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Competition Law and Big Data: Do Competition Authorities Know How To Do It? #CPIChronicle
You may remember that just before Christmas I wrote a post saying that Pablo was putting pressure on me to write a joint article on selectivity in State aid during the holidays? Well, it should not surprise you to know that we never got around to it (it will happen, though).
We nevertheless did take the time to do some other non-work writing: Pablo did his thing (probably wrote the majority of his forthcoming books) and I did mine (wrote a couple of short pieces on general issues), namely one editorial for the next issue of the Journal of European Competition Law and Practice on “Competition Law and Fairness” (more on this soon), and one piece on competition and big data (co-written with my colleague Sam) for Competition Policy International’s special Antitrust Chronicle issue on “Competition in Digital Markets”.
The latter contribution -which builds on the Dan Ariely quote above…- can be freely accessed here, courtersy of CPI: cpi-lamadrid-villiers
UPDATE: Pablo tells me that Common Market Law Review has published today an article on this topic by our friends Francisco Costa Cabral and Orla Lynskey; it will certainly provide you with insightful thoughts and views that may moreover diverge from the ones developed in our piece.
Yet another presentation on competition and big data
My silence on the past few days has to do with several open fronts thanks to the Commission’s bad habits of summertime desk cleaning, but also to my bad habits of devoting non-work time to conferences and talks (my only consolation is that Pablo has recently been by far the most active speaker in Chillin’ Competition’s flying circus).
-Some of you have asked for the presentation I used at the VUB’s very interesting debate on big data and competition law; here it is:
Competition-big-data_lamadrid 23 June
You know my views from quite a few previous posts (all links appear at the end of the ppp). The main addition this time was to discuss the joint French-German report issued last May which essentially makes general conjectures about how standard theries of harm could apply to big data (like they apply to any other asset) if the right facts were to arise in a given case. In sum, nothing new under the sun.
The change of attitude on the part of competition authorities is nevertheless remarkable. When I spoke at the EDPS closed-door workshop at the European Parliament in one of the first discussions on this matter my views were perhaps a bit anti-climatic for an audience pre-disposed to use competition law to tackle non-competition issues. But I did -logically- have the support of the only authority in the room, DG Comp. Now, however, we see not only the German Facebook case and the French-German report giving further visibility to a non-issue, but I also hear that some within DG Comp are pushing to do more on this front. That’s disconcerting.
-None of you have asked for the presentations I have used the past two Fridays at the College of Europe Summer Courses (where for the 4th year in a row I’ve lectured on Antitrust Procedure and Article 106). Lack of interest has never precluded me from posting stuff here, but since the two presentations are in Mandarin I’ll spare you the pain…
More on Big Data and Competition Law
To sighs of relief among the audience I have just finished my intervention at ERA’s conference “Competition Rebooted: Enforcement and personal data in digital markets”.
My slides are available here: Competition Big Data_Lamadrid
Nothing of what I said will sound new to frequent readers of this site; the content of my presentation has a lot to do with previous posts on the subject (see here, here and here).
The contributions from the EDPS himself, Jorge Padilla, Orla Lynskey, Maurice Stucke, Patrick Van Eecke, Cyril Ritter, Amal Taleb, Cecilia Parker and Christian D’Cunha were all much more interesting. If interested in their slides, then you should have registered 😉
On Privacy, Big Data and Competition Law (2/2) On the nature, goals, means and limitations of competition law
In my previous post I outlined the content of the main part of my presentation at the European Data Protection Supervisor’s recent workshop on Privacy, Consumers, Competition and Big Data, held in the wake of the EDPS preliminary opinion on the subject.
Today I’ll provide you with my views on the great question underlying both the workshop and the opinion: should data protection considerations be incorporated to competition law’s substantive assessments?
The (preliminary) view implied in the EDPS’ opinion is that they should. In essence, the opinion posits that competition law is or should be about consumers’ welfare, and that this comprises much more than only the narrow set of economic considerations that competition law currently looks at. The EDPS tends to believe that public interest would be better served that way. Some lawyers and the companies they represent also hold these views but perhaps for different –less public interest oriented- reasons.
The somewhat anticlimatic view I conveyed to the participants at the workshop on this point was the following (as in the last post, I’ll basically sketch my conference notes):
Competition law is certainly a most tempting instrument given both its flexibility to accommodate creative theories of harm and the ample remedial powers it offers. These reasons explain the recent use (or instrumentalization) of competition law to pursue other public policy goals [I also talked about the latter yesterday at another conference, but I might develop that in another future post].
But just because competition authorities have a hammer, that doesn’t mean they should view every problem –even if unrelated to competition law- as a nail.
In my view, competition law and competition authorities are not well-suited to factor into their analysis (perhaps more important) public policy considerations alien to the specific matters they are supposed to deal with. Competition law is a legal regime of last resort, which means that their existence is premised upon the assumption that, in those areas where regulation doesn’t say otherwise, competition is the best way to allocate resources. When this is not the case, I think the solution may lie in regulating more or in a smarter way, but not in blurring the already blurred contours of a legal regime that –let’s not forget- is of a quasi criminal nature.
