As the power of tech giants eclipses the global economy, the lack of competition in modern markets is garnering critical attention. 2019 has witnessed a flurry of antitrust inquiries and cases against Big Tech corporations, both on their home turf, as well as in other jurisdictions.
In the US alone, Google, Amazon, Apple and Facebook face over 15 inquiries and investigations between congressional committees, as well as federal and state regulators for a range of antitrust violations. The US House of Representatives Judiciary Committee is demanding comprehensive information from the American tech giants, from merger and acquisition details, to a decade of internal emails.
Earlier in July, the EU Competition authority, under the aegis of Margerethe Vestager (recently reappointed for a second term), launched its probe into Amazon’s data collection practices. The UK Competition and Market Authority (CMA) also halted the Amazon Deliveroo integration, while they launched an official merger inquiry into the deal.
A week prior to the initiation of the CMA inquiry, Facebook was slapped with a $5 billion fine from the US Federal Trade Commission (FTC) for violating consumer privacy rights in the Cambridge Analytica scandal, along with countless other privacy breaches the company was responsible for.
And in the last week of June, the Competition Commission of India (CCI) confirmed an investigation into Google Android’s misuse of its dominant position vis-a-vis mobile phone manufacturers. Since 2017, Google has faced three major antitrust probes in the EU, receiving a 1.7 billion fine in March for abusing its dominant position (over 70% market share in the online ad market) and blocking ad rivals on third party websites.
Yet, despite the piling antitrust investigations and the various calls to break up Big Tech, competition authorities — much like other regulators caught in the digital flux– are grappling with the sheer complexity of reigning in the unfettered power of large digital platforms.
Consider the $5 billion FTC fine levied against Facebook. While this is the largest fine a major tech corporation has received in the US, the social media giant’s stock price actually rose by 1% (the highest over the past year) a week after the competition authorities penalty. Anticipating the FTC fine, Facebook set aside $3 billion earlier in April. It is likely that their savvy financial planning, coupled with the lack of structural changes stipulated by the FTC, helped in satisfying investors, delivering a neat $1.1 billion to Zuckerberg.
David Ciccilline, chair of the house antitrust subcommittee, called this penalty an “early Christmas present” for Facebook. Such regulatory moves don’t really impact Facebook’s anticompetitive and harmful practices. Clearly, fining Big Tech companies for anticompetitive violations is like poking Frankenstein with a safety pin. It tickles, sure, but it’s only going to make Frankenstein laugh.
Recognizing the insufficiency of competition policy in tackling fast moving technology markets, Vestager is seeking to reintroduce interim measures in the Broadcom case in the EU. By halting the company’s alleged antitrust behavior for the period of the investigation, the commissioner hopes to make the antitrust process more effective. Caught in the fear that the implementation of antitrust laws will be too little, too late, Vestager’s move also signals the struggle authorities are facing in meaningfully controlling Big Tech.
Clearly, fining Big Tech companies for anticompetitive violations is like poking Frankenstein with a safety pin. It tickles, sure, but it’s only going to make Frankenstein laugh.
So, if current regulatory tools are inadequate in facilitating competition in the digital economy, what are the new aspects regulators need to evaluate? And how do these aspects affect competition in the market?
To begin with, the sheer depth and reach of of Big Tech power is unprecedented. The top five companies by market valuation in the Fortune 500 list are all digital monopolies. Prabir Purkayastha, founder of the online news network, Newsclick, highlights that it is the pace of this growth that has been astonishing, with Big Tech taking over oil, automobile and financial moguls in less than two decades.
Big Tech’s market power hinges on data and digital intelligence, the chief economic resources in the digital economy. As economist C.P. Chandrasekhar points out, the valuation of tech companies is delinked from their current profitability. Instead, it is contingent on their user base (essentially the collection of user data), which is considered an indication of future profitability.
What Does this Mean for Competition in the Digital Economy?
Control and access to data is by no means an exclusive condition – the fact that Facebook has your data doesn’t exclude other platforms from collecting this information. But the first mover advantage of large platforms (Facebook’s Free Basics, offering ‘free’ internet service to the poor essentially hopes to monopolize the market), coupled with network effects (as more people use Google, the smarter it gets, making more people want to use Google) and deep pockets (that fund Amazon’s deep discounts) work to engineer data lock-ins. Given this reality, more often than not, competitors are unable to offer enticing alternatives to attract users, preventing their access to a wide breadth of data.
