Competition Law and Competition Analysis in Converging Industries

1. Introduction

Converging industries are industries in which previously separate markets, technologies, products, services, or value chains increasingly overlap. Digitalisation, artificial intelligence, cloud computing, telecommunications, fintech, media streaming, e-commerce, payments, automobiles, healthcare, and energy are major examples.

For example:

• telecommunications + media + streaming;
• banking + payments + technology;
• automobiles + software + telecommunications;
• e-commerce + logistics + digital payments;
• cloud computing + software + artificial intelligence;
• advertising + search + social media + data analytics;
• gaming + cloud services + app stores.

Competition law faces a particular challenge in such markets because traditional market boundaries may no longer accurately reflect competitive constraints. A company may possess limited market share in one traditional market but exercise substantial power through control over data, platforms, infrastructure, distribution, interoperability, ecosystems, or complementary products.

The principal competition-law questions are therefore:

1. How should the relevant market be defined?
2. Should several traditionally separate markets be analysed together?
3. Can a firm leverage power from one market into another?
4. Can bundling or tying exclude emerging competitors?
5. How should network effects and ecosystems be considered?
6. How should innovation competition be assessed?
7. Can access to data or infrastructure constitute an essential competitive input?
8. How should mergers between firms operating in adjacent or complementary markets be assessed?

2. Meaning of Industry Convergence

Industry convergence occurs when technological, commercial, or economic developments cause previously distinct industries to become interconnected.

Examples

The competition problem is that a firm's competitive position may depend not merely upon its position in one product market but upon its entire ecosystem.

3. Why Competition Analysis Becomes Difficult

A. Traditional Market Definition Becomes More Difficult

Competition authorities normally identify:

• relevant product market;
• relevant geographic market;
• competitors;
• customers;
• suppliers;
• substitutable products.

In converging industries, however, products may simultaneously perform several functions.

For example, a smartphone may function as:

• a communication device;
• an application platform;
• a payment instrument;
• an advertising interface;
• a content-consumption device;
• a marketplace;
• a location/data collection device.

Consequently, defining the market too narrowly may underestimate competitive power.

4. Static and Dynamic Competition

Converging industries require both static and dynamic analysis.

Static analysis

Examines:

• present prices;
• market shares;
• output;
• costs;
• existing competitors.

Dynamic analysis

Examines:

• innovation;
• future technologies;
• research and development;
• potential entrants;
• technological substitution;
• interoperability;
• switching costs;
• network effects.

Dynamic analysis is particularly important where today's competitors may become tomorrow's competitors through technological convergence.

5. Network Effects

Many converging industries are platform-based.

A platform can become more valuable as more users participate.

For example:

More users → more developers → more applications → greater consumer value → more users.

This may produce a self-reinforcing competitive advantage.

Competition authorities therefore examine whether network effects create:

• entry barriers;
• tipping;
• user lock-in;
• increased switching costs;
• economies of scale;
• control over complementary markets.

6. Ecosystem Competition

In converging industries, competition frequently occurs between ecosystems rather than individual products.

An ecosystem may include:

• operating systems;
• applications;
• cloud infrastructure;
• payment systems;
• hardware;
• advertising;
• data;
• distribution channels;
• developer tools.

A firm may therefore use an advantage in one component to strengthen its position in another.

This creates the possibility of ecosystem foreclosure.

7. Leveraging and Market Power

A dominant undertaking in one market may attempt to extend its power into an adjacent market.

Examples include:

• an operating-system provider favouring its own applications;
• a payment platform restricting competing payment services;
• a search engine favouring its own specialised services;
• a cloud provider restricting interoperability;
• a marketplace disadvantaging competing sellers;
• a social-media platform using data advantages in advertising.

Competition law therefore examines whether conduct amounts to:

• tying;
• bundling;
• exclusive dealing;
• self-preferencing;
• discriminatory access;
• refusal to supply;
• interoperability restrictions;
• margin squeeze;
• discriminatory data access.

8. Data as a Competitive Asset

Data has become an important source of competitive advantage in converging industries.

Competition analysis may examine:

1. quantity of data;
2. quality of data;
3. exclusivity;
4. frequency of collection;
5. ability to combine datasets;
6. access by competitors;
7. portability;
8. interoperability.