Other reasons why competition law might not be well-suited to deal with privacy/data protection issues relate to the fact that it’s only triggered in very specific circumstances; that it is about conduct and not structure; that if authorities are reluctant to intervene in cases of apparent direct harm to consumers in the form of excessive price it’s not easy to see why they should focus on direct harm through lower privacy alternatives (when moreover there is an additional ad hoc legal regime precisely to establish minimum standards). And on top of those there are institutional factors: if competition authorities struggle to strike a balance between strictly economic factors, how would they be supposed to trade-off economic factors with fundamental rights or other public policy objectives? (environment, industrial policy, labor standards, effects on jobs …)
Coming back to the data protection world. The gap (if any) does not lie in competition law not reaching where it should, but on data protection law lacking adequate regulation and remedies. Accordingly, the way to fill in that gap would require devising an effective data protection regime with its own and more effective rules and principles, but not extending competition law beyond its natural limits.
Some person I very much appreciate personally and intellectually (can’t give names because Chatham rules applied) raised the point that the Charter of Fundamental Rights may perhaps be a game changer in that the European Commission would be bound by it and therefore should not only not violate those rights but also facilitate their exercise by citizens. I tend not to agree. In my mind the argument that the Commission would have any obligation not only to comply with the negative obligations Charter but also to positively ensure that private companies comply with it to an extent that goes beyond that required by specific ad hoc legislation –and that may moreover clash with the fundamental rights of others- is stretching the reach of the Charter too far.
I certainly don’t think public policy should be only or mostly about efficiency and competition (as an admired colleague often says, a world exclusively governed by competition would make a great subject for a dystopian novel). There are values, fundamental rights and public interests which might very well trump economic considerations. But my point is that even if one doesn’t trust market forces to promote optimal levels of privacy (due to consumers’ apparent indolence or for whatever reason), one shouldn’t entrust competition law with that task either.
If you ask me, there are issues far too important to be left to competition authorities and competition lawyers.
On Privacy, Big Data and Competition Law (Post 1/2)
As I self-advertised in my previous post, I participated yesterday at the European Data Protection Supervisor’s impressive workshop on Privacy, Consumers, Competition and Big Data, where, by the way, this blog received a few mentions.
My impression is that it provided a useful opportunity for various actors to reflect together on the nature, potential and limitations of each discipline in the wake of the EDPS preliminary opinion on these issues.
The workshop touched on competition issues several times. On the EU side, Kris Dekeyser gave the Commission’s view, and on the private side I was honored (and, frankly, a bit surprised) to be the sole EU competition lawyer speaking.
Julie Brill (FTC Commissioner; her speech is available here) and Pamela Jones Harbour (former FTC Commissioner now in private practice) also shared their views on the US approach to these issues.
I was asked to explain to a non-expert audience (by non-experts I mean those who retain the ability to realize sometimes that the king may sometimes be naked…) the notion of market power, why it is important for the application of our rules, how it is assessed in practice, and what are the particular challenges posed by digital markets and big data in this regard.
I’ll spare you the content on my intervention on the most basic issues; suffice it to say that I pointed out that the traditional means to define markets and market power are far from perfect in many ways, but that they’re not supposed to be used mechanically and in the abstract, that the Commission may depart from standard assessment tools to capture the dynamics of competition in any given sector, and that it enjoys wide discretion to act flexibly in this regard.
Moving on to the more interesting stuff. Following a conventional explanation of the main peculiar features of technology/digital markets and of their mixed competition law implications I gave my (non data protection expert) views on the big relevant issues addressed in the workshop, namely (A) What are the implications of data and big data for market definition and market power assessments and (B) Should privacy data protection standards be incorporated to substantive assessment under the competition rules
Today we’ll discuss A, and tomorrow [on Friday] we’ll deal with B, so:
What are the implications of data and big data for market definition and market power assessments?
(i) Data is without doubt an increasing important asset/input, and it should no doubts be acknowledged as such. As some of you may remember, some time ago I commented on an article that essentially posited this idea, which I consider to be fairly uncontroversial. In this sense, I’ve no objection to the idea that, depending on the circumstances, data-related issues may give rise to competition concerns.
At the same time, however, data is an important asset or even crucial asset, but no more; and I don’t see why competition law would be required to adapt its rules to when applying them to data-heavy markets.
(ii) I see one exception to the above. As I explained in a recent post, our current turnover thresholds are not well-suited to capture mergers in the subsidized side of two-sided markets (which may often be markets where non-traded data is important). Only jurisdictions envisaging market share thresholds (often criticized, also by me) may be competent to assess these transactions. Facebook’s very recent decision to try to have the EU review the acquisition of Whatsapp is to be read within this context. I don’t know what the solution is, but it’s worth a thought.
(iii) Some (including Pamela Jones Harbour in her dissent to the FTC’s Google/Double Click decision) have advocated for a definition of relevant markets for “data used for x [in that case targetted advertising] purposes”. I’m not persuaded by this proposal (except perhaps when the data is subject to trade) because I’m not sure the intermediate data market is a meaningful market in the sense of competition law. If the alleged problem is that the use of data might have consequences in some markets, then my take is that it makes more sense to assess those markets directly.
