Every year, world leaders gather to find ways of limiting global warming. The latest of these ‘COP’ meetings, COP30, is in Belém, Brazil from 10 to 20 November 2025. COP stands for ‘Conference of the Parties’, the decision-making body of the United Nations Framework Convention on Climate Change (UNFCCC).
Perhaps the best-known of these meetings was in Paris in 2015. This resulted in the Paris Agreement. This is a legally-binding international treaty to limit global warming to well below 2°C and preferably to 1.5°C above pre-industrial levels. This would involve reducing greenhouse gas emissions and/or taking carbon absorbing measures. All UN countries except for Iran, Libya and Yemen are signatories to the agreement.
However, on coming to office in January 2025, President Trump announced that the USA will withdraw from the agreement in January 2026. Instead, he would prioritise fossil fuel production, under the mantra, ‘drill, baby, drill’. Previously he had claimed that global warming is a hoax concocted by China designed to undermine the competitive power of the USA.
Progress in reducing emissions and mitigating climate change
Since 2020, each country has been required to submit its own emissions-reduction targets, known as ‘nationally determined contributions’ (NDCs), and the actions it will take to meet them. Every five years each country must submit a new NDC more ambitious than the last. New NDCs are due this year. As of 12 November, 112 of the 197 countries had submitted a new NDC (including the USA, China, the EU and the UK). These 112 countries account for around 71 per cent of global emissions.
Implementing all new NDCs would reduce global CO2 emissions by between 15 and 25 per cent from current levels by 2035. But this would merely reduce global warming to around 2.6°C above pre-industrial levels. Approximately 35 per cent emissions reductions by 2035 would be required to restrict global warming to 2°C and 55 per cent to restrict it to 1.5°C.
But implementing the Paris Agreement has still had a high degree of success. Without the action taken and being taken over the past 10 years, it is predicted that global temperatures by 2050 would rise by 3–3.5°C.
Rich countries are expected to provide finance to low-income countries. This is required to help such countries adopt green technologies and to adapt to the harmful effects of climate change (e.g. through irrigation schemes and flood defences). At COP29 in Azerbaijan, the ‘Baku Finance Goal’ was agreed. This is an agreement to provide climate finance of $1.3 trillion per year by 2035 to developing countries from all public and private sources.
The subsequent ‘Baku to Belém Roadmap’ provides a set of suggested actions for governments, financial institutions and the private sector to bridge the gap between current climate finance flows and the $1.3 trillion agreed to meet global climate goals. The roadmap is a central focus of the COP30 conference in Belém, with discussions between countries on how to translate the Baku finance goal into concrete, tangible actions and integrate it into formal decisions.
The role of Donald Trump
As well as announcing that the USA will withdraw from the Paris Agreement in January 2026, since coming to office in 2025, President Trump has given billions of dollars of tax cuts to fossil fuel firms and allowed drilling for oil and gas on federal lands. At the same time, he has described renewable energy as ‘a joke’ that will bankrupt countries and has slashed subsidies and tax breaks for solar and wind power, withdrawn permits for wind and solar farms, and cut funding for green energy research.
He wants the USA to be world leader in fossil fuel energy, calling on governments to buy US oil and gas, threatening some countries with tariffs if they do not. Already, Japan, South Korea and several European countries have agreed to buy huge quantities of US oil and liquefied natural gas (LNG). A worry is that other similarly inclined governments, such as Argentina, may roll back on their commitments to a green transition and instead boost their fossil fuel industries.
This gives added urgency to the Belém talks. It is crucial for the rest of the world to stick together in pushing ahead to combat global warming and in adopting and sticking to tough NDCs. It is also crucial for rich countries to support dlow-income countries in adopting climate-friendly investment and in measures to mitigate the effects of global warming.
The economics of climate change
Climate change is directly caused by market failures. One of the most important of these is that the atmosphere is a common resource: it is not privately owned; it is a global ‘commons’. Individuals and firms use it at a zero price. If the price of any good or service to the user is zero, there is no incentive to economise on its use. Thus for the emitter there are no private costs of using the atmosphere in this way as a ‘dump’ for their emissions and, in a free market, no incentive to reduce the climate costs.
And yet when firms emit greenhouse gases into the atmosphere there are costs to other people. To the extent that they contribute to global warming, part of these costs will be borne by the residents of that country; but a large part will be borne by inhabitants of other countries.
