Historically, competition law has been the umbrella tool for market regulation to identify any activity that may be considered anti-competitive or affect market efficiency, irrespective of sector, industry, or company. Has it been successful? Largely, yes, in the industrial era markets. Competition authorities now exist in more than 125 jurisdictions, looking out for behaviors that impact market dynamics.
Competition law is largely reactive, i.e., it works post facto to assess whether a player has acted in a manner that affects market fairness; if a firm has abused its dominant position; if it has entered into horizontal or vertical agreements that vitiate the marketplace. This excludes regulations on mergers, which are ex ante. However, in the fast-paced world of tech giants, and data-network effects, such regulation falls short. Ex post regulations, implemented on a case-by-case basis, can become ambiguous, protracted, time-consuming, and are only limited to the companies being investigated. Being resource-heavy, it also ends up privileging deep pockets, or dominant players, who can treat it as a cost of business. Case in point: Big Tech. Additionally, since competition law is focused on consumer welfare, it is often unable to address any distortion to competition due to zero-price models in the digital economy, whereby consumers receive free services at the cost of their data. Finally, law and regulation also tend to fall behind due to the pace at which technology continues to advance.
Evidently, it is necessary to develop a far-reaching and forward-looking set of regulations addressing the business model of Big Tech. In recent years, competition regulators are trying to keep up with the changing times. For instance, the Competition Commission of India (henceforth, CCI or the Commission) – launched a market study on e-commerce, which focuses on platforms as marketplaces. Its other market studies on pharmaceuticals and telecom industries also cover digital aspects, like online pharmacies, or over-the-top services like content streaming. What is clear is that it would be anachronistic to tackle regulatory challenges in the digital economy in a piecemeal, sectoral manner. Instead, we must focus on the cross-sectoral impact of digital services providers.
The Relevance of Data in Ex Ante Competition Regulation
Encouragingly, there is growing awareness about the limitations of traditional competition law policies to regulate the digital economy. In July 2021, the UNCTAD Intergovernmental Group of Experts on Competition Law and Policy released a note recognizing the same, and emphasized the need to use ex ante or more contemporary forms of regulation. Countries are modernizing their competition law and regulation framework to adapt to the challenges presented by the digital era. For instance, Germany’s tenth amendment to its competition law came into effect in January 2021, the US Senate Judiciary Committee accepted a bill to restrict platforms from self-preferencing in January 2022, and in February 2021, China’s competition regulator issued a draft amendment to address abuse of dominance in digital markets.
Furthermore, in December 2021, the Organization for Economic Co-operation and Development (OECD) issued a background note focusing on ex ante regulation for the digital economy. It details various ex ante rules being developed by the US and EU member states and the impact of such norms. Specifically, the regulation addresses concerns of self-preferencing, bundling of services, and use and exploitation of data. The document notes that data – be it volunteered, observed, or inferred – has high value for businesses. Major platforms can cross-leverage insights from across their services and build new insights through a centralized algorithm, thereby creating a high entry barrier for new players. The note refers to data portability, which can lower switching costs for consumers between platforms, ex ante obligation to share data, and interoperability of third-party services across platforms. It underscores the idea of ‘envelopment’, by which dominant firms can extend their power from one market to another and extract data that is complementary, thereby building a vast repository of data intelligence. This has been seen in cases where dominant companies operate at a loss in a new market to entrench themselves, and eventually, quite often, drive out competition.
Major platforms can cross-leverage insights from across their services and build new insights through a centralized algorithm, thereby creating a high entry barrier for new players.
What are the recommendations for stalling such massive data accumulation including creating data silos? First, setting up virtual walls within the different services offered by the same firm to reduce the impact of the data accumulated by Big Tech firms. Second, introducing shorter data retention periods – restricting the time for which data collected by these firms can be used. Third, drawing a line of separation in business activities – separating markets and services that firms can function in, on the lines of structural or behavioral activities. However, these analyses from UNCTAD, OECD, and others do not go far in grappling with competition in the digital economy, as explained below.
i. Market concentration as a product of data power.
Even though network effects and impacts on economies of scale and scope are acknowledged in the policy literature, the specific ways in which centralized control over data manifests as market power are not fully addressed. For instance, while the UNCTAD competition note recognizes “zero-price services, network effects, economies of scale and scope and the importance of access to and monetization of data”, as distinguishing characteristics of digital platform markets, it does not respond to the challenge of how new yardsticks must be developed for assessing abuse of data power by platform lead firms.
The competition law principle of structural separation often gets limited to the idea of “separation of control over platform infrastructure” from “control over retail commerce that flows on top of such platforms”. However, the real challenge of digital markets is that firms controlling platform infrastructure become future overlords of entire economic sectors – retail commerce, farm-to-table supply chains or labor demand-supply matching – by monopolizing the intelligence derived from the data flowing on such infrastructures. How data-derived intelligence catapults the lead firm’s network advantage into an indomitable intelligence advantage is key to this transformation.
Privacy concerns in the digital economy have created a buzz around federated models that claim to leave data control in the hands of individual user-consumers. Local control over sensitive personal data, however, does not create a dent in the omniscience of proprietary algorithms powering these models. Instead, through its global parameters, the model continues to learn how personalized recommendations can be made for millions of users.
The real challenge of digital markets is that firms controlling platform infrastructure become future overlords of entire economic sectors – retail commerce, farm-to-table supply chains or labor demand-supply matching – by monopolizing the intelligence derived from the data flowing on such infrastructures.
ii. Data as a highly contested economic resource.