(iv) Regarding the big substantive issue, which is related to scale, aggregation, network effects playing to the benefit of allegedly dominant firms, I essentially said that:
- far from being an obvious competitive problem this also has mixed implications, for data can also be a source of very significant efficiencies (and big data a source of big efficiencies) in many and important fronts;
- it is true that access to data may in some circumstances be a barrier to entry and even a very important one depending on the facts (I also noted that barriers to entry are not in themselves a problem requiring intervention because competition law is about conducts and not structure);
- many people throw out “essential facility” as a buzzword in this context to support the contention that some firms should be mandated to share data. In my view the term is used too loosely. As I explained, the identification of an essential facility is subject to an extremely high legal burden (indispensability, elimination of competition in a downstream market…) which makes it difficult to think of instances where it could be satisfied;
- some people had formulated the idea that network effects and scale determine that users may be locked-in to a given provider and therefore have no meaningful choice as to the privacy policy applied to them. On this point I recalled, among others, that the recent Microsoft/Skype Judgment (yeah, I’m already starting to quote it) seems to close the doors to any argument based on laziness/stickiness when switching is technically and economically feasible.
(v) I also observed that the main issue where competition law and data protection policies may converge relates to data portability. In cases where it is shown that scale is of the essence, then practices that could deny rivals a minimum viable scale could fall within the scope of the competition rule (in fact, Google’s proposed commitments -see here and here– already incorporate a section on the portability of data for AdWords campaigns). On the regulatory front, the proposed new EU regulation on data protection (currently stuck at the Council) also incorporates a right to data portability. Btw, some of the major companies cited in these discussions already have tools to facilitate portability (see here or here)
(vi) My last comment on this point was that privacy policies can also be a parameter of competition (even if admittedly many users currently appear to confer more importance to other parameters).
Apologies for making it so schematic, but having quite some work to do I’ve chosen to basically to a transcript of my notes, plus this is already lengthy enough for a post.
On the next post I’ll state my views on whether non-economic privacy considerations should be included as part of the consumer welfare standard.
Big Tech and the Digital Economy: the muddled middle in a polarized debate? (by Anna Gerbrandy)
When Nicolas Petit asked me to contribute to the blog symposium on his book ‘Big Tech and the Digital Economy’, I replied enthusiastically with: ‘I like that you are inviting your own critical readership!’ Little did I know until after he sent the proofs, that there would be much to laude and less to critique.
However, there is this.
In the first pages of the first chapter, Nicolas describes the two sides of the debate on competition law and Big Tech. To simplify, on one side are the ‘neo-structuralists’ who propose that ‘each tech company must be regarded as a structural monopoly in one product or service area’. And on the other side, are the ‘consumer-welfarists’ who focus on ‘adverse economic consequences and potential for abuse’. The former see a threat to the ideal of democracy and favour corporate dismantlement, M&A bans and price regulation. The latter condition antitrust and regulatory intervention to a ‘factual evaluation’ of effects (on consumer welfare). It is probably unsurprising that Nicolas is not a fan of neo-structuralism and prefers application of the consumer welfare standard as being rooted in ‘hard facts’, not in politics.
Whilst it is impossible to address all the nuances here, I would like to argue that there is more to competition life than the polar opposites of irrational neo-structuralists (who want to break up big tech) and staunch consumer-welfarists (who believe that economists are and should remain at the forefront of hard science). In the following sections, I develop three arguments that sit in the muddled middle of neo-structuralism and consumer welfarism.
There is more to power
At the heart of competition law, lies the concept of ‘power’ and how to contain or counter it. Power fascinates competition lawyers but is also a topic for anyone interested in political philosophy; business literature; the social sciences; feminist theory; anarchist theory; media studies; and (of course) economics. Now, what would happen if we combined perspectives and questioned what ‘power’ means in the big tech context? It would probably lead consider that the position of (some) big tech companies provides more than just market power, and certainly more than a monopoly on specific markets. It is more than just a power to abuse a dominant position (with negative consumer welfare effects) or the ability to gobble up start-ups and promising or threatening smaller techs. It is power of a composite nature which includes size and market capitalization and economic power. It includes the ability to coerce in political spheres. It denotes ‘power of governance’ over the public sphere and power to impact labor systems. It can also be ‘platform power’; the power of ‘systemic actors’; of ‘eco-systems of platforms’; or of ‘dataopolies’. What all of this means for competition law will be discussed in the third argument. Nevertheless, what must be emphasized here is that this conceptualization, whilst still grounded in empirical reality, provides a richerstarting point than the two opposite endpoints of neo-structuralism and consumer welfarism.
There is a lot between politics versus hard facts
Both in academia and outside of it, I find people who are truly convinced and never doubt truly intimidating or scary (this is almost a principled position though I recognize some irony here). This includes people who are very sure that economic theory is the alpha and omega of competition law, and who refuse to conceive of anything else (Nicolas is surely capable of conceiving of a ‘something else’, but he strongly argues against it). The main reason why I do not share this conviction is that I do not believe in full faith in the truth-telling machinery of economics. This puts me, apparently, in the irrational camp of advocating against any standard. I object to this however, because that is not my camp either!
I am not debating the usefulness of economic theory as a solid starting point in competition law or the effectiveness, or necessity at the time, of the economization of European competition law. However, I do not think that economics provides the only way of determining truth or, even, facts relevant to competition law. In light of the previous economic crisis, I also do not think it is as hard a science as some of the really hard sciences. Of course, it is sensible to distrust a very politicized competition law, if only because one should distrust any power, whether it is private or public. So, I am placing myself somewhere in the middle, in a position where it is jointly possible to open competition law up to broader points of view, whilst not discarding its reliance on economics.
