users), the platform operators themselves sell their goods and/or services and, to the extent that the offers compete, are thus in competition with the platform users. Consequently, hybrid platforms have both a vertical and a horizontal element: On the one hand, the operators of hybrid platforms are to be qualified as providers of an online intermediation service and their users as buyers of this service. On the other hand, the platform operators and the platform users are in a horizontal competitive relationship for the customers on the respective platform. Hybrid platforms are often B2C platforms, but increasingly they are also found in the B2B area.

Hybrid platforms bring significant benefits to their operators, the platform users and the customers. While the operators of a hybrid platform benefit from a broader offer on and thus a greater attractiveness of their platform as well as a commission-based business with the platform users, the platform users gain an additional sales channel with a usually much larger reach as well as lower transaction costs. In addition to lower transaction costs, customers on a hybrid platform benefit from a wider choice of suppliers and products and/or services as well as better comparability.

Due to the combination of vertical as well as horizontal elements, the prohibition on restrictive agreements (Art. 101 (1) TFEU/§ 1 GWB) results in special requirements for the design and operation of a hybrid platform. We summarise the most important of these requirements and show companies how they can use the advantages of hybrid platforms for their own sales channel in compliance with competition law.

Information exchange

With regard to the horizontal element, companies must avoid an inadmissible (one-sided) exchange of competitively sensitive information between platform user and platform operator.

In the operation of a hybrid platform, the exchange of competitively sensitive information (especially prices and quantities) between platform users and platform operators is immanent. In addition, competitively sensitive information of the platform users (e.g. sales figures and quantities) is generated at the platform operator during the processing of transactions. In order not to infringe the prohibition on restrictive agreements, a hybrid platform must therefore be designed in such a way that, despite the flow of information, there is no inadmissible exchange of competitively sensitive information.

The decisional practice of the Bundeskartellamt (e.g. in proceedings XOM Materials, Unamera and OLF Germany) shows which measures are generally suitable to exclude an infringement of competition law when setting up and operating a hybrid platform. According to this, implementation in conformity with competition law is possible through an informational separation of the platform from the company and its shareholders by means of legal, organisational, technical and personnel separation. Companies must always consider the specific measures to be taken on a case-by-case basis, taking into account the specific market and competitive conditions. In this respect, companies must ensure that the disclosure of competitively sensitive information of the platform users cannot influence the competitive / market behaviour of the platform undertaking with regard to its own sales activities.

Restrictions of competition arising from the vertical relationship

With regard to the vertical element, there are also competition law requirements for the operation of a hybrid platform. An appreciable restriction of competition could exist, for example, if the platform user undertakes not to use any other platform for the distribution of its products and/or services.

In this respect, the current drafts of the revised Vertical Block Exemption Regulation and the supplementary Vertical Guidelines exclude an exemption from the prohibition on restrictive agreements for hybrid platforms (Art. 2 (7) Draft Vertical Block Exemption Regulation and para. 91 of the Draft Vertical Guidelines).

Therefore, only an individual exemption pursuant to Article 101 (3) TFEU or Section 2 (1) ARC would be possible, for which, however, the individual conditions for an exemption (efficiency gains, adequate share of consumers in the efficiency gains, indispensability of the restriction of competition for achieving the efficiency gains and no elimination of competition for a substantial part of the products/services concerned) would have to be proven. This also always requires a case-by-case assessment taking into account all relevant circumstances.

Taylor Wessing's competition law practice regularly advises clients on competition law issues relating to digitalisation. Our competition law expert Dr Stefan Horn will be happy to answer any questions on the possibilities of setting up and operating a hybrid platform.

Please read also our article from Stefan Horn: Competition Litigation and Digital Markets – Legal Protection against Tipping