A merger can therefore create competitive concerns even where the parties have relatively modest traditional market shares if the transaction gives the merged entity control over strategically important datasets.

9. Interoperability

Interoperability becomes particularly important where products operate as part of a wider ecosystem.

A dominant undertaking may have an incentive to prevent competitors from interoperating with:

• operating systems;
• APIs;
• cloud services;
• payment systems;
• communication networks;
• hardware;
• databases.

Competition authorities may therefore consider whether interoperability restrictions prevent competitors from entering or expanding.

10. Innovation Competition

Traditional competition analysis often concentrates on price.

In converging industries, however, firms may compete through:

• better technology;
• improved algorithms;
• AI capabilities;
• faster networks;
• better security;
• superior user experience;
• research and development.

A transaction may therefore harm competition even where it does not immediately increase prices if it eliminates an important innovation competitor.

11. Conglomerate and Complementary-Product Effects

Convergence often produces conglomerate relationships.

For example:

Hardware + operating system + cloud + software + advertising.

A company may use the strength of one product to promote another.

Competition authorities examine whether the firm has:

• ability to engage in leveraging;
• incentive to do so;
• opportunity to foreclose competitors;
• sufficient market power;
• control over distribution.

12. Six Important Case Laws / Competition Decisions

1. Microsoft Corp. v. Commission

European Union – General Court, 2007

This is one of the most important authorities for competition analysis involving technological convergence.

Microsoft had significant power in the PC operating-system market. The European Commission examined Microsoft's conduct concerning interoperability information and the tying of Windows Media Player to Windows.

Competition-law significance

The case demonstrates that competition problems can arise where one technological platform becomes an important gateway for complementary products.

The Court upheld important aspects of the Commission's decision concerning:

• refusal to provide interoperability information;
• tying;
• technological leverage;
• protection of Microsoft's position in adjacent markets.

Relevance to converging industries

The case demonstrates that competition analysis cannot always stop at the boundaries of the dominant firm's original product.

A dominant technology can provide leverage into complementary markets.

Principle

Control over a technological platform can create competitive significance in neighbouring markets.

2. Google Android

European Commission, 2018; General Court, 2022

The Google Android case concerned Google's conduct relating to the Android mobile operating-system ecosystem.

The Commission examined arrangements involving:

• Google Search;
• Google Play Store;
• Chrome;
• Android devices;
• licensing arrangements;
• anti-fragmentation arrangements.

The Commission concluded that certain contractual arrangements restricted competition.

The General Court substantially upheld the Commission's findings while modifying the fine.

Competition significance

The case illustrates the importance of analysing:

• platform ecosystems;
• mobile operating systems;
• application stores;
• default settings;
• pre-installation;
• network effects;
• distribution advantages.

Convergence dimension

The smartphone industry combines:

telecommunications + hardware + operating systems + applications + search + advertising + payments.

Therefore, competition cannot necessarily be understood by looking only at the physical handset market.

Principle

Control over an ecosystem can enable a firm to influence competition in complementary digital markets.

3. Qualcomm

European Commission / General Court – chipset and exclusionary conduct

Qualcomm provides an important example of competition analysis involving a technologically interconnected industry.

The relevant competitive environment involved semiconductor components used in mobile communications.

The Commission examined whether Qualcomm's arrangements with customers could exclude competing chipset suppliers.

The broader importance of the case lies in analysing competition where:

• technology changes rapidly;
• components are complementary;
• switching can be difficult;
• firms compete for future technological standards.

Convergence dimension

Modern telecommunications involve convergence between:

• semiconductor technology;
• mobile networks;
• smartphones;
• software;
• cloud services;
• IoT.

A component supplier can consequently have competitive importance extending beyond the immediate component market.

Principle

Competition authorities may consider technology-dependent competitive relationships and exclusionary effects, rather than examining products in complete isolation.

4. Tetra Laval v. Commission

European Court of Justice, 2002

The Tetra Laval litigation is a foundational authority concerning conglomerate mergers.

Tetra Laval proposed acquiring Sidel. The transaction involved businesses operating in complementary packaging technologies.

The European Commission had raised concerns about the possibility that the merged undertaking could use its position in one market to strengthen its position in another.