One does not simply either break up just because of Bigness or only provide remedies because of consumer welfare effects
As to that broader point of view: if big tech power is composite power then how do we deal with its multiple effects? Consumer welfare effects are covered by Nicolas’ proposals, but there are possible effects extending beyond those discussed. Some of these effects stem from the same source of power and business strategies as consumer welfare-impacting effects. Take hypernudging, the focus of Viktorija Morozovaite’s PhD research (member of my ERC-team). Hypernudging can lead to negative consumer welfare effects, but also to something that is slightly more difficult to label. Even though from the tech-perspective there is no difference between making a profit from political advertising, tweaking a newsfeed, enticing users to consume more radical content leading to echo-chambers, and self-preferencing. It is only because of power that these strategies are impactful at the aggregate level. Whether that is by way of the user-consumer on consumer welfare, or by way of the user-citizen on the vibrant public sphere, which is a cornerstone of democracies. As previously discussed, mentioning ‘democracy’ does not equate to irrationality or sitting in the neo-structuralist camp. Instead, it means that from this perspective, the effects of hypernudging strategies might also be seen as a competition law concern. These effects could therefore be addressed by remedies that lie between the sledgehammer of dismantlement or the use of a purely consumer welfare standard.
A final remark.
I readily admit that Nicolas’ book is not really about the opposites between neo-structuralism and consumer welfarism. It proposes purposeful instruments to apply in different market circumstances. As was brought forward during his ASCOLA book presentation-discussion, Nicolas’ proposals are perhaps not so much an instead, but something different from the European Commission’s proposed ex ante tool. In line with this observation, I concur with him that the ongoing conversation on competition law and big tech needs to move elsewhere, if only to overcome the intellectual impasse in which the entrenchment of polar opposites leads us.
How do you solve a problem like Maria (or, say, Big Tech)? (by Pınar Akman)
Nicolas Petit’s book Big Tech and the Digital Economy comes at a time of increasingly polarised and politicised debates on how one solves a “problem” like big tech.[1] It presents a meticulously studied anatomy of six big tech companies – Google, Facebook, Amazon, Apple, Microsoft, and Netflix. It offers nuanced prescriptions of what one can do about this group of companies, which displays levels of growth, size, and market capitalisation that are unheard of in economic history. Petit’s proposals are primarily aimed at competition law and regulation, but the book has a wide scope that will be of appeal to a broader audience due to the book’s incorporation of management, technology, economics, and different areas of law such as tax and data protection.
Petit’s book easily distinguishes itself from the crowd by its clear-headed inquiry into whether there is a problem with big tech and, if so, what competition law can and should do about it. His analysis is objective, yet critical, unlike the – what Petit calls – “airport books” on the topic, where everyone can find a narrative about what’s right or wrong with big tech to suit her personal taste or “echo chamber”. Petit’s book, in contrast, displays the best qualities of public discourse on a subject of contemporary significance (such as open-mindedness), whilst avoiding the worst (such as the ad hominem). It is both very accessible for the non-specialist and full of thought-provoking ideas for the specialist. This particular piece will discuss one such important and interesting theory put forward in the book, namely that traditional antitrust principles modelled on “rivalry” should be abandoned or radically altered in digital markets.[2]
According to Petit, the protection of rivalry is not always socially beneficial in industries with increasing returns to adoption, such as the digital markets under scrutiny.[3] Petit’s theory is premised on the idea that “in industries with increasing returns, economic forces … produce incentives on structural monopoly firms to compete by indirect entry in untipped markets, and avoid privately and socially inefficient rivalry in tipped markets”.[4] According to Petit, “[r]ivalry in tipped markets is privately inefficient because it is very costly for the direct entrant, and it is socially inefficient when there are increasing returns to scale due to rising marginal benefits”.[5] Thus, “[a] sound antitrust regime should … preserve competitive pressure on monopoly firms in markets that have tipped and in which incentives to indirect entry have therefore disappeared”.[6] One implication is that “antitrust should focus on cases of harm to competition in markets that have tipped, and be more forgiving toward the leveraging of market power in untipped markets”.[7]
Petit’s proposition that antitrust should abandon its principles based on rivalry when it is applied in digital markets is controversial, because, taken out of context, it may sound like giving up on competition. Yet, it has intuitive appeal, within the context in which Petit frames it, namely on the basis of the distinction that Petit convincingly makes between tipped and untipped digital markets. In essence, the theory is built upon the observation of how competition between the tech giants actually occurs in digital markets. It tries to incorporate those facts of competition within a theory of “moligopoly”. The theory explains that the tech giants compete in a “moligopoly” where entry into each other’s (tipped) monopoly origins market is the exception, and competition takes place between them through “indirect entry” into untipped markets.[8] This is competition based on “exploration” of new products, ideas, markets, demand to discover or to create, rather than “rivalry” within a given market as traditionally understood in antitrust. Petit’s theory appears to be a reflection of the observation that on markets with network effects and increasing returns to adoption, competition takes places for the market rather than in the market. When applied to digital markets, it suggests that competition takes place between the tech giants in markets that have not yet been won (ie tipped) by one tech giant or the other and mainly involves competition for indirect entry into untipped markets where there is potential demand. Petit suggests that the tech giants do compete in this way with each other for (new) markets that have not yet tipped, and the type of competition approach and enforcement one adopts should depend on whether the allegedly anticompetitive conduct concerns tipped or untipped markets. Petit suggests a heavier enforcement hand in tipped markets and a lighter touch in untipped markets.[9]
Aspects of Petit’s proposal strike right at the heart of antitrust laws, by raising the question of what competition means and what the purpose of competition law is. As basic and as fundamental these questions are, they have not been resolved, and their answers will determine one’s approach to more or less every question on whether a given business conduct violates the law or not.[10] If rivalry is not what competition means, then what does competition mean and what is the point of competition law? Yet, even these questions beg the further question of what “rivalry” means in the first place. The main problem that makes existing competition laws unfit for digital markets appears to be an understanding of rivalry as the multiplicity of firms competing in the same market for the same group of consumers, which – as Petit demonstrates – may not be how competition operates on these markets.