A lot of the practices of Big Tech platforms that have facilitated their market domination are based on this logic of capturing user data. For instance, among the many deals on Amazon’s Prime day bonanza, users were offered $10 credit for downloading Amazon Assistant. A browser extension and essentially a shopping assistant (comparing prices from other sites, recommending products etc.), the Amazon Assistant also allows Amazon access to users’ browsing data.
While Amazon claims the Assistant doesn’t collect personally identifiable information (considering you can be identified based solely on your ‘anonymized’ browsing history, this is hardly any consolation), it does follow your visits to other sites – what products you look at, their cost, who is selling it and what you end up buying. Such information is integral to Amazon’s dual functions – as a marketplace and a retailer.
The EU investigation into Amazon targets precisely this dual function — whether and how Amazon leverages its position as a marketplace to access seller data, which it then utilizes to gain insights for its own retail business. Hypothetically, once Amazon triangulates data from all these various sources (marketplace data, Amazon Assistant etc.), it has the best real time information to price and target its own products, making customers offers they simply cannot refuse, while competing with third party vendors on its own marketplace. Amazon’s deep pockets allow it to ruthlessly cut competition through deep discounts (remember diapers.com?), essentially establishing monopolistic control over the supply chain – from production to distribution.
Neither is Amazon’s business model limited to a particular sector. With the Amazon Deliveroo integration, the CMA’s fear is essentially that the move is in fact a ‘killer acquisition’, allowing Amazon to expand its operations in the food business.
The proposed deal would give Amazon stakes in Deliveroo’s delivery and food preparation (through ‘dark kitchens’ which are solely focused on food for delivery) functions. Moreover, it can integrate its own services with that of Deliveroo’s, such as using Amazon’s Echo to make orders on Deliveroo.
This merger review is critical in unpacking the implications of large data sets on competition. Note that Amazon’s $575 million investment in Deliveroo immediately hit food delivery rivals in the UK, with competitor shares falling by as much as 10% in the wake of Amazon’s investment. Amazon is also planning on launching a food delivery service in India early October, challenging incumbent native players, Zomato and Swiggy.
The collection and control of data (how it is processed, and to what end) thus is at the heart of Amazon’s advantage. The digital intelligence facilitated by the real time analysis of data underpins a firm’s competitiveness; the choices available to consumers, sellers, workers and increasingly, citizens of a country. For instance, the collection and processing of Facebook user data enabled the Cambridge Analytica scandal, where users were profiled and targeted with personalized political ads.
What is worth noting, as Amazon’s example illustrates, is that such data consolidation has enabled the vertical expansion of Big Tech platforms, as well as their movement beyond traditional sectoral boundaries.
What is worth noting, as Amazon’s example illustrates, is that such data consolidation has enabled the vertical expansion of Big Tech platforms, as well as their movement beyond traditional sectoral boundaries.
Amazon is the world’s second largest tech company by market capitalization. It is the largest online retailer (e-commerce platform), and it is also a cloud service provider (AWS). Over the past five years, Amazon has acquired brick and mortar retail operations, and has also moved into warehousing and logistics.
Similarly, Facebook may be registered as a tech company, functioning as a media entity having taken over major social media platforms (Facebook, Instagram and Whatsapp among others), but it also functions as an ad platform and a marketplace; that is also launching its own cryptocurrency Libra (as fiat money, essentially aiming to replace traditional banking).
Perhaps its not merely about obliterating their immediate competitors in a particular sector; rather, it is the very market ecosystem that digital platforms seek to take over.
With or Without Data? Examining the Current Antitrust Landscape
Reigning in the power of Big Tech demands an integrated strategy, with a particular focus on the collection and use of data. To a certain extent, the EU competition framework actually lends itself to such an approach.
While Facebook has managed to block the German authorities order, the Bundeskartellamt case against the social media behemoth serves as an interesting example. The legal scholar Fillipo Lancieri highlights that the German case is the first major investigation that combined the issues of antitrust and data protection, looking at exploitative abuse around data collection.
The Bundeskartellamt placed restrictions on Facebook’s data processing practices, i.e, combining data from different sources; Facebook owned platforms — Whatsapp and Instagram; as well as tracking and data collection from third party platforms.
Lanceri points out that unlike the US, EU competition law actually has the potential to regulate data consolidation as a form of ‘exploitative abuse’ or the ‘appropriation of consumer surplus’. Under these provisions, excessive data accumulation and retention can be viewed as forms of excessive market power.
The EU Competition Policy for the Digital Era report also identifies the importance of data in shaping a firm’s competitiveness in the market; ‘The competitiveness of firms will increasingly depend on timely access to relevant data and the ability to use that data to develop new, innovative applications and products.’