Today, the value of data, accrues disproportionately to big corporations and developed countries. As per the UNCTAD competition report, competition authorities need to ensure that their regulations are fair and open so that local firms and microenterprises can benefit from the reach of online platforms. However, without strong data norms to benefit those to whom the data belongs, local enterprises become dependent on big platforms and lose their autonomy. Big platforms act as gatekeepers, determine rules of access through complex algorithms, and out-compete local businesses.
Given their relative data advantage, countries of the Global North are generally dismissive of data localization policies. In 2021, the G7 countries agreed to enhance free flow of data across borders. Given that Big Tech companies are either located in the US or China, data ends up flowing from the Global South to the Global North, and much of it is exclusively owned by these private companies. The countries of origin of the data are denied any value from this data.
Rebooting Competition Law for the Digital Age
In January 2022, the Indian regulator initiated an investigation against Google’s search engine for allegedly abusing its dominant position in online web search and online advertising service segments, and imposing unfair conditions on news publishers dependent on Google’s ad-tech services. The investigation was based on a complaint by the Digital News Publishers Association. The move came soon after news publishers in Australia and France were able to enter into a paid licensing of content agreement with Google. The Director-General of the CCI is expected to submit a report on prima facie findings in two months. As far as a preliminary order goes, the Commission’s approach is commendable in that it recognizes the digital aspect, and reviews market studies from the UK and Australia to establish Google’s dominance in the ad-tech supply chain. However, given the nature of the Indian Competition Act, 2002, the analysis of a prima facie finding of abuse of dominant position remains traditional and linear.
The Commission defines two relevant markets for this case – “market for online general web search services and market for online search advertising services in India”. It notes that Google is dominant in these sectors, based on the company’s market share of data and its deep engagement with the digital advertising value chain. The Commission also notes that Google acts as a gateway between news publishers and readers, which enables the company to determine unilateral terms of agreement to share ad revenues with news publishers. These are preliminary findings, and a final decision is yet to be taken. Once the Director-General concludes the investigation and submits a report, the Commission will review these findings and arrive at a verdict. This step is often time-consuming and can take up to several months at the very least.
In January 2022, the Indian regulator initiated an investigation against Google’s search engine for allegedly abusing its dominant position in online web search and online advertising service segments, and imposing unfair conditions on news publishers dependent on Google’s ad-tech services.
This linear analysis based on traditional competition laws can lead to a siloed approach to the concerns presented by large platforms. For instance, the concept of relevant market is important for the abuse of dominant position inquiry, but in the digital economy, the interdependence of a platform’s activities across sectors or value chains becomes significant. Market definition, in such a scenario, can lead to isolation of the issue and only address the limited issue within the defined relevant market. It does not encapsulate the complexity of digital platforms and their complementary products. To account for this, it has been proposed that competition assessment be done at the level of the platform.
The EU’s proposed Digital Markets Act (DMA) intends to address competition concerns in the digital economy, with a clear mandate to regulate unfair trade practices imposed by large platforms. The DMA defines ‘gatekeeper’ online platforms, which are platforms with a strong economic position, and a strong intermediation position, entrenched within the market. The proposed law identifies eight core platform services. It imposes conditions of fairness and transparency on gatekeeper platforms. This includes allowing third parties to use the gatekeeper’s services, enabling third parties to use the data they generate on the gatekeeper’s platform, and providing tools and resources to companies advertising on the gatekeeper’s platform to independently verify the advertisement. If a similar case were to be taken up with the DMA in place, the test would be to see if Google’s search engine qualified as a gatekeeper online platform, and to assess the conditions imposed on news publishers. Additionally, given that this would be in the nature of an ex ante law, these steps would be taken in advance, without waiting for a decision from the competition regulator.
Finding the Right Regulatory Frame for the Digital Economy
The DMA, along with the Digital Services Act (DSA), is expected to come into force in 2023, after being passed in July 2022. Its on-ground effectiveness can be determined only then. There is also an emerging body of work that proposes reconciling competition regulation with data protection regimes, to account for exploitative data accumulation by Big Tech, and their consequent dominance. There can be significant synergies if the common considerations of competition evaluation and data protection are assessed. This is especially helpful given the seeming dissonance between the two laws, where companies can claim that competition investigations can fall foul of data protection compliance requirements. This can be remedied with the exceptions data protection laws provide for data disclosure through a legal obligation created by the competition authority.
The key focus of regulating the digital economy should be on recognizing Big Tech’s amassing of market power through data power and the economic value of data, which needs to be shared equitably and not just with a few companies that can exploit the first-mover advantage. It is important to establish mechanisms to assess the impact of use (and abuse) of data power and ensure that Big Tech’s intelligence advantage is reined in, appropriately. Separating the layers of digital value chains – data, cloud computing, intelligence, and consumer-facing intelligent services – and setting up a dedicated legislation for governing the digital economy, will create the safeguards needed to stymie Big Tech dominance across sectors like e-commerce, transport, health, education, and agriculture. The digital economy needs an independent regulator, backed by an appropriate law.
Additionally, the fact that data carries economic value cannot be relegated to a secondary issue in the wake of concerns of data protection and privacy. This issue has also not been addressed adequately by competition law. The economic value of data and its benefits should not be available only to Big Tech firms and a handful of developed countries. Smaller economic actors and developing countries also need access to data-enabled intelligence. The digital economy needs to be governed in a way that ensures benefits accrue from the social pool of data that becomes society’s knowledge resource. Competition law is often focused on market efficiency; however, regulating the digital economy can have other goals as well, like social justice, health and safety, and sustainable futures. It is imperative to keep these larger social goals in mind while engaging with market-oriented policy when it comes to the digital economy.
Written with inputs from Anita Gurumurthy and Nandini Chami, IT for Change.