Petit’s prescription is one with which enforcers and policymakers should seriously engage. This is so because it forces enforcers and policymakers to consider where their intervention can have the highest societal impact at the lowest cost. Government efforts focused on “rivalry spirited remedies” such as break ups, interoperability or data-sharing measures that aim to move tipped markets to a different market structure by generating rivalry are costly and could be futile.[11] If a market has already tipped due to network effects and increasing returns to adoption on the demand side, injecting rivalry into such market structures should not be the aim of enforcers, according to Petit: rather they should aim to promote “a pressure equivalent to” rivalry.[12] For Petit, such an approach involves “maintaining pressure on monopoly rents” by which “antitrust creates an uncertainty equivalent to rivalry that produces powerful incentives on established big tech firms to invent new products and introduce market-shifting innovations”.[13]
There is nothing in Petit’s proposals concerning the limitations of “rivalry” as an antitrust principle that would go against competition rules as they exist on paper: no major competition law prohibits monopoly or dominance per se. This latter fact shows, in itself, that when it comes to the exercise of unilateral market power the law’s preoccupation is not with the number of firms in a given market or the particular structure of that market. If it was, any creation or existence of a monopoly position would have been prohibited in itself.[14] In contrast, the law is concerned with how that market power is exercised. It is only the abuse or anticompetitive exercise of substantial market power that is prohibited under competition laws. Yet, the concept of abuse and the features of anticompetitive conduct are open to interpretation and have been interpreted differently across jurisdictions and over time. In theory, it makes absolute sense to apply competition law in such a way in digital markets that the actual nature of competition between players on such markets is acknowledged and factored in. And, this may well mean that “rivalry” as we know it should not be the guiding principle of enforcement, as Petit suggests. The real challenge to Petit’s proposals, thus, comes not from theory, but from practice.
The difficulty with Petit’s framework lies in the question of how to implement his proposals that competition law should be used to maintain pressure on monopoly rents and that antitrust remedies should aim to promote uncertainty in big tech firms’ monopoly markets that have tipped.[15] According to Petit, “[t]he main function of antitrust in digital markets should not be to promote rivalry— it is often socially inefficient— but a pressure equivalent to it”.[16] Some of the ways in which he suggests that this can be done include direct or indirect control of the firms’ profits, price levels or structures, or share of output in markets that have tipped.[17] Although these appear to follow intuitively from Petit’s general framework, as acknowledged in the book, they pose several challenges. Some of these challenges are potentially formidable.
The challenges include the traditional limitations of direct antitrust intervention into price levels or price structures (which essentially involves regulation rather than antitrust). These limitations also encompass the practical and theoretical challenges of determining what the optimal level of output by a monopolist in a tipped market is. As Petit suggests, indirect ways of applying pressure on the market share of the monopolist in a tipped market might take the form of allowing horizontal mergers by third parties (eg between those on the paying side of a multisided platform). This might limit the exercise of market power by the incumbent. There could also be more promising avenues to explore.[18] Yet, this also threads a fine line because it might mean that a monopoly could be created in one market to combat a monopoly in another market. This could lead to a war of the titans, so to say. This is unlikely to be a pill that competition enforcers can swallow.
Petit’s book grapples with the multidimensional challenges of some very complex market realities. The book is commendable for its acknowledgement of the limitations of some of the proposals that result from that complexity. In any case, none of that takes away from the importance of Petit’s efforts at establishing a conceptual framework that would significantly improve upon the existing competition law framework in digital markets. Thus, even if there may be serious difficulties with the implementation of some of Petit’s proposals, competition enforcers and policymakers should take heed of them. This is because the demonstration of how competition actually works and fails to work in digital markets and the conceptual framework developed in the book have great potential to move us beyond simplistic descriptions of inevitable monopoly tendencies in digital markets. They can guide enforcement of competition law in the right direction by carefully illuminating where the real problems lie and what the right questions to ask, actually, are.
* Professor of Law, Director at the Jean Monnet Centre of Excellence in Digital Governance, University of Leeds. The author gratefully acknowledges support by the Leverhulme Trust through the award of a Philip Leverhulme Prize.
[1] Nicolas Petit Big Tech and the Digital Economy (forthcoming, OUP, 2020). The title of this contribution is inspired by “Maria” sung by the nuns in The Sound of Music (1965). For the lyrics which explain the inspiration, see https://genius.com/Richard-rodgers-maria-lyrics.
[2] Petit (n 1) 174 et seq.
[3] Petit (n 1) 174.
[4] Petit (n 1) 169.
[5] Petit (n 1) 169.
[6] Petit (n 1) 169.