These climate costs are external costs to the firm and are illustrated in the figure. It shows an industry that emits CO2. To keep the analysis simple, assume that it is a perfectly competitive industry with demand and supply given by curves D and S, which are equal to the marginal private benefits (MPB) and marginal private costs (MPC), respectively. There are no externalities on the demand side and hence MPB equals the marginal social cost (MSB). Market equilibrium is at point a, with output at Qpc and price at Ppc. (Click here for a PowerPoint.)
Assume that the emissions create a marginal cost to society equal to MECc. Assume that the MEC increases as output and total emissions increase. The MECc line is thus upward sloping. At the market price of Qpc, these external climate costs are equal to the purple vertical line. When these external climate costs are added to private costs, this gives a marginal social cost given by MSC = MPC + MECc. The gives a socially optimal level of output of the product of Q* at a price of P*, with the optimum point of c.
In other words, other things being equal, the free market overproduces products with climate externalities. If the output is to be reduced to the social optimum of Q*, then the government will need to take measures such as those advocated in the Paris Agreement. These could include imposing taxes on products, such as electricity generated by fossil fuels, or on the emissions themselves. Or green alternatives, such as wind power, could be subsidised.
Alternatively, regulations could be used to cap the production of products creating emissions, or caps on the emissions themselves could be imposed. Emissions permits could be issued or auctioned. Only firms in possession of the permits would be allowed to emit and the permits would cap emissions below free-market levels. These permits could be traded under a cap-and-trade scheme, such as the EU’s Emissions Trading Scheme. Again, such schemes are advocated under the Paris Agreement.
COP30 and progress in tackling climate change
The USA is not attending COP30 in Brazil. Nor is the Chinese leader, Xi Jinping. However, there are growing opportunities for translating aims into practical policies for specific sectors, such as energy, transport and carbon-intensive industries. These policies may require some degree of government action – taxes, subsidies or regulation – to internalise climate externalities. But increasingly, green alternatives are becoming economically viable without subsidies or with just initial government funding to ‘crowd in’ private investment, which will then attract further private capital as external economies of scale kick in. Increasingly investors will find profitable opportunities in climate-friendly projects.
At the same time, while the USA is moving away from climate-friendly investment (as least for the term of the Trump Presidency), China is moving in the opposite direction, with massive investment in solar panels, wind turbines, EVs and batteries – investment that is bringing down their cost and thereby encouraging their adoption around the world. Such technologies create huge opportunities for low-income countries to provide affordable energy and to create local jobs, both skilled and unskilled. It also helps them achieve much greater energy security by reducing their reliance on fossil fuel imports
Chinese advances in green technology are also providing a stimulus to other countries to invest in renewable industries to prevent Chinese dominance. The danger, however, of Chinese dominance in the renewable sector in high-income countries is that it may encourage them to impose tariffs on Chinese imports of EVs, solar panels, etc. to protect their own industries.
But despite the growing opportunities for profitable adoption of green technologies without government support, there is still much that governments need to do to encourage the process. COP meetings are an important forum for discussing such policies and holding governments to account for meeting or not meeting their targets.
Articles
- What is COP30 and why does it matter for the climate?
Chatham House, Anna Åberg (5/9/25)
- COP30 in Brazil: What is at stake for global collaboration on climate and nature?
World Economic Forum, Pim Valdre (5/11/25)
- What is COP30 and why does it matter?
CNN, Laura Paddison (11/11/25)
- Why COP 30 in Brazil Matters for a Thriving Economy and a Safe, Livable Planet
Union of Concerned Scientists (UCS),Rachel Cleetus (7/11/25)
- Nationally Determined Contributions: The Action Plans Behind Global Efforts To Fight the Climate Crisis
Center for American Progress (CAP, Kalina Gibson and Courtney Federico (22/9/25)
- New climate pledges only slightly lower dangerous global warming projections
UN Environment Programme, Press Release (4/11/25)
- COP30: Trump and many leaders are skipping it, so does the summit still have a point?
BBC News, Justin Rowlatt (10/11/25)
- Trump dismisses clean energy as ‘a joke.’ But Americans deserve facts, not fear
USA Today, Mark McNees (23/9/25)
- The surprising countries pulling off stunningly fast clean energy transitions
CNN, Ella Nilsen and Samuel Hart (7/11/25)
- COP 2025: Outlook and Implications for Investors
RankiaPro, Joanna Piwko, Allegra Ianiri, Marie Lassegnore and Jean-Philippe Desmartin (10/11/25)
Information and Data
Questions
- Summarise the Paris Agreement.
- Summarise the Baku to Belém Roadmap to 1.3T.
