Extending the scope of the geo-blocking prohibition: an economic assessment

On 25 May 2016, the European Commission presented a proposal for a regulation on addressing unjustified geo-blocking. New analytical paper illustrates the prevalence of geo-blocking in e-commerce and summarizes available relevant evidence. It also discusses the economic impact of lifting geo-blocking restrictions in online goods and copyrighted digital content services.

Geo-blocking occurs when traders operating in one Member State block or limit the ability of customers from other Member States to order their goods or online services, a practice that restricts cross-border commerce and specifically e-commerce. At the same time, geo-blocking is a complicated issue where solutions need to be crafted with care in order to avoid unwanted and possibly undesirable consequences.

Geo-blocking is widespread in Europe, and it can be experienced at any of a number of points in the process of an online purchase: at the point where the web site is accessed, at the point where the prospective purchaser attempts to authenticate himself or herself, at the point where the prospective purchaser attempts to arrange for delivery, or at the point the prospective purchaser attempts to pay for the goods or services. In the end, the likelihood of a successful cross-border purchase is only about one in three. Consumer dissatisfaction with this state of affairs is high.

If enacted, the Commission’s geo-blocking legislative proposals alone would not achieve all of the gains that the study has identified. An additional potential benefit of a prohibition on the geo-blocking of audio-visual content is that widespread lawful availability might reduce incentives for piracy of content – unfulfilled demand tends to encourage piracy.

Notably, there are credible claims that a prohibition on geo-blocking of online audio-visual content might raise concerns about the creation of new content and how it would be financed. There is a risk that less content would be produced, thus reducing consumer choice and consumer welfare. Concerns have also been expressed as to whether cross-border subscription-based services could be profitable.

Elimination of geo-blocking in the music sector can be expected to have positive effects both for consumers and for producers, but the effects differ among the Member States. In some Member States, consumers are more likely to listen to music from elsewhere than to music produced within their own Member State; likewise, music from some Member States is more sought after than that of others by residents of other Member States. Computer games and software are a complicated space where in general geo-blocking does not appear to be taking place, other than the challenges with cross-border payments that impact all online purchases.