[7] Petit (n 1) 169. The second implication, according to Petit, is that “antitrust should adopt tools that allow fact finders to draw a better line between tipped and untipped markets, complementing inferences of monopoly power drawn from structural methods of market definition and evaluation of market power”; ibid.
[8] Petit (n 1) 164. The distinction between “direct entry” and “indirect entry” that Petit adopts is that “direct entry” refers to the supply of perfect substitutes in existing product markets, whereas “indirect entry” refers to the supply of imperfect substitutes or perfect complements in an existing product markets; ibid 157.
[9] Petit (n 1) 184-185, 186.
[10] For the current author’s take on the question of the objectives of competition law, see eg P Akman ‘Searching for the Long-Lost Soul of Article 82EC’ (2009) 29 (2) Oxford Journal of Legal Studies 267 and P Akman The Concept of Abuse in EU Competition Law: Law and Economic Approaches (Hart Publishing, 2012; reprinted, 2015).
[11] Petit (n 1) 175.
[12] Petit (n 1) 184.
[13] Petit (n 1) 184.
[14] For a further discussion of this point in the context of the legislative intent behind the EU competition rules, see Akman (2009) (n 10).
[15] Petit (n 1) 184.
[16] Petit (n 1) 184.
[17] Petit (n 1) 187 et seq.
[18] See Petit (n 1) 193.
The debate on big tech- We can do better
The debate about the role of technology and technology companies in the economy and in society is inevitable, and largely positive. It is necessary and healthy for experts to discuss the virtues and perils of different ideas and approaches, no matter how creative, conservative, revolutionary. I am not sure, however, that many of the ongoing debates will assist society in reaching sensible solutions. I don’t know where the right balance lies, but I do have a clear idea of how we are not going to attain it. So this is not a post on substance; it is (mostly) a post on process.
An important disclaimer: I do have professional interests in this debate and work for companies at the center of these debates (on the last point I discuss how that affects my personal views and attitude).
1-.The tone. It is perplexing to see how much animosity these debates create, how many personal attacks and high-pitched criticism they trigger, how they make awkward friends and new enemies. But we should all be above that. We probably all think we are on the right side of the debate (which is not necessarily a bad thing). But that doesn’t entitle anyone to be offensive or dismissive of those with different ideas. If anything, we have the responsibility to demonstrate the merits of our ideas, and not let them lose weight because of our tone. Being a lawyer is mostly about empathy, and too often we show too little. Can’t we try to be less controversial and more civilized? [A tip: the ones who insult the least are the ones who tend to be right]. All these are but minor issues in the grand scheme of things. Even within competition law, there are arguably more important ongoing debates eliciting less passions and commentary
2-. The temptation of partisanship and simplicity. Unfortunately, moderate views are often a faithless creed. Pablo wrote some time ago about the “footballization” of competition debates. As he explained, “it would seem it is all about joining a team – becoming a loud, proud member of a camp that supports everything that comes from within and opposes whatever comes from the other side”. That’s sadly true. Life is much more comfortable when you align yourself with one view and know always what line to take. If only things were that easy… Most debates are about trade-offs, and that is certainly the case of debates on big tech. If you refuse to understand the real points others are making, your arguments will be weaker, it not flawed. That’s an easy mistake to make (perhaps I make it all the time), but that’s precisely why we should resist the instinct. More nuance would do much good. More active listening and constructive engagement with/by the affected stakeholders (companies, consumers, industry associations) would also be desirable.
3-. The lack of neutrality. Last weekend we received a critical comment pointing to alleged conflicts of interests in lawyers/economists participating in these discussions. So take this also as a comment on that comment. There is nothing wrong with people advocating for private interests; that’s the way the system works. Lawyers and consultants do that for a living, and I don’t see how one can criticize us for doing our job. That also includes academics who may choose to do consulting, which I believe it’s absolutely fine. To be sure, we are all for clear disclosures to permit closer scrutiny on the merits by the audience. That said, I can see the point that there is too little neutrality in professional circles and in academia. People like Pablo are all too rare. It’s legitimate and most helpful for academic to voice out their views, no matter whom they benefit. But I do admit there’s a problem when advocacy work is concealed as an academic piece. [A tip: If someone’s research is only dictated by their client base, then you know they are not academics]. We should also hear more from more people, including experts in related areas.
4-. The theory vs the evidence. Our job, as lawyers or economists, consists in applying established rules and principles to a given set of facts. We are not entitled to our own facts, nor to ad hoc principles that would ensure we always win. The role of evidence is not to support preconceived views, but to challenge and test them in order to verify them. And this is particularly true for public authorities, who have the higher (and more difficult) responsibility to get it right. So we should not exclude the evidence that contradicts our instincts; we should look forward to it, because it may allow us to understand whether our views may be wrong, and how they can be polished. And if it is the case that this evidence is wrong, irrelevant or confirms our views, then we can reason through it and explain why. The EU Courts were right to point out that the only way of avoiding manifest errors is to have all the necessary evidence to avoid a complex situation. By the way, we can all probably agree that this should also apply to legislation and regulation.