- What incentives are there for countries to stick to their NCDs?
- Using a diagram similar to that above, illustrate how the free market will produce a sub-optimal amount of solar power because the marginal social benefit exceeds the marginal private benefit. How might the calculation be changing?
- How might game theory be used to analyse possible international decision making at COP conferences? How might this be affected by the attitudes of the Trump administration?
- Is it in America’s interests to cease investing in green energy and green production methods?
Examples of rent seeking in economic theory
In March 2024, two people were convicted of running a business that used dishonest and illegal methods to buy and sell tickets for popular live events such as Ed Sheeran, Lady Gaga and Little Mix concerts. Between June 2015 and December 2017, this business purchased 47 000 tickets using 127 names and 187 different e-mail addresses.
Economists refer to these actions as examples of rent seeking. However, many rent-seeking activities are not illegal.
What is rent seeking?
Rent seeking in economic theory refers to costly actions taken by people (i.e. they involve effort and expertise) to try to gain a greater share of a given level of profit /surplus. These actions do not generate any extra surplus or value for society and typically involve people trying to game or manipulate a situation or system for their own personal gain.
In many cases, the opportunity cost of these actions can be considerable. In this case, the opportunity cost is the surplus for society that could have been gained if this effort/expertise had been used to carry out more productive tasks.
A widely cited example of rent seeking is where firms exert time and effort to try to influence government policy through lobbying. Most lobbying activities in the UK are not illegal.
Non-price allocation
When prices are set below the market-clearing rate, by either the government or a private organisation, the quantity demanded of the good/service will exceed the quantity supplied. Therefore, non-price allocation must play a role. In other words, some method other than willingness to pay the price, must be used to determine which consumers receive the goods.
In some instances, such as visits to the GP or places at state schools, the good or service has a zero monetary price. In these cases. non-price allocation methods completely replace the role of the price in determining which consumers obtain the goods/services.
In other examples, a positive monetary price is set, but below the market-clearing rate. In these cases, the price partly determines who get the good/service (i.e. people must be willing to pay the non-market-clearing price), but non-price allocation also plays a role. The further below the market-clearing level the price is set, the greater the potential role for non-price methods.
Some common methods of non-price allocation include:
- First-come first served. This typically results in some type of queueing, either in person or online (a virtual queue).
- A random selection process. For example, some goods/services are allocated via a lottery, with names of consumers being randomly drawn.
- The government or other public bodies in charge of allocating the good develop a set of rules to determine which consumers/people get the good. For example, when allocating places at popular state schools, priority is often given to children who live close to the school (i.e. in the catchment area) or who live in families with certain religious beliefs.
Examples of rent seeking
When non-price methods of allocation are implemented, can consumers engage in activities that increase their chances of getting hold of the good/service? Can they manipulate the system for their own advantage and gain a greater share of any surplus? This is rent seeking.
A survey carried out in January 2025 provides some interesting evidence of rent-seeking actions taken by parents to try to secure a place for their child at a popular school. Twenty-seven per cent of the respondents admitted they had tried to manipulate the system to get their child into their preferred school. Out of those who admitted attempting to manipulate the system:
- 30 per cent registered a child at either another family member’s or friend’s address that was closer to a popular school.
- 25 per cent exaggerated religious beliefs and attended church services to try to secure a school place.
- 9 per cent temporarily rented a second home inside the catchment area for the school.
- 7 per cent moved into the catchment area for the application, only to move out once their child’s place was secured.
Some of these actions may be dishonest but are not illegal.
Rent-seeking activities in the ticketing market for live events
In the primary market for tickets, prices for popular live events are often set below market-clearing levels. Therefore, non-price methods, such as first come, first served, are used to allocate the tickets. This typically results in some type of queueing. Rent-seeking activities include actions taken by consumers to increases their chances of getting nearer to the front of the queue.
If the tickets are being sold from a physical outlet (i.e. a sales kiosk), then some consumers may start queueing many hours before the kiosk opens – in some cases camping overnight. An example is the ‘The Queue’ for Wimbledon tennis matches. Rather than queueing themselves, some people might pay others to queue on their behalf.
People who are paid to queue are sometimes referred to as a ‘line stander’, ‘queue stander’, ‘line sitter’ or ‘queue professional’. Line standers offer their services via market platforms, such as TaskRabbit.