The EU courts rejected the Commission's original prohibition because the Commission had not established the conglomerate effects with the necessary evidentiary standard.

Importance

The case is particularly important because it establishes that conglomerate theories of harm cannot rest merely on the assumption that a firm could theoretically leverage its position.

The authority must establish:

1. ability;
2. incentive;
3. likely effects;
4. sufficiently substantiated causal reasoning.

Convergence relevance

Converging industries frequently produce mergers between complementary businesses.

Tetra Laval demonstrates that:

Complementarity alone does not establish an anticompetitive conglomerate effect.

A competition authority must demonstrate how the transaction is likely to affect competition.

5. GE/Honeywell

European Commission, 2001; European Union Courts

The GE/Honeywell transaction involved two major industrial businesses whose products operated in closely connected aerospace markets.

The European Commission prohibited the transaction based substantially on concerns relating to:

• bundling;
• portfolio effects;
• vertical relationships;
• conglomerate effects;
• market power in complementary products.

The United States authorities reached a different conclusion.

Competition significance

The case became particularly important because it demonstrated that competition authorities may assess the competitive consequences of combining products across connected markets.

Convergence dimension

Aerospace systems frequently involve interconnected products and technologies.

A firm possessing strength in one component can potentially use that position in negotiations concerning other components.

Principle

Merger analysis may need to examine portfolio and ecosystem effects where products are technologically or commercially interconnected.

The case also demonstrates the importance of differences between competition authorities in different jurisdictions.

6. Microsoft/Activision Blizzard

European Commission, 2023; UK and US proceedings

The Microsoft/Activision Blizzard transaction is a modern example of convergence involving:

• gaming;
• cloud computing;
• software;
• digital distribution;
• consoles;
• subscription services.

The transaction raised concerns concerning cloud gaming and related distribution markets.

The European Commission ultimately approved the transaction subject to commitments, while competition authorities in the United Kingdom initially opposed the transaction and subsequently accepted a restructured transaction after remedies.

Competition significance

The transaction illustrates how modern competition analysis extends beyond traditional market shares.

Authorities examined:

• cloud gaming;
• access to game content;
• licensing;
• distribution;
• technological ecosystems;
• potential foreclosure.

Convergence dimension

Gaming is no longer simply a console or PC industry.

It increasingly overlaps with:

cloud computing + subscription services + software + online distribution + streaming technology.

Principle

Merger analysis in converging digital industries may focus on control over strategic content and infrastructure as well as existing market shares.

13. Additional Important Authorities

Other cases and decisions useful for studying converging industries include:

Google Shopping

European Commission, 2017

Relevant to:

• search;
• online marketplaces;
• self-preferencing;
• platform leverage.

Google Search (AdSense)

European Commission, 2019

Relevant to:

• online advertising;
• search;
• exclusivity;
• digital ecosystems.

Apple App Store / music-streaming investigations

Relevant to:

• app stores;
• payment systems;
• digital distribution;
• platform dependency.

Facebook/WhatsApp merger

European Commission, 2014

Important for:

• data;
• social networks;
• messaging;
• digital ecosystems;
• data combination.

14. Market Definition in Converging Industries

Competition authorities may employ traditional tools such as the SSNIP test, but convergence makes the exercise more complicated.

The authority may need to ask:

Product substitution

Would consumers switch between:

• traditional television and streaming?
• banks and fintech platforms?
• physical retail and e-commerce?
• console gaming and cloud gaming?

Supply-side substitution

Can existing suppliers quickly modify their technology to enter the adjacent market?

Innovation substitution

Can an emerging technology constrain an established firm even though it currently has little market share?

15. Multi-Sided Markets

Many converging industries operate through multi-sided platforms.

For example:

Digital advertising platform

Users ↔ Platform ↔ Advertisers

E-commerce

Consumers ↔ Marketplace ↔ Sellers

App store

Users ↔ App Store ↔ Developers

Competition analysis must therefore examine effects on multiple sides.

Conduct benefiting one side may harm another.

For example:

A platform may offer consumers a low-cost service while imposing restrictive conditions on business users.

The analysis must therefore consider the entire platform structure.

16. Barriers to Entry

Converging industries may have substantial entry barriers because a new entrant may need access to several complementary assets simultaneously.