5-. The frustration of uncertainty. Even (or particularly) when we look hard into evidence, the right answer is often “we don’t know” or “it depends”. That is frustrating, but it is what it is. This is true in most areas entailing some degree of complexity, also when it comes to digital markets. The Special Advisers’ Report, for example, was open about it: there are many issues we simply don’t know. Can network effects tip markets? It depends. Can data be the source of competition concerns? It depends. Can self preferencing be anticompetitive? It depends. If there’s anything we know, is that we know very little. Does this suggest that we should never take action? Not at all! It means there should be even closer scrutiny, just not broad brushing. [For a similar message, see para. 80 of the recent Budapest Bank Judgment]. At the end of the day, we might still have doubts. Without recognizing that there might be doubts and shades of gray, instead of just black or white, we are unlikely to make progress.
6-. The alleged blind gap (?). What sets competition law apart from other areas of the law is its wideness and its reliance on vaporous legal concepts. That’s its blessing (it can immediately adapt to new realities and new economic theory), but that’s also its curse (hammer-nail, etc). So I think that it’s unfair on the discipline to dismiss it due to alleged blind gaps. Now, where is that gap? Is there any practice harmful to competition that EU competition authorities are not/ have not been able to effectively pursue? In my mind, the German Facebook case (discussed here) is a perfect example of how we are failing to address, or properly frame, the real challenges for enforcers. Nothing in the Düsseldorf Court’s Order suggests that there is anything wrong with a new theory of harm based on exploitative privacy policies; the reason for the annulment was lack of evidence. In reality, the problem is not that competition law and competition authorities cannot adapt to new theories and realities. If there is evidence of anticompetitive conduct in digital markets (which may very well exist), then competition authorities have the tools to address that. The problem is that we (as plaintiffs, authorities, etc) need to do our homework if we want to establish an infringement on the basis of evidence.
7-.The approaches to uncertainty (on the rule of law). What frustrates some people about competition law might actually not be the fault of competition law, but of Law alone. Legal principles and rules (allocation of burdens, presumptions, etc) articulate ways of dealing with uncertainty. These rules incorporate the lessons of experience and factor the relevant trade-offs. In any sanctioning regime, arguably the most important presumption is the presumption of innocence. When we speak about “Type-2 errors”, etc. we also need to understand that we have to operate within the confines of the rule of law and of that presumption. That might be uncomfortable, but that is what makes us civilized and what protects us from arbitrariness. Let me invoke, again, the words of General Court President Marc van der Woude: “where the contested conduct of the public authorities is repressive in nature, it is hard to conceive, at least in free democratic societies, that citizens and firms can be condemned on the basis of estimates, approximations or guesses, even if they are informed ones. Uncertainty must then be balanced against the requirements of the presumption of innocence […]. [T]his balance is struck by relying on legal concepts, such as the burden of proof”. To the extent that any proposals deviate from these principles, we will not be making progress.
8-.The role of the Courts. The trend that worries me the most in these debates is that of “taking antitrust away from Courts”, proclaiming that precedents are but relics that hold progress down. In my view, this is intimately connected with all of the above. We might disagree with Courts (coincidentally, that tends to happen more when we lose), but they are what makes the system work. We should cherish the legitimacy that Courts give to any decision and policy. That is why I resist the proposals to turn to regulation (where there is no judicial review or evidence standards). I never really understood the Furman Report’s point that “appeals systems can contribute to the competition authority’s risk aversion” (to be sure, I get the point; just not why that’s a problem). In addition, the EU case law is remarkably sensible and balanced in its approach to competition law (for more, see here), and we should be proud about that. I’ve said this for many years when people systematically accused EU Courts of being biased in favor of the Commission, and I say the same now that some people criticize the case law as putting limits on enforcement. It’s remarkable that the Courts can be accused of the two things at the same time, which brings me to my next point (almost done!).
9-.What the near future holds. The Courts will soon have the chance to rule on some of the test cases at the heart of these debates. Regardless of what they do, remember: the system does work. I am personally invested in some of these cases, but I will oppose any suggestion, on any side, invoking an outcome to point to alleged flaws in EU competition law or in our enforcement system. And those will come. Whatever side loses will need to accept it and adjust. In a properly functioning system, cases are won and lost (see here for Pablo’s recent take on that). That is how the law progresses, even if at a cost, and even of not always in a straight line. If test cases work, then that shows the tested hypotheses are correct. If they don’t, then that would show the test-case was flawed or that the evidence was insufficient, but it will say nothing about our discipline (other than that the system works).
10-.My own bias. Are my views affected my work and background? Of course they are. The fact that I spend a lot of my time on these issues does make me more sensitive to them, and also contributes to shaping my views. Does that mean I might be wrong? Perhaps, yes. I’ve never worked on a case where I didn’t believe on the points we were making, so it’s a matter of probability and common sense that I might have been wrong on a good number of occasions. It is healthy to keep that in mind, and it is a reason to more carefully scrutinize the merits of what we say. Actually, for quite some time I’ve been holding thoughts on many of these issues, avoiding to engage and comment on important issues, simply because I realize my comments may be suspect of bias (and also because of my first observation about the tone of the debates). That might have been a mistake.
My commitment: Together with Pablo, we commit to making this platform a place where people can discuss different ideas openly and respectfully. We will comment on the issues that we believe are important, because there are important things going on in competition law at the moment (even if more important things are happening outside competition law). We will always play the ball, and not the man. We won’t be offensive or dismissive to people with contrary views. And we will continue to like and invite (here and to our conferences) people who think differently from us.