When tickets are sold online, non-market allocation includes both queuing and random selection. Typically, people have to create an account with the primary market ticketing website (Ticketmaster, See Tickets, Eventbrite or AXS) before the sale begins. Then, using this account, they can enter an online waiting room around 15 minutes before the tickets are available to purchase. There is thus an element of first come, first served. When the sale starts, people in the waiting room are randomly allocated a place in the online queue. Once they reach the front of the online queue, the event organiser normally places limits on the number of tickets they can purchase.
What can people do to manipulate this system and so increase their chances of purchasing tickets? In other words, what are the possible rent-seeking activities? One possibility is to create multiple accounts using the details of friends/family and then join the waiting room with each of these accounts using separate devices. Professional resellers often try to use specialist software, called bots, that can create thousands of fake accounts and so significantly increase the chances of getting to the front of the queue. Once they get to the front of the queue, an account created by a bot can proceed through the purchasing process much faster than a person can. The tickets can then be sold for a profit in the uncapped secondary market via websites such as Stubhub and Viagogo.
The UK government passed a law in 2017 that made the use of bots to circumvent ticket purchase limits an illegal activity. The use of ticket bots in the EU became illegal in 2022. Primary market ticketing websites have also invested in technology that tries to detect and block the use of this type of software.
Government policy in the resale of tickets
Should the government prohibit the resale of tickets or implement a resale price cap to try to deter this rent-seeking activity?
Many economists would oppose this policy because of the benefits of the secondary market. For example, resale helps to reallocate tickets to those consumers with the highest willingness to pay. Therefore, the secondary-ticketing market can have a positive impact on allocative efficiency, but it comes at a cost – rent-seeking activities.
Research by economists published more than ten years ago found that the positive impact of the resale market on allocative efficiency outweighed the rent-seeking costs. However, developments in technology have increased the level of rent seeking in recent years, making it easier and less costly for professional resellers to purchase large amounts of tickets in the primary market. Therefore, it is possible that the rent-seeking cost of the secondary market now exceeds its positive impact on allocative efficiency. A case can thus be made for greater intervention by the government.
Recent accusations have also been made about possible rent-seeking activities by sellers in the primary ticketing market too, adding to concerns.
Some of the problems of implementing a resale price cap were discussed in a previous post: Ticket resales – is it time to introduce a price cap?
Articles
- Admission Impossible: Over a quarter of parents admit to ‘lying or bending’ rules to get their children into preferred schools
Zoopla (23/1/25)
- Diss ticket touts convicted in £6.5m reselling scheme
BBC News, Norfolk, Orla Moore & PA Media (13/3/24)
- These touts made millions – and claimed staff at big ticketing firms helped
BBC News, Chi Chi Izundu and James Stewart (12/6/25)
- Touts employ overseas workers to bulk-buy gig tickets
BBC News, Steffan Powell, Sian Vivian & Ben Summer (26/6/25)
- Online ticket touts jailed for fraud
National Trading Standards, News (17/5/24)
- Resale and Rent-Seeking: An Application to Ticket Markets
Review of Economic Studies, Phillip Leslie and Alan Sorensen (2014, 81, pp. 266–300)
- Ticketmaster, Live Nation face US suit over resale tactics
BBC News, Danielle Kaye (18/9/25)
Information
Questions
- Compare and contrast the meaning of the word ‘rent’ in everyday language with its use in economic theory.
- Give examples of some policies that a business might lobby the government to implement. What arguments might the business make to justify each of these policies?
- Outline some of the non-price methods that are used to allocate health care in the UK.
- Draw a demand and supply diagram to illustrate the incentives for rent-seeking activities when prices are set below market-clearing levels.
- Outline some potential rent-seeking activities by sellers in the primary ticketing market.
- Discuss some of the opportunity costs of rent-seeking activity in the market for tickets.
- Explain why the growing use of paid line standers might increase the demand for a good/service.
- Explain why the percentage of tickets for popular live events purchased by professional resellers has increased in the past 10 years.
The UK energy regulator, Ofgem, has announced that the UK energy price cap will rise in October by an average of 2%. The energy price cap sets the maximum prices for electricity and gas that can be charged by suppliers to households. For those paying by direct debit, the maximum electricity price per kilowatt-hour (kWh) will rise from 25.73p to 26.35p, with the maximum daily standing charge rising from 51.37p to 53.68p. As far as gas is concerned, the maximum price per kWh will fall slightly from 6.33p to 6.29p, with the maximum daily standing charge rising from 29.82p to 34.03p. Ofgem estimates that this will mean that the capped cost to the average household will rise from £1720 to £1755.
The average capped cost is now much lower than the peak of £4279 from January to March 2023. This followed the huge increase in international gas prices in the aftermath of the invasion of Ukraine and the cutting off of gas supplies from Russia. Note that although the suppliers received these capped prices, average consumers’ bills were limited to £2500 from October 2022 to March 2024 under the government’s Energy Price Guarantee scheme, with suppliers receiving a subsidy from the government to make up the shortfall. But despite today’s cap being much lower than at the peak, it is still much higher than the cap of £1277 prior to Russia’s invasion of Ukraine: see Chart 1 (click here for a PowerPoint).
So is the capped price purely a reflection of the international price of gas, or is it more complicated? The picture is slightly different for gas and electricity.
Gas prices
As far as gas prices are concerned, the price does largely reflect the international price: see Chart 2 (click here for a PowerPoint).
The UK is no longer self-sufficient in gas and relies in part on imported gas, with the price determined in volatile international markets. It also has low gas storage capacity compared with most other European countries. This leaves it highly reliant on volatile global markets in periods of prolonged high demand, like a cold winter. Is such cases, the UK often has to purchase more expensive liquefied natural gas (LNG) from global suppliers.
Additionally, taxes, environmental levies and the costs of the nationwide gas distribution network contribute to the overall price for consumers. Changes in these costs affect gas prices. These are itemised below in the case of electricity.
With electricity pricing, the picture is more complex.
Electricity prices
Electricity generation costs vary considerably with the different methods. Renewable sources like wind and solar have the lowest marginal costs, while natural gas plants have the highest, although gas prices fluctuate considerably.
So how are consumer electricity prices determined? And how is the electricity price cap determined? The price cap for electricity per kWh and the daily standing charge for electricity are shown in Chart 3 (click here for a PowerPoint).
Marginal cost pricing. The wholesale price of electricity in the UK market is set by the most expensive power source needed to meet demand on a day-by-day basis. This is typically gas. This means that even when cheaper renewables (wind, solar, hydro) or nuclear power generate most of the electricity, high gas prices can increase the cost for all electricity. The wholesale price accounts for around 41% of the retail price paid by households.
It also means that profits for low-marginal-cost producers could increase significantly when gas prices rise. To prevent such (low-carbon) suppliers making excess profits when the wholesale price is high and possibly making a loss when it is low, the actual prices that they receive is negotiated in advance and a contract is signed. These contracts are known as Contracts for Difference (CfDs). CfDs provide a fixed ‘strike price’ to low-carbon generators. The strike price is set so as to allow low-carbon generators to recoup capital costs and is thus set above the typical level of marginal cost. If the wholesale price is below the strike price, payments to generators to cover the difference are funded by amounts collected from electricity suppliers in advance using the CfD Supplier Obligation Levy. If the wholesale price is above the strike price, the difference is returned to consumers in terms of lower electricity bills.
Policy costs. Electricity bills include an element to fund various social and environmental objectives. This element is also included in the cap. From October to December 2025, this element of the cap will be 11.3%. The money helps to subsidise low-carbon energy generation and fund energy efficiency schemes. It also funds the Warm Home Discount (WHD). In the October to December 2025 price cap, this amounted to a discount for eligible low-income and vulnerable households of £150 per annum on their electricity bills. The WHD element is included in the standing charge in the price cap. From October 2025, more generous terms will mean that the number of households receiving WHD will increase from 3.4 million to 6.1 million households. This is the main reason for the £35 increase in the cap.
Network costs. These include the cost of building, maintaining and repairing the pipes and wires that deliver gas and electricity to homes. From October to December 2025, this element of the cap will be 22.6%.
Supplier business costs. These include operating costs (billing, metering, office costs, etc.) and servicing debt. From October to December 2025, this element of the cap will be 15.4%.
Profit Allowance. A small percentage is added to the price cap for energy suppliers’ profits. This is known as the Earnings Before Interest and Tax (EBIT) allowance and is around 2.4%. This has a fixed component that does not change when the overall price cap is updated and a variable component that rises or falls with changes in the cap.
Reliance on gas, low gas storage facilities, marginal cost pricing and the commitment to invest in low-carbon electricity and home heating all add to the costs of energy in the UK, making UK electricity prices among the highest in the world.
Articles
Information and Data
Questions
- Why are the UK’s energy prices among the highest in the world?
- What are the arguments for and against subsidising wind power?
- What is the Contracts for Difference scheme in low-carbon energy. What CfDs have been awarded? Assess the desirability of the scheme.