The report goes on to make the case for ‘public intervention’ in regulating access to data, along with foregrounding the interdependence between data protection and competition policy. For instance, the purpose limitation principle (limiting a firm’s data collection and processing powers) and data portability provisions in the EU’s General Data Protection Regulations (GDPR), as well as interoperability, are critical, technical facets for competition in the digital economy.
American antitrust law, on the other hand, is ill equipped to regulate the digital economy. The US relies on minimal state intervention, and its antitrust laws are primarily focused on consumer harm through the examination of short term price effects. The issue of market dominance; i.e, the threat of monopoly power is not really covered under current American antitrust laws.
As the American jurist, Lina Khan has argued, prices don’t serve as adequate signals to assess the level of competition in the market. The practice of price cutting (Amazon’s endless discounting bonanzas) or offering ‘free services’ (Google and Facebook operating in a zero price market), allow big firms to easily capture consumers (and their data), essentially moving towards monopolizing the market. However, since cheaper prices/ free services signal obvious, and quantifiable consumer benefits in the short run, they are not perceived as anti competitive, and remain unregulated under American antitrust laws.
Charlotte Simone, an American competition lawyer with experience at the FTC, points out that in the US context, since the market itself is perceived as ‘self-correcting’, the underlying expectation is that when these firms eventually raise their prices to recover their losses, competitors will flood in and the market will balance everything out.
But as Amazon’s trajectory has illustrated, this doesn’t necessarily hold true in the digital economy. Once Amazon takes over the whole supply chain, from production and logistics, to distribution networks, it is unlikely that there will be any competitors left to challenge Bezos’ giant monster.
Even with regard to establishing consumer harm, prices no longer serve as a sufficient measure. Vikram Sinha from the IDFC institute highlights how a singular focus on prices ignores the non-monetary (and hence, non quantifiable) long term harms to consumer well-being, such as the exploitation of personal data.
While Congress, through the House Judiciary Committee, is set to review the gaps in US antitrust laws and how they have allowed for the growth of America’s big tech monopolies, it must be noted that these very laws are facilitating America’s take over of the global digital landscape. It might be in the country’s geopolitical interest, then, to not do away with them entirely.
While Congress, through the House Judiciary Committee, is set to review the gaps in US antitrust laws and how they have allowed for the growth of America’s Big Tech monopolies, it must be noted that these very laws are facilitating America’s take over of the global digital landscape. It might be in the country’s geopolitical interest, then, to not do away with them entirely.
What’s Next? Fighting For Competition In The Developing World
Unlike the US and even the EU, the developing world faces differential challenges in governing transnational big tech corporations, as many of the antitrust issues overlap with the politics of cross border data flows. Developing countries need to go beyond updating their competition policies for the digital economy in tackling issues of data consolidation. Given the transnational nature of the digital economy, they will also need to enhance their competitiveness at the global level.
In the current scenario, developing countries serve as both, data minefields as well as digital markets for American and Chinese Big Tech players. If the data gathered in these regions is enclosed by foreign tech corporations beyond the reach of domestic governments, it is likely to make it significantly harder for domestic firms and local vendors to access it.
In an attempt to tackle this, the Indian government is considering making it mandatory for multinational tech companies like Google and Amazon to sell non personal data to public and private entities within the country. Yet, given their market share both in terms of volume and worth, its going to be an uphill battle. Moreover, in doing so, the Indian government needs to ensure, first and foremost, protective measures for individual and community data before its up for sale.
To meaningfully utilize their own data, and ensure that domestic firms can survive the onslaught of global competition, developing countries will need to fight against the free flow of data. While developing nations reconfigure their own competition policies and develop data protection laws, they will also need to carefully navigate the global trade terrain.
As witnessed in the latest G20 summit’s Osaka track which promotes ‘data free flow with trust’ (DFFT), large economies such as Japan, EU, US and Australia, are pushing for sweeping rules on cross border data flows. For now, countries such as India, South Africa and Indonesia have boycotted the Osaka track as it undermines their stake in the control and regulation of the digital economy.
While this resistance is critical, it is also imperative that these countries envisage an alternative global data governance mechanism, which can provide an equitable framework regarding the ownership and control of data.
In the absence of alternatives, trade expert Jane Kelsey cannot be more accurate when she says, ‘The digital fight will be fought at the trade frontier.’
In the current scenario, developing countries serve as both, data minefields as well as digital markets for American and Chinese Big Tech players. If the data gathered in these regions is enclosed by foreign tech corporations beyond the reach of domestic governments, it is likely to make it significantly harder for domestic firms to access it.
This article is part of our Competition in the Digital Economy Series.