The lifecycle of the competition and data debate and the misconception behind calls for antitrust intervention
The Economist devotes its front page and a feature this week to the question of how data affects competition and competition law. It was not my greatest concern this week, but ok [if this post, written on a Saturday morning, gets published on Monday that’s because Macron won and I have not jumped out of the window]. The newspaper -which we have often echoed on this blog- joins the chorus of those who want “changes” and “new tools” in competition law to deal with this allegedly new phenomenon. In a way, The Economist sides with economic populism on this one (we’ll explain why in a few lines from now).
You already know my views on this topic from the posts and presentations available here, here, etc, essentially summarised in this CPI contribution. Today let me address something fundamentally more important (albeit in a rush, while my kid is miraculously still asleep… )
Creating waves
Step 1. This whole debate was triggered and fuelled by some tech companies who, unlike their rivals, did not operate data intensive businesses, or certainly not to the same scale. For instance, a company whose name we don’t need to mention, appeared to share these views only a couple of years ago, but then -following its acquisition of LinkedIn- 😉 changed views and endorsed these (or at least their spokesperson redirected about 300 different media outlets to this blog, for which we are grateful). This is actually not new (a similar thing happened regarding SEPs) and I actually think it is legitimate, logical, and absolutely not reproachable for private companies to change stance according to their evolving interests. But the origins of the debate are interesting nonetheless.
Step 2. A debate that was part of a business strategy and in its own self-interest finds some well-meaning allies (EDPS and others) who are genuinely concerned about what they see as a problem and a regulatory void and are keen on having their message propelled.
Step 3. Then it’s the turn for us lawyers and conference organisers: since we have little else to talk about these days (and we like to talk, so much that some even pay to do it, a market failure well exploited by others) we make an issue out of this. The result being that the topic is everywhere (to be sure , I myself have contributed to this speaking about it at the European Parliament, ERA, the VUB, Leeds University, the IEB and others, even if to say it is a non issue). This, in turn, eventually reaches academia. And there we see interesting hypotheses and theoretical reflections, but most of which I am not sure correspond to what we actually see in the markets (and which, to the extent I know, have not offered conclusive answers as to how competition should allegedly be changed).
Step 4. The next phase consists in competition authorities showing that they listen and adapt to public debates and to seemingly changing markets, and we end up with joint reports and strange cases (see here for my comments on the German Facebook case). Only the European Commission has kept its cool, although lately there are signs of changing winds there too…
Step 5 is that part of the media -not an ally of many of these data-intensive business models and companies- echoes it and turns it into a wider issue of public policy. This is where we seem to be now. Admittedly, however, what you see in print may only be the tip of the iceberg; one day someone should write about how the media is shaping competition law these days -both to widen is net (at least that is what other media reports, see here) and to narrow it (see here).
Step 5 is that politics (the most permeable of all, particularly these days) succumbs to the idea.
And this is how change and sausages are made.
Economic Populism?
Contrary to some, I have always accepted that data can give rise to barriers to entry, market power and that it can be used to foreclose competitors. The circumstances under which this can happen are much narrower that many now claim, but still possible, as precedents actually show. My point is nonetheless that we have the tools to deal with those problems whenever they arise. Caution is what is needed, not substantive changes [a different matter being the procedural reform of merger notification thresholds, a point we actually made here before this debate exploded]. If there is one thing that cannot be criticised if competition law is lack of flexibility. A set of wide, common sense (rule of reason) principles and rules that has been able to apply and adapt to every industry for over a century can certainly be applied to data.
To be sure, our economic and legal tools will not always yield conclusive results when applied to data (they often don’t either when it comes to price, including for market definition and others, but it looks somewhat more objective or seemingly mathematical and we are happy to play along. But when do we have conclusive results in social sciences? (Any pollsters have a view?)
And this brings us to the fundamental misconception of these debates. Whenever politicians, respected economists or the media -including the ones with whom I would generally agree- discuss competition law, they tend to view it as one more took among those available for economic regulation to pursue legitimate goals [admittedly, competition authorities have facilitated that by using enforcement to shape markets and fill in perceived regulatory voids particularly in recent years]. But it’s not. Competition law, rather antitrust (admittedly we can leave mergers and State aid aside), is a sanctioning regime. Dettaching the discipline from its legal nature (remember?) is wrong, and is a bit populist too.
So, yes, its correct application will (most often) naturally improve the functioning of markets and contribute to a fairer society (more on this here), and yes, enforcement discretion can be exercised to target the greatest perceived social concerns.
But in a sanctioning regime there are limitations inherent to the very rule of law. We don’t get to change the rules in the middle of the game, we don’t (should not) get to strecth the rules to impose sactions nor do (should) we intervene in the face of uncertainty and doubt. Competition law should not prohibit what it does not understand, it should not meddle with ecosystems or with the very core of business models (including those based on data) when the effects of intervention are uncertain. This, until now, was uncontroversial. It all goes back to basics: general principles of law trump or should trump expediency and effectiveness.
A Brave New World: The Potential Intersection of Competition Law and Data Protection Regulation (by Orla Lynskey)
Intro by Alfonso: Some days ago someone sent me a link to a an opinion issued by the European Data Protection Supervisor dealing with the interface between data protection, competition law and consumer protection. I already expressed some views on this in a post published last year: Data protection and antitrust law (positing my view that there’s nothing new under the sun), but this time I thought it’d be interesting to have the view of someone who’s an expert not only in competition law, but also in data protