The era of the digital economy has arrived, bringing unprecedented challenges and opportunities to the global economic system. The term "digital economy" generally refers to an economic system based on digital technologies, including the internet, cloud computing, e-commerce, the sharing economy, artificial intelligence etc. The digital economy breaks through geographical boundaries, allowing any location with internet access to participate in digital economic activities. Data and information are among the most important resources in the digital economy, determining the competitiveness of market participants. Ensuring fair competition in the digital economy has become a shared concern on the international stage. In Taiwan, the Fair Trade Commission (“FTC”), the regulatory authority for the Fair Trade Act, issued the "White Paper on Competition Policy in the Digital Economy" in December 2023. Additionally, the FTC also added a dedicated chapter on digital economy and competition in the 20th edition of the publication “Understanding the Fair Trade Act” published in August 2024.
The digital economy exhibits characteristics of a multi-sided market, whereas traditional economy typically operates in one-sided markets. In one-sided markets, enterprises set different prices based on the needs of various transaction counterparts, but these needs and prices do not influence each other. For example, a movie theater sets different ticket prices for different consumers, but the demand and pricing for different consumers are theoretically independent of each other. In contrast, the digital economy operates through interactions and feedback loops between different transaction counterparts, creating economies of scale. For instance, a platform may offer free services to users, primarily to attract businesses to pay for advertising space on the platform, thereby increasing exposure. As more users join the platform, more businesses are likely to advertise on it, and this interactive process gradually forms economies of scale for the platform.
The zero-price, high-price price structure—where one side of the transaction is offered for free while the other side pays a relatively high price—is a typical and common pricing model in the digital economy. This model presents unforeseen challenges for Taiwan's Fair Trade Act. First, there is the issue of market definition. Given the multi-sided nature of digital economy, how should we define the appropriate number of relevant markets? Moreover, traditional principles like the "no price, no market" rule and analysis models based on price changes (e.g. SSNIP) may no longer apply directly in the digital economy. The unbounded nature of the internet has also disrupted traditional geographic market boundaries. Market definitions may no longer be confined to a specific city or country but may need to extend across continents or even globally. Similarly, measuring market power becomes more challenging. When businesses offer free services, traditional metrics like price-based profit, sales volume, or revenue might no longer be the focus. Instead, data and information—which determine the competitiveness of market participants—become central. As such, key metrics may need to shift toward factors that do not directly involve price, e.g. time spent on the platform, active user counts, or website traffic.
The FTC has used traditional standard of conducts regarding restriction on competition to assess the legality of digital economy activities, e.g. examining practices of predatory pricing, most-favored-customer clauses, self-preferencing, and search bias. However, due to the above unique characteristics of the digital economy, these traditional standard of conducts sometimes encounter conflicts or difficulties in application. However, the FTC once found that a food delivery platform requiring restaurants to post the same prices on the platform as they charged in-store has prevented restaurants from implementing differential pricing across different delivery platforms. The FTC determined that the food delivery platform was "imposing an unjust restriction on the business activities of its transaction counterpart" in violation of Article 20, Paragraph 5 of the Fair Trade Act and fined such food delivery platform for an administrative fine of NTD 2 million (see FTC Decision No. Kong-Chu-Zi-110066).
This case highlights that while the digital economy has its own particularities, the FTC remains committed to enforcing competition law. If a business engages in practices that undermine market freedom or fair competition, the FTC will take action to protect trade order and consumer interests. Therefore, businesses involved in digital economy activities must remain vigilant and comply with the relevant provisions of the Fair Trade Act to avoid crossing legal boundaries and facing penalties.
(The article is originally in Chinese which can be found here.)