Examples include:

• data;
• capital;
• infrastructure;
• intellectual property;
• distribution;
• users;
• developers;
• cloud capacity;
• interoperability;
• technical standards.

A firm may therefore be unable to compete effectively even if the underlying technology is publicly available.

17. Switching Costs and Lock-In

Convergence can create significant switching costs.

Examples:

• loss of accumulated data;
• loss of applications;
• loss of subscriptions;
• incompatibility with existing hardware;
• retraining costs;
• contractual commitments;
• loss of ecosystem benefits.

Competition law may therefore investigate whether firms deliberately increase switching costs to protect market power.

18. Essential Facilities and Access

Where a converging industry depends upon a strategically important facility or infrastructure, refusal of access may become a competition concern.

Potential facilities include:

• payment infrastructure;
• app stores;
• telecommunications networks;
• cloud infrastructure;
• data platforms;
• digital identity systems;
• ports;
• electricity grids;
• technical standards.

However, the essential-facilities doctrine is exceptional. Mere ownership of an important facility does not automatically create an obligation to provide access.

19. Vertical Foreclosure

Vertical integration can become particularly important in converging industries.

For example:

Hardware manufacturer → operating system → application store → payment service.

A vertically integrated undertaking may have the ability and incentive to disadvantage rivals operating at another level.

Competition analysis therefore considers:

• input foreclosure;
• customer foreclosure;
• discriminatory access;
• interoperability restrictions;
• exclusive arrangements;
• tying.

20. Merger Analysis

In mergers involving converging industries, authorities may investigate:

Horizontal effects

The parties compete directly.

Vertical effects

One party supplies another.

Conglomerate effects

The parties supply complementary products.

Innovation effects

The transaction removes an important future competitor.

Ecosystem effects

The transaction strengthens control over an interconnected technological system.

Data effects

The transaction combines strategically valuable datasets.

21. Remedies

Competition authorities may impose several types of remedies.

Structural remedies

• divestiture;
• sale of assets;
• separation of business units.

Behavioural remedies

• licensing;
• interoperability;
• non-discrimination;
• access commitments;
• data portability;
• restrictions on exclusivity.

Technical remedies

• API access;
• interoperability protocols;
• technical separation;
• compatibility obligations.

In converging industries, remedies may need to preserve future competitive possibilities, not merely current competitors.

22. Competition Law and Innovation

The central challenge is balancing:

Potential benefits

• economies of scale;
• innovation;
• integration;
• improved products;
• reduced transaction costs;
• better interoperability.

against:

Potential harms

• foreclosure;
• exclusion;
• reduced innovation;
• higher switching costs;
• ecosystem lock-in;
• reduced entry;
• data concentration.

Consequently, convergence should not automatically be treated as either pro-competitive or anticompetitive.

23. Key Analytical Framework

A useful competition-law framework is:

Industry Convergence

↓

Identify overlapping products and technologies

↓

Define relevant markets

↓

Identify ecosystem/network effects

↓

Measure market power

↓

Examine data, infrastructure and interoperability

↓

Analyse leveraging, tying, bundling and foreclosure

↓

Examine innovation and potential competition

↓

Assess vertical/conglomerate effects

↓

Analyse consumer and business-user effects

↓

Consider efficiencies

↓

Determine appropriate remedies

24. Important Legal Principles Emerging from the Case Law

25. Conclusion

Competition analysis in converging industries requires a broader approach than traditional market-share analysis. Technological convergence can transform previously independent markets into interconnected competitive ecosystems.

The principal issues include:

• difficult market definition;
• network effects;
• ecosystem power;
• data concentration;
• interoperability;
• switching costs;
• tying and bundling;
• self-preferencing;
• vertical foreclosure;
• conglomerate effects;
• innovation competition;
• potential competition;
• digital infrastructure access.

The jurisprudence beginning with Microsoft, Tetra Laval, and GE/Honeywell, and continuing through Google Android and Microsoft/Activision Blizzard, demonstrates the evolution from analysing individual products toward analysing interconnected technological and commercial systems.

The central principle is not that convergence itself violates competition law. Rather, competition law must determine whether the economic advantages created by convergence produce efficiencies and innovation, or whether control over interconnected markets is being used to exclude competitors and protect market power.