Blockchain: competition issues in nascent markets

Global Publication November 2016

Blockchain technologies are receiving a great deal of attention from businesses across a broad range of industry sectors, and for very good reasons. By offering the possibility of dealing with third parties using a secure, shared, indelible decentralised ledger, blockchain technologies1 have the potential to deliver significant value in transactions. These features of blockchain, rather than the precise technologies that that term includes, are of central importance. They raise the possibility of streamlining multi-party processes (whether between members of a corporate group or between institutions) in a secure way which maintains the trust of the various participants. Financial institutions and fintech companies have been among the first to explore the potential for commercialising blockchain, both individually and through consortia such as R32 and PTDL.3

We refer you to Norton Rose Fulbright’s global legal and regulatory guide for a detailed introduction to what blockchain technologies are, how they may affect various industries, and an overview of the legal issues that they will raise.4  The purposes of this article, an abridged version of a later chapter in that guide, is to look at the possible competition law issues that blockchain raises. At this stage, those issues are familiar issues at the crossroads of technological innovation and competition rules.  Nonetheless, the development of blockchain  – in particular by consortia and other groups – requires the businesses involved to carefully consider competition compliance. Here, we look at four areas that raise competition issues:

  • The difference between competition in the market and competition for the market, and the extent to which a single “winner” in commercialising blockchain in a particular sector might be constrained by competition law.
  • The adoption of technical standards.
  • The gating effect for participating in a permissioned blockchain.
  • The potential scope for blockchain to be used as a method to facilitate collusion, or exchange sensitive information.

We conclude by looking briefly at how well-positioned the relevant competition authorities will be for dealing with issues as and when they arise.

In the market and for the market

In theory, competition will deliver good outcomes for consumers where there are multiple firms in a market, each competing to offer the highest quality and most innovative products at the lowest price. In some cases, given the nature of the product, the competition is for the entire market.  Where companies act as necessary intermediaries, for example Facebook, Uber or Airbnb, their value lies in the fact that they are that might have achieved the position of that single necessary intermediary.

At present, blockchain vendors might be split into two camps: those seeking to provide specific functionality in particular industries and those who seek to provide general purpose infrastructure. In some regards, blockchain can be seen as a tool of disintermediation, reducing the need for middlemen. However, to the extent that any one firm becomes the necessary or sole provider of any relevant technology or service, that firm will to some extent find itself constrained by competition rules on dominance (including Article 102 TFEU in the EU and the equivalent Chapter 2 Prohibition in the UK Competition Act and also potentially – to varying extents – under competition law in other jurisdictions around the world). For example, a firm that is “dominant” in providing blockchain for a particular use might be prohibited from pricing or offering other terms that would have the effect of excluding smaller or potential competitors from challenging its position.

Competition rules do not prevent companies becoming dominant through successful organic growth: that is the prize that awaits the winner of the process of competition in a market. However, as technologies develop, and providers look to combine with rivals or providers of complementary goods or services, merger control rules can apply to prohibit business combinations that would create anti-competitive market structures.

Technical standards

The European Commission recognises that common standards, agreed to and applied by participants in a market, will generally be pro-competitive, as they allow for promote “economic interpenetration”5, including interoperability and ensuring compatibility of services which supports market efficiency and so should lower costs and facilitate increased commerce. Industry agreements on technical standards are likely to be important in the development and commercialisation of blockchain, in particular in the financial sector where the use of distributed ledgers is expected to significantly reduce transaction costs and also enhance transaction security. What is less clear is how many sets of technical standards may be agreed. Will there be universal standards that apply in all (or most) cases? Will there be competition between different standards for ascendancy? And will there be disparate sets of standards for different operations in different industries?

In any case, where rivals come together to set standards, discussions and any ensuing agreements will be subject to competition law. The key concerns the authorities may have in considering such coordinations (whether on receipt of any complaint or in a review on its own initiative) will relate to the way standards could discriminate against or exclude providers or otherwise inhibit free competition between competing technologies.

The terms of standardisation agreements require careful review under applicable competition law. Generally speaking, standard setting agreements will not be seen to restrict competition where participation in the setting of standards is unrestricted and the procedure for adopting the standard in question is transparent, with no obligation to comply with the standard in commercialising the underlying technology, and which provide access to the standard on fair, reasonable and non-discriminatory terms (including in respect of any underlying intellectual property rights contributed to the standard by participants).6 In cases where a standard setting agreement could restrict competition, it will be possible to argue that the agreement brings about efficiencies, which could not otherwise be achieved, and which are passed on to customers, with the Commission recognising that: standards creating compatibility on a horizontal level between different technology platforms are considered to be likely to give rise to efficiency gains.7


A similar competition law concern to that of access to standards arises in the commercialisation of blockchain in relation to access to permissioned blockchain systems. Where a blockchain system is permission based, its participants (and its gatekeeper) should consider whether refusing access to third parties will be compliant with competition law. This should only really be a concern where access to the system is necessary to participate in a market, and where the refusal to grant access could not be objectively justified (for example, where the third party did not have sufficient cyber-security controls).

