Playing favourites? Self-preferencing: Leveraging of market power in the digital age

Competition authorities globally are paying increasing attention to attempts by dominant companies, particularly digital platforms, to leverage their positions into adjacent markets. One form of leveraging that has gained particular attention in recent years is self-preferencing. Taking stock of recent case practice, why is this conduct so prevalent in digital markets, how do we distinguish between benign and harmful self-preferencing, and what economic evidence is key for future assessments?

Leveraging and self-preferencing is prevalent in the digital markets

Leveraging occurs when a dominant undertaking in one market uses this position to restrict competition or expand its market power to adjacent markets. In digital markets, particularly over the last decade, one form of leveraging has attracted increasing attention: self-preferencing.

Self-preferencing is a form of leveraging where the dominant firm gives preferential treatment to its own products within its dominant product (or platform), thereby nudging consumers to choose theirs ahead of their rivals’. This nudging can create potential competition concerns where it distorts consumer choices to such an extent that it would significantly limit their rivals’ ability to access customers. Particularly digital platforms give rise to self-preferencing opportunities as companies offering digital platforms often operate in ecosystems of closely related products that consumers use together.

The European Commission’s cases and the forms of self-referencing

Self-preferencing can in principle be pro-competitive. In particular, firms who sell different products or are present in different levels of the supply chain have an incentive to reduce double marginalisation or to pass on efficiencies from economies of scope. However, concern arises where self-preferencing risks excluding rivals from the adjacent market, which is more likely on two conditions:

• where the dominant product is an important gateway to consumers, hence the outright prohibition for gatekeepers under the DMA;
• where the preferential treatment is strong enough that rivals cannot overcome it.

Self-preferencing as a separate abuse was first introduced in the Commission’s Google Search decision in 2016. The Commission has since fined Google for self-preferencing in its AdTech business under Article 102, and for self-preferencing in its Search results under the Digital Markets Act (DMA).

Self-preferencing as an abuse is now well-established and brings interesting economic questions

In the context of abuse of dominance investigations, there are no presumptions, and an abuse needs to be established on a case-by-case basis. For gatekeepers, self-preferencing is outright prohibited in the context of rankings or related crawling or indexing activities. From an economic perspective, this type of conduct raises new questions that will need to be answered in each individual case. We highlight the following three:

• First, whereas the most high-profile cases have focused on behaviour of the largest dominant platforms globally, that is digital gatekeepers, there have also been investigations into smaller, locally dominant digital platforms such as the Trendyol fine in Turkey.
• Second, the identification and assessment of the conduct is not always straightforward. It may be necessary to carefully analyse the dominant company’s algorithms and its ranking results to identify self-preferencing.  
• Lastly, particularly in circumstances where the dominant firm is not a digital gatekeeper, potential pro-competitive effects of the alleged conduct will need to be carefully assessed to understand whether it may promote rather than hamper competition.

Read the full Insight below for a discussion of the Commission’s cases and more findings.

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