FTC Staff Issues Report on Competition Policy in the World of B2B Electronic Marketplaces

For Release

The Federal Trade Commission today issued a staff report discussing information gathered and antitrust issues addressed at the Commission's widely attended public workshop on business-to-business (B2B) electronic marketplaces held on June 29-30, 2000. B2B electronic marketplaces use the Internet to electronically connect businesses with each other, primarily for purposes of buying and selling a wide variety of goods and services. The report, "Entering the 21st Century: Competition Policy in the World of B2B Electronic Marketplaces," includes a description of various facets of B2B marketplaces and the efficiencies they may provide, and outlines a framework for understanding how to answer traditional antitrust questions in the context of new B2B technology.

Chairman Robert Pitofsky stated, "This report reflects what we learned at the workshop about the great promise that B2B electronic marketplaces offer as means through which significant cost savings can be achieved, business processes can be more efficiently organized, and competition may be enhanced. It also reflects what we learned about the antitrust analysis of B2Bs: that the antitrust concerns B2Bs may raise are not new and that B2Bs are amenable to traditional antitrust analysis. Thus, the report does not warn of insoluble problems, but rather lays the foundation for identifying and addressing circumstances that warrant antitrust scrutiny."

The report follows the Commission's recent review of Covisint, a proposed joint venture among five automotive manufacturers - General Motors Corp., Ford Motor Co., DaimlerChrysler AG, Renault SA, and Nissan - and two information technology firms - Commerce One, Inc. and Oracle Corporation - to operate an Internet-based B2B providing services to firms in the automotive industry supply chain. The Commission closed its investigation of whether the formation of Covisint violated Section 7 of the Clayton Act but noted that because Covisint is in the early stages of its development and has not yet adopted bylaws, operating rules, or terms for participant access, because it is not yet operational, and because its founders represent such a large share of the automobile market, the Commission could not say that implementation of the Covisint venture will not cause competitive concern.

The report notes that the Internet technology that powers B2Bs is potentially transformative in that it can speed business-to-business communications into "real-time" transactions, conducted globally, with heightened accuracy and reduced waste, thus increasing productivity. Part One of the report provides an overview of B2Bs, and notes that market forces are continuing to sort out issues such as which, and how many, B2Bs will succeed, the extent to which potential efficiencies will be realized through B2Bs or instead through private networks between buyers and their suppliers (or vice versa), and the likely extent of interoperability among B2Bs.

Part Two discusses the potential of B2B marketplaces to generate significant efficiencies, resulting in lower prices, improved quality and greater innovation for consumers. It describes, for example, how B2Bs may reduce administrative costs (such as the time and energy a business expends to process an order) and facilitate supply chain management by enabling suppliers all along the supply chain to learn more quickly what buyers want.

Part Three of the report focuses on those antitrust issues that were discussed extensively at the workshop. The report explains that collaboration among firms could raise competitive concerns in two types of broadly-defined markets: the market for goods and services traded on B2Bs at both the buyer and seller levels, and the market for marketplaces themselves. It reports the views of panelists that, when antitrust concerns arise, familiar safeguards may be sufficient to address them, and notes the likelihood that many potential antitrust concerns can be eliminated through well-crafted B2B operating rules.

Although inquiry into the competitive issues raised by each individual B2B is highly fact-intensive, the report notes that some guideposts can be planted. All else held equal (including the ability to achieve efficiencies and innovations), certain competitive concerns are more likely to be magnified (i) the greater the market share of the B2B participant-owners; (ii) the greater the restraints on participation outside the B2B; and (iii) the less the interoperability with other B2Bs. This does not mean that industry consortia B2Bs are presumptively unlawful or that minimum volume commitments cannot be imposed in many circumstances. It does suggest that high levels of industry ownership or substantial minimum purchase requirements will likely draw a closer look.

The Commission vote authorizing staff to issue the report was 5-0.

Copies of the report, "Entering the 21st Century: Competition Policy in the World of B2B Electronic Marketplaces," as well as other material related to B2B electronic marketplaces, are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580; toll-free: 877-FTC-HELP (877-382-4357); TDD for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.

Media Contact:

Howard Shapiro

Office of Public Affairs

202-326-2176

Staff Contact:

Susan DeSanti

Office of Policy Planning

202-326-2167

(FTC Matter No. P950101)

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