- Is the capping of gas and electricity prices the best way of providing support for low-income and vulnerable consumers?
- How are externalities relevant in determining the optimal pricing of electricity?
The Digital Markets Act (DMA) outlines a new regulatory approach that the European Commission (EC) is taking to address concerns over the lack of competition in digital platform markets. The DMA complements existing European Union competition law and officially came into force on 1st November 2022.
In the first stage of this new regulatory approach, the EC identified ten core platform services (CPS). Examples include search engines, online social networking services, video sharing services, cloud computing services, web browsers and operating systems. These services act as important gateways for large numbers of businesses and consumers to interact with one another. They also have some important economic characteristics, such as large economies of scale and very strong network effects.
The next stage of the regulatory process was to assess which of the large established businesses should be designated as ‘gatekeepers’ of these CPS. To be judged as a gatekeeper, a business had to meet three qualitative criteria. Using quantitative thresholds as a guide to see if these qualitative criteria had been met, the following six companies were designated as gatekeepers by the EC in September 2023: Alphabet (Google’s parent company), Amazon, Apple, ByteDance (owner of TikTok), Meta (owner of Facebook) and Microsoft. Individual companies can be gatekeeper for more than one CPS. For example, Apple was judged to be a gatekeeper for both web browsers (Safari) and operating systems (iOS and iPadOS).
Rules and compliance
Once a business has been designated as a gatekeeper for one or more CPS, the DMA imposes a set of rules on its future conduct. Some of these rules refer to conduct that the business must follow, while others refer to types of behaviour that are prohibited. The EC sometimes refer to these rules as a list of “do’s” and “don’ts”.
One of the rules refers to interoperability. This is the degree to which different (a) software, (b) devices and (c) other applications can work seamlessly together (i.e. share functionality/data) without requiring any actions by the user (i.e. how compatible they are with one another).
For example, consider the degree of interoperability between the operating system of a gatekeeper, such as Apple, and other hardware/software services. One of the requirements of the DMA is for the gatekeeper to provide the same degree of interoperability for the hardware/software services provided by rival businesses as they do for similar hardware/software services they supply. This is sometimes referred to as the interoperability obligation.
Once a business is designated as a gatekeeper, it has 6 months to submit a compliance report to the EC that demonstrates how it is meeting the rules set out in the DMA. This should include descriptions of any changes the company has had to make to its conduct to meet the new requirements. Further compliance reports must then be submitted on an annual basis.
If, after assessing a compliance report, the EC suspects that a gatekeeper is still acting in ways that do not comply with the DMA, then it can launch either a non-compliance or specification procedure.
The case of Apple
Apple submitted its first compliance report on 7 March 2024. It was far less extensive than those completed by other designated gatekeepers and adopted a very different tone: it directly challenged the EC’s view that the DMA rules would have a positive impact on consumer welfare.
In September 2024, the EC launched its first two specification proceedings that focused on Apple’s compliance with the interoperability obligation.
The first of these proceedings opened a formal discussion with Apple over the interoperability between the iPhone operating system (iOS) and connected devices such as smartwatches and headphones. The proceeding identified nine features that gave the iOS greater functional compatibility with connected devices produced by Apple than with those made by other businesses. For example:
- Only users of connected devices produced by Apple can (a) receive iOS notifications that contain images or other attachments and (b) select the iOS notifications they want to appear on the device.
- Only users of Apple’s wireless headphones have intelligent audio switching functionality that allows them to switch automatically to the device playing the most relevant audio.
- The Airdrop function, which enables users to share files wirelessly between devices, only works if they are both produced by Apple.
- Only connected devices made by Apple have the functionality for high-bandwidth data transfer from an iPhone without having to rely on network or cellular connection. This is useful for gaming and AI services.
The second specification proceeding focused on the process developed by Apple to deal with requests from other businesses that wanted to develop hardware or software services that are compatible with the iOS.
On 18th December 2024, the EC informed Apple of its preliminary specification decisions and opened a consultation exercise with other interested parties about the suitability of its proposals. Once this process was completed, the EC informed Apple of its final specification decisions on 19 March 2025.
The EC’s decisions
The first decision included a set of measures that Apple must take to improve the interoperability of connected devices produced by other businesses with the iOS. The EC stated that:
The interoperability solutions for third parties will have to be equally effective to those available to Apple and must not require more cumbersome system setting or additional user friction.
The second decision outlined measures that Apple had to take to improve the process of dealing with requests for greater compatibility with the iOS. For example, it should provide outside businesses with more (a) access to technical documentation, (b) predictable timelines for the reviews and (c) timely updates.
