Brazil’s Competition Authority Introduced the First True Ecosystem Theory of Harm

Competition enforcers have, over the last few years, peppered their reports with references to ‘ecosystems’. However, until CADE’s recent decision on the Apple case, it was no more than jargon. Landmark cases like Google Android, Amazon Marketplace and Google/Fitbit all refer to ‘ecosystems’. In its Apple decision, the European Commission used ‘ecosystem(s)’ 69 times. The European Commission’s revised market definition notice introduced “(digital) ecosystems”.  But this linguist inflation has added no substantial analytical value: remove ‘ecosystem,’ and the cases stand unchanged.

I have argued elsewhere that, to do competition assessment in ecosystems, we need at least three additions to the enforcers’ toolkits:

1. “Ecosystem definition”: empirical methods to define the boundaries and structure of an ecosystem. These are based on measuring commonalities across products, as proposed in a joint paper with Konstantinos Stylianou. These methods should supplement traditional market definition, which relies on measuring demand

    

   substitution between products.

1. Ecosystem mechanisms of harm. Economic theory and evidence on how the ‘usual suspects’ such as economies of scale and scope in data, cross‑platform network effects, or demand steering actually impair competition, and marshal evidence accordingly.

1. Ecosystem theories of harm. New theories of harm that capture non-substituablity-based competitive harms. This post focuses on the third item.

Competition beyond demand substitution in ecosystems

Existing rulings evoking ‘ecosystems’ focus on conventional substitution‑based rivalry, yet ecosystems generate other competitive dynamics. While this is not problematic (of course, firms do compete to sell substitutes within and outside of ecosystems), it is not the whole story. The academic literature shows that, in ecosystems, firms also compete in other ways than by selling substitutes. Firms that cooperate to form an ecosystem also compete for value capture within it, as the Epic Games chapter of the Apple cases saga has vividly illustrated. Today’s complementors might become tomorrow’s competitors, as extensively discussed in the envelopment literature. The collection of assets and capabilities that make up an ecosystem compete with those of a rival ecosystem. Hence, a firm may face competitive pressure or suffer anti-competitive conducts from firms that inhabit different product spaces but the same (or a rival) ecosystem.

Taking these forms of competition beyond (current) substitutability into account should lead to new, ecosystem-specific theories of harm, but also efficiency defenses. Using the Booking/eTraveli case as inspiration, Batra, de Bijl and Klein have proposed theories of harm rationalizing when and how a merger between two firms located in different relevant markets can either increase or decrease ecosystem-vs-ecosystem competition. Yet no agency had operationalized these types of academic insights until CADE’s recent decision on Apple.

CADE’S ecosystem theory of harm

I will not comment on the case in general. Instead, I want to focus on one of the three conducts that CADE investigated, and on which, in my view, the very first ecosystem theory of harm was put forward by a competition authority. Mercado Livre (a leading e‑commerce and payments platform) rolled out an app update offering its ‘level‑six’ loyalty users discounts on HBO GO and Disney+. Apple first objected to the ‘buttons, external links, or other calls to action’ that bypass in‑app purchase. Later, it claimed the feature let users ‘purchase digital content or services for use outside the app.

CADE characterized Apple’s behavior with an envelopment-flavored ‘defensive leverage’ theory of harm. According to this theory, “the restrictions imposed aim to prevent complementor (developers) from disintermediating the central platform or creating alternative distribution channels that could threaten Apple's monopolistic position”. In other words, Apple’s restrictions aim at impeding Mercado Livre and, importantly, any other complementor (i.e., app developer), from disintermediating the orchestrator (Apple) or “creating alternative distribution channels that could threaten Apple's monopolistic position”. By this token, Apple would be abusing its orchestrator role in the ecosystem to impede future competition from complementors, regardless of whether they are active in a market in which Apple is active.

Unlike other theories of harm in prior similar cases brought up against Apple, CADE’s theory does not rely on leverage, bundling, or tying. Moreover, it does not focus the harm on a specific market, as other jurisdictions did (music streaming in the EU, dating apps in the Netherlands and gaming in the US), but on the ecosystem structured around the App Store ecosystem taken as a whole. It is essentially a theory of harm about the abuse of market power by the orchestrator on complementors within an ecosystem. In that respect, it is, in my view, the very first ecosystem theory of harm to permeate competition practice.

CADE’s decision could solve the chicken‑and‑egg dilemma ecosystem theories of harm have been facing: enforcers avoid novel theories because there’s no precedent, so no precedent ever arises. To be fair, Apple’s veto of the Mercado Livre update is a textbook example found only in Latin America to date. European and American competition authorities would have had a harder time introducing an ecosystem theory of harm in the cases they had to deal with, regardless of how novelty-(un)savvy they might be. In that respect, CADE’s decision has set the pace for other Latin American jurisdictions. Mercado Libre has filed the same complaint in Mexico, where the Instituto Federal de Telecomunicaciones and the competition authority, COFECE, are reviewing the case. A similar case against Apple is likely to appear in some of the other 16 Latin American jurisdictions where Mercado Libre is a large player in ecommerce and digital payments, notably in Argentina, its founding market and headquarter.

From Promise to Proof: an Interdisciplinary Path to Ground Ecosystem Theories of Harm

While promising and welcome, for the adoption of ecosystem theories of harm to make a difference, authorities must gather evidence on how certain conducts or mergers can strengthen or soften competitive pressures other than (but without forgetting about) demand substitution. The mechanisms through which this might happen should be substantiated. Harder-to-defend counterfactuals will have to be made.

CADE’s decision, grounded in academic work across fields, lights a beacon for collaboration between competition authorities and academic experts. Imagine economists quantifying cross-product complementarities and their impact on ecosystem-wide market power; management scholars assessing organizational and dynamic capabilities to back up counterfactuals; computer scientists showing the effect of recommendation algorithms on product visibility; and psychologists running controlled studies on user choice, each insight feeding antitrust probes. That kind of synergy can transform “ecosystem harm” from a promising idea into empirically grounded theories. Otherwise, ecosystem theories of harm risk being, at best, a passing fad and, at worst, a veneer of enforcement that masks analytical gaps. We must resist the temptation to let a new buzzword justify enforcement without rigorous evidence, just as others have justified inaction.

The views expressed in this post are the author’s personal opinions. They do not reflect the official opinion of the Joint Research Centre or the European Commission. No conflict of interest to declare.