Collusion risk

Some commentators have noted the concern that blockchain could facilitate collusion among participants in any given system. One Financial Times columnist has written that “what the technology really facilitates is cartel management”,8 perhaps mindful of Adam Smith’s famous suspicion that “people of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the pubic, or in so contrivance to raise prices”.9 Anti-competitive agreements between rivals could be algorithmically controlled, and pseudonymous participants would be harder to trace.

However, while it is true that new methods of communication allow new forms of organising and implementing cartel arrangements, at this stage, such concerns overstate the risk. Firms involved in standardisation discussions (including large financial institutions) should be well-versed in the compliance measures required to address competition law risk in any discussions involving competitors. Many will have enhanced their internal processes following competition investigations in recent years.10 In any event, cartels still require human decision making and action. And as we set out below, competition authorities can be expected to be alive to new channels of communication. In that regard, it is worth recalling the CMA’s recent fines imposed on companies who used price-monitoring software to fix prices for posters sold online: an enforcement practice that would have been fanciful in the early days of the Competition Act 1998.

Firms will, however, need to be aware of the risks of exchanging competitively sensitive information through blockchain recorded transactions, and ensure that where messages and blocks contain such information, encryption is used appropriately.11

Review by competition authorities

Competition authorities do not always get it right when assessing practices in technology markets. Examples abound.  For instance, the serious competition concerns raised in the AOL/Time Warner merger12 (e.g. that the combined entity would be dominant in the markets for online music and music playing software) were quickly overtaken by events, as was the old (UK) Monopoly and Mergers Commission’s concerns that Sega and Nintendo would remain dominant in games consoles.13 Equally, that the merger of Facebook with WhatsApp did not automatically qualify for scrutiny by the European Commission suggests that competition rules are not always equipped to cover fast-growing technology markets.14

That said, there are reasons to be optimistic that blockchain will develop with an appropriate level of scrutiny. The Financial Times article we cite wonders whether “antitrust authorities [would] be inclined to look the other way?”. We would think not.  Both the European Commission and the Financial Conduct Authority (the UK financial services regulator with concurrent competition powers) have bodies of work that include looking at blockchain, and we expect authorities in key financial centres around the world (e.g. the US, Hong Kong, Japan, and Singapore) will be monitoring the development of the technology. They might even find it useful in their own activities – for example, in a recent publication, the FCA looked at blockchain in the context of RegTech, that is, technology that could be used to make regulation (and, we assume, enforcement) more efficient and effective.15 In the financial services sector, the future may well therefore see blockchain being utilised on both sides of the fence – to facilitate more efficient and secure transactions and to identify illegitimate uses of the technology.

A longer version of this article will appear in Norton Rose Fulbright’s global legal and regulatory guide to blockchain technologies in early 2017.


We will use the shorthand “blockchain” in this article a cover the range of developing technologies.

“Unlocking the blockchain A global legal and regulatory guide Chapter 1: An introduction to blockchain technologies” is the first chapter of that guide and is available at

Paragraph 263 of the European Commission’s guidelines on horizontal cooperation agreements, (2011/C 11/01).

See paragraph 280 of the European Commission’s guidelines on horizontal cooperation agreements, (2011/C 11/01).

Paragraph 311 of the European Commission’s guidelines on horizontal cooperation agreements, (2011/C 11/01).

Adam Smith An Inquiry into the Nature and Causes of the Wealth of Nations (1776), Book 1, Chapter X, paragraph 82.

Not least from the scale of the settlement In Re Credit Default Swaps Antitrust Litigation, 13-md-02476, U.S. District Court, Southern District of New York (Manhattan).

Case No COMP/M.1845 – AOL./Time Warner, paragraph 59 and  65.

Monopolies and Mergers Commission (1995) “Videogames: A report into the supply of video games in the UK”.

Case No COMP/M.7217 - Facebook/ WhatsApp.  WhatsApp’s turnover did not exceed the relevant threshold for the deal to trigger European Commission review, despite WhatsApp being valued at $19 billion.  The parties instead requested that the Commission assess the deal, using a process in Article  4(5) EUMR.

FS16/4: Feedback Statement on Call for Input: Supporting the development and adopters of RegTech.

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