Apple argued that being forced to introduce these measures will (a) create significant additional costs, (b) limit its ability to develop products that work seamlessly with one another and (c) lead to its having to share sensitive customer information with its rivals.
On 30th May 2025, Apple filed an appeal against the EC’s specification decisions to the General Court of the European Union. It will be interesting to see what judgment is made on this case by the General Court and the implications this has for the enforcement of the DMA.
Video
Articles
- The EU Digital Markets Act – The Holy Grail of Big Tech Regulation?
Morrison & Foerster, Andreas Grünwald, Christoph Nüßing and Theresa Oehm (19/7/22)
- Commission starts first proceedings to specify Apple’s interoperability obligations under the Digital Markets Act
EC Press Release (19/9/24)
- Apple hits out at Meta’s numerous interoperability requests
Reuters, Foo Yun Chee (19/12/24)
- 1st Anniversary of the Digital Markets Act (DMA): Lessons learned and road ahead
Hausfeld Competition Bulletin, Ann-Christin Richter and René Galle (28/3/25)
- EU accuses Google and Apple of breaking its rules, risking Trump clash
The Guardian, Rob Davies and Dan Milmo (19/3/25)
- Brussels takes action against Google and Apple despite Trump threat
Financial Times, Barbara Moens (19/3/25)
- Brussels Takes Action Against Google And Apple Despite Trump Threat
GNC (19/3/25)
- Commission provides guidance under Digital Markets Act to facilitate development of innovative products on Apple’s platforms
EC Press Release (19/3/25)
- European Commission Fines Both Apple, Meta For DMA Breaches
Silicon UK, Tom Jowitt (23/4/25)
- Apple Appeals European Commission Order on Interoperability With Competitors’ Products
PYMNTS (2/6/25)
- https://dig.watch/updates/apple-sues-european-commission-over-dma-interoperability-ruling
The Digital Watch (6/6/25)
- Meta, Apple Launch Legal Challenges to EU DMA Rulings
PYMNTS (3/6/25)
Questions
- Identifying core platform services is similar to defining relevant markets in standard competition policy but takes a more legalistic approach. Discuss some of the problems of defining a relevant market for a digital platform.
- Outline the three qualitative criteria and the quantitative thresholds that are used by the EC to designate a digital platform as a gatekeeper of a core platform service.
- Find an example of a digital platform that met the quantitative thresholds but did not meet the qualitative criteria and so was not designated as a gatekeeper.
- Find an example of a digital platform that did not meet the quantitative thresholds but did meet the qualitative criteria and so was designated as a gatekeeper.
- Interoperability is a type of conduct that is sometimes referred to as self-preferencing: i.e. behaviour by a digital platform that gives its own products/services preferential treatment over those provided by other firms that use the same platform. What other types of conduct are possible examples of self-preferencing?
- What is the difference between a non-compliance procedure and a specification procedure? Find some recent examples of non-compliance procedures that have been undertaken by the EC to enforce the DMA.
- What are the potential advantages and disadvantages for consumer welfare of the specification decisions made by the EC?
The enforcement of Article 102 of the Treaty on the Functioning of the European Union (TFEU) by the European Commission (EC) tends to focus on exclusionary abuses by firms with significant market power. Exclusionary abuses are actions that limit or prevent competition, as opposed to exploitative abuses that directly harm the consumer, such as charging high prices.
The treatment of exclusionary abuses has evolved over time. Initially, the approach towards enforcement was form-based (i.e. the nature of the abuses), but this changed when the EC produced new guidelines in 2009 which signalled a move to a more effects-based approach.
The EC plans to produce a new set of guidelines in 2025 and published a draft version in August 2024 as part of the consultation process with businesses and other stakeholders. These draft guidelines indicate a partial shift back to a form-based approach. Any moves in this direction made by the EC are likely to influence both national-level competition authorities and the courts.
The form-based approach to policy enforcement
A form-based approach to the enforcement of Article 102 assumes that certain types of business conduct are inherently anti-competitive except in very exceptional circumstances. In other words, there is a presumption that the characteristics or form of the behaviour mean that it must have a negative impact on competition and consumer welfare in virtually all real-world cases.
With a form-based approach to enforcement there is no requirement for the authorities to carry out detailed case-specific analyses of business conduct as part of an investigation. This had been the approach adopted by the EC before 2009. It is possible, however, that the same form of business conduct could have anti-competitive effects in some market situations but pro-competitive effects in others. The EC was criticised for not making enough allowance for the chances of this happening.
