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25 February 2021 / news

Dutch Authority for Consumers & Markets investigates sponsored rankings

On 2 February 2021, the Netherlands Authority for Competition & Markets (the ‘ACM’) published a study on sponsored internet ranking and its effects on competition and consumer welfare. The ACM has investigated whether this practice causes risks for consumers and whether current transparency measures on sponsored ranking are effective.

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The ACM has concluded that sponsored rankings indeed entail risks for both competitors and consumers. Many of the transparency measures used are poorly visible and/or unclear. In our regular blog for Kluwer, we discuss the study of the ACM and its findings.

Sponsored internet rankings

Sponsored ranking means that suppliers pay an extra commission to a search engine or digital platform for a better ranking in the search results. Many platforms use paid search engines. If companies pay an extra commission, they can appear higher in the search results on many internet platforms, such as Amazon.de, Beslist.nl, Booking.com and Thuisbezorgd.nl. Companies pay for a higher ranking because this leads to extra 'traffic' and purchases, as consumers tend to click on higher ranked items sooner.

The Study of the ACM

The ACM has conducted research on sponsored rankings and their effects on competition and consumer welfare. in its report, the ACM presents a framework for assessing the effects from sponsored ranking on consumers. This framework shows how the ACM shall assess the likelihood of harm and benefits for consumers from sponsored ranking in individual cases. The framework is also useful for online platforms that wish to evaluate the effects of their sponsored ranking activities, and to identify ways to reduce potential negative impact of their practices on consumers.

The ACM’s Findings

According to the ACM, sponsored ranking may limit competition between suppliers on price and quality. To begin with, suppliers may pass on the extra commission in the price. Secondly, payments for a better position can lead to a reduction of competition on price and quality. After all, it is possible to appear higher in the ranking with an extra payment instead of making a better offer. Finally, the suppliers who occupy a higher position in the search results because of their payments may be less relevant to the consumer than competiting suppliers. Moreover, consumers can be misled by paid higher rankings in case it is unclear that the order of the search results presented has been influenced by payment.

Conclusion

The ACM is concerned that transparency measures taken by some platforms only have a limited impact on preventing the risk that sponsoring leads to buying suboptimal products. Transparency about paid results may be a means to mitigate the risks of sponsored rankings, but that does depend on the way in which this is done. Transparency about sponsored rankings helps consumers to recognise paid results. It also prevents them from unintentionally clicking on paid search results. However, the ACM has also established that in practice, transparency statements about paid search results are often poorly visible or unclear.

The ACM concludes that on most platforms investigated, the role of sponsored rankings is still limited. However, there are exceptions. Especially in those cases the ACM sees risks for both consumers and competition. Nonetheless, ACM notes that its study does not lead to the conclusion that sponsored ranking in itself is per definition misleading and/or an infringement of competition law. Neither does the ACM conclude that new measures to limit sponsored rankings should be taken straight away. The ACM believes that at present, more research into the effectiveness of transparency measures is required before conclusions can be drawn whether these are sufficient or instead should be replaced by further restrictions or even an outright prohibition. Once the results of this additional research shall be made public, we intend to devote a follow-up up post to this subject.

Read much more in our latest Kluwer blog.

What can Loyens & Loeff do for you?

Digital technologies present companies with many online and offline business opportunities. However, they also bring about a whole new range of tax and legal challenges, from competition and intellectual property issues, to data protection and privacy questions. Loyens & Loeff has set up a dedicated and multidisciplinary Digital Economy Team. This firm-wide team unites top experts from our various practice groups in all of our jurisdictions. This integrated and dynamic approach guarantees high-end and efficient solutions for our clients covering all relevant legal and tax aspects of their business.

Over the past few years, the competition specialists in our Digital Economy Team have represented a broad variety of technology companies, from major online platforms to smaller but innovative start-ups. In this respect we have developed an impressive track record in providing legal advice on several technology related topics, such as digital commerce, block chain, fin-tech and big data.

It is our forward thinking and practical advice that helps our clients to stay ahead in the digital world and to find solutions to any (potential) competition problems that arise. In the context of our focus on the tech sector and our aim of thought leadership, we published our handbook Digital Competition Law in Europe: A Concise Guide (Kluwer), in September 2019. This book aims to be an indispensable guide to quickly and accessibly acquiring in-depth knowledge in competition law in the digital sector, and a must-read for any practitioner or academic who encounters competition law related to digital markets. According to Kluwer, this book is ‘one of [its] most significant publications of recent years’.



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