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Together in electric dreams

16 Jul 2019 / Innovation Print

Together in electric dreams

Innovative methods of both connecting people with businesses and compiling/storing large amounts of information are becoming increasingly prominent in the global economy.

Increasingly, commentators are questioning whether current EU competition laws (or their US equivalent) are fit for purpose or being interpreted and enforced in an effective manner.

More broadly, there is a debate about whether competition rules or privacy laws (or a combination of both) are the best mechanisms to curtail the alleged market excesses of the major technology companies.

Let’s work together

Mindful of the ongoing debate regarding whether EU competition rules are sufficiently robust to meet the challenges posed by the digital revolution, the European Commission launched a public consultation. This process resulted in the April 2019 publication of a report, Competition Policy for the Digital Era.

The report focuses on the key characteristics of the digital economy, including the disproportionate returns compared with the cost of production of online services, network externalities/effects (such as the increased attractiveness of using a platform when more people use it), and the role of data.

Each of these characteristics can obviously give a competitive advantage to incumbent companies.

Fundamental goals

While the report concludes that there is no need to rethink EU competition law’s fundamental goals, the authors nonetheless advocate adapting and refining established concepts, doctrines and methodologies and, indeed, competition enforcement more generally.

For example, the report states that a dominant platform’s strategies aimed at reducing competition should be forbidden in the absence of clearly documented consumer welfare gains.

The authors also recommend a reduced emphasis on market definition, with a greater focus on theories of competitive harm.

Where only a limited number of platforms in certain areas may be realistic, the report highlights the importance of promoting both competition ‘for the market’ and competition on a dominant platform.

Regarding data, the report notes that antitrust issues must be assessed in light of specific circumstances, – for example, the market, the type of data, and its usage.

Bad company

As outlined in the report, ownership/possession of data clearly confers a significant advantage on certain companies. For example, Google and Facebook’s data on the preferences of users is of huge benefit to their respective sales of digital advertising.

Conversely, the lack of access to big data can act as a barrier to entry. Accordingly, the refusal of dominant firms to grant their competitors access to data may constitute an abuse of a dominant position under the ‘essential facilities’ doctrine.

In 2014, France’s competition regulator fined Cegedim, a healthcare technology company, €5.7 million for refusing to sell medical information data to certain laboratories.

Separately, the increasing use by companies of algorithms to improve decision-making and automate processes could lead to collusive conduct within the meaning of article 101 of the Treaty on the Functioning of the European Union or section 4 of the Competition Act 2002. This can occur explicitly or by encouraging tacit collusion.

For example, the monitoring of competitors’ prices by computers, without human intervention, could lead to price coordination. Any such ‘machine learning’ could induce competitors to react instantly to each other’s price changes, reducing the incentive to compete.

Competition enforcement

Commentators have argued for a greater role for competition enforcement in tackling the increased privacy/data protection concerns arising from the growth of online platforms/websites.

In February 2019, Germany’s competition authority ruled that Facebook had abused its dominant position under national law by ‘forcing’ unwitting users to accept a term whereby the social media giant would collect users’ data, not only from platforms such as Facebook, Instagram, and WhatsApp, but also from their use of third-party websites.

In effect, the social media giant was able to combine users’ data from multiple sources to build a unique database on each individual German-based user. This conduct breaches German data protection rules.

This case is particularly interesting given that Facebook does not charge customers a fee to use its service. (Typically, abuse of dominance tends to involve the imposition of unfair trading conditions, such as predatory or excessive prices.)

Nonetheless, the authority concluded that Facebook, which holds a market share above 90% in social networks in Germany, had abused its dominant position by imposing exploitative business terms with the result that users suffered a loss of control because they were unable to use Facebook without accepting these terms.

Although no fine was imposed, Facebook was obliged to remove this obligation from its terms of service. Certain commentators have argued that the authority has ‘overextended’ the reach of German abuse of dominance rules, perhaps motivated by the patchy record of data protection regulators. This and other issues will be addressed by Facebook’s appeal against the ruling.

Hip to be square

The digital revolution has also given rise to the so-called ‘hipster antitrust’ movement in the US. This term is more of a criticism than a compliment.

Advocates of this proposed approach to antitrust enforcement would likely prefer to refer to the trend as the ‘new Brandeis movement’ or ‘new progressive antitrust movement’. Nevertheless, this phenomenon has exposed the divisions between two schools of antitrust thought.

The Chicago School, broadly speaking, sees the goal of antitrust as maximising consumer welfare by making the economy as efficient as possible. This approach favours free markets.

By contrast, the Harvard School favours government intervention to counteract market failures, above all in areas where the structure of competition may lead to greater antitrust risks. In recent years, the approach of the former school has held more sway over antitrust regulators in the US.

‘Hipster antitrust’

The ‘hipster antitrust’ movement seeks to tackle non-traditional/unorthodox goals of antitrust law, such as income inequality, wage growth, and the concentration of power in the hands of a few. The orthodox view of the goal of antitrust policy in the US is the ‘consumer welfare’ standard.

Under this regime, which follows the Chicago School, antitrust should be concerned solely with whether competition delivers benefits such as lower prices, greater choice, etc.

Big data is often seen as the main target of the hipster antitrust movement. According to its proponents, strong intervention is required to counteract the rapid changes brought about by technological progress.

The supporters of this approach also argue that the power of corporations that possess vast amounts of consumer data should be curbed. Such businesses are viewed as the modern equivalent of the large railroad and oil companies targeted in the late 19th and early 20th centuries during the inception of strong US antitrust enforcement.

Aggressive enforcement

Advocates of the new approach also argue that the tools available to antitrust regulators are static (observing the final effects on consumers to determine how competitive a market is), whereas the companies they seek to regulate are highly dynamic.

Proponents have called for more aggressive enforcement (for example, by prohibiting mergers that are unlikely to lead to price increases). Others argue that new tools are required to tackle the problems posed by big data.

By contrast, the detractors of the hipster antitrust movement argue that big data does not, in fact, confer significant advantages on its owners. Under this view, it is argued that data is akin to a raw material, or a resource, with little intrinsic value. Data owners reap benefits only by processing information intelligently.

Control of data

Furthermore, the emergence of large technology companies in recent years is the result of a sound antitrust policy that promotes innovation. This is seen as largely to the benefit of consumers, who remain in control of the data they provide and the services they use (in the case of Facebook and Google, largely for free). There is thus no reason to depart from the consumer welfare standard.

Trust

In June 2019, the US Department of Justice (DOJ) and Federal Trade Commission (FTC), which share responsibility for antitrust oversight, agreed upon a proposed investigation into Google, Facebook, Amazon and Apple. According to newspaper reports, the DOJ will investigate Google and Apple, while the FTC will examine potential antitrust issues at Facebook and Amazon.

This followed an announcement by the US House of Representatives that it would launch an investigation into competition in digital markets.

Big data is clearly here to stay. The challenges brought about by the emergence of large technology companies will also persist for the foreseeable future. The debate as to whether competition or data privacy regulators are better placed to meet the relevant challenges will continue to rage.

Merging the two, respected academics recommend the establishment of super-regulators with powers to investigate and enforce a range of laws, including both competition and privacy rules in order to meet the relevant challenges most effectively. Watch this space.

Cormac Little
Cormac Little is head of competition and regulation at William Fry