The effects-based approach to policy enforcement
In response to this criticism the European Union published a new set of guidelines in 2009 which signalled that the enforcement of Article 102 was moving to a more effects-based approach. The effects-based approach uses economic analysis to assess the impact of a dominant firm’s conduct on a case-by-case basis. Context-specific evidence is examined by the competition authorities to see if the behaviour effectively excludes rival businesses from the market that are just as efficient as the dominant firm.
The use of economics in this effects-based approach gradually increased over time. Initially, the analysis was predominately based on theoretical arguments, but increasingly cases included sophisticated analysis of market-specific evidence using econometric models and market simulations. This, however, led to the following issues.
- The increasing use of complex economic analysis makes it more difficult to meet the evidentiary standards of the courts and prove a case. As the effects-based approach places a greater burden on the competition authorities to meet these evidentiary standards (i.e. provide evidence of case-specific anti-competitive effects of the conduct) it disproportionality affects their ability to prove cases.
- Businesses with significant market power are more likely to make large profits and so have access to greater resources than government-funded competition authorities. Therefore, they will be able to employ more economic consultants with the relevant technical expertise to (a) carry out the analysis and (b) communicate the findings effectively in a court case
This led to concerns that the competition authorities were losing cases where there was strong evidence of exclusionary conduct by the dominant firm.
In response to these concerns, the EC announced in 2023 that it would be revising its 2009 guidelines to improve enforcement of Article 102.
The draft guidelines
The draft guidelines published in August 2024 split different types of potentially anti-competitive conduct by dominant firms into three categories.
The first category includes types of conduct where there is a strong presumption of anti-competitive effects: i.e. the sole purpose of the business behaviour is to restrict competition. These types of conduct are referred to as a ‘naked restriction’ and the documentation provides the following three examples:
- making payments to customers (typically other businesses) on the condition that they cancel or postpone the launch of a product that uses inputs produced by the dominant firm’s rivals;
- threatening to withdraw discounts offered to suppliers unless they agree to supply the dominant firm’s product in place of a similar product produced by a rival firm;
- actively dismantling infrastructure used by a rival firm.
The guidelines indicate a form-based approach will be taken when investigating these types of conduct as the EC will not have to provide any case-specific evidence of anti-competitive effects. A business under investigation can challenge the presumption of anti-competitive effects with appropriate evidence, but the guidelines make it clear that this would only succeed in exceptional circumstances. In other words, it is highly unlikely that the conduct could ever be justified on pro-competitive grounds.
The second category of anti-competitive conduct includes actions that are also presumed to have a negative impact on competition. The presumption, however, is not as strong as with naked restrictions, so firms have a better chance of proving pro-competitive effects.
There is a form-based element towards this second category of conduct as the EC will not have to provide any initial case specific evidence of anti-competitive effects. But, if a business under investigation does submit evidence to challenge the presumption of anti-competitive effects, the EC must demonstrate that (a) it has fully assessed this evidence and (b) the evidence is insufficient to prove that the conduct does have pro-competitive effects. As part of this process, the EC can provide its own case-specific evidence. Therefore, for this second category of conduct, the initial burden of proof effectively shifts from the competition authority to the firm under investigation, making it more of a form-based approach. However, if the firm uses relevant evidence to appeal its case, the burden shifts back to the competition authority and becomes a more effects-based approach.
The third category includes types of conduct where the EC must initially provide case-specific evidence that it reduces competition. For this category of conduct, the approach towards enforcement remains the same as in the 2009 guidelines and an effects-based approach is adopted.
It will be interesting to see the extent to which the final guidelines (a) follow the approach outlined in the draft guidance and (b) influence the enforcement of Article 102 by the EC and other national-level competition authorities.
Articles
Questions
- What exactly does it mean if a firm has ‘significant’ market power?
- What methods do competitions authorities use to assess whether a firm has a dominant market position?
- Explain the difference between conduct by dominant firm that is (a) an exploitative abuse of its market power and (b) an exclusionary abuse of its market power.
- Explain why a form-based approach towards the enforcement of competition policy is more likely to lead to Type 1 errors (false positives), whereas an effects-based approach is more likely to lead to Type 2 errors (false negatives).
- Provide some examples of exclusionary abuses that are not considered to be naked restrictions.
- Competition policy guidance documents commonly refer to ‘competition on the merits’. What is the precise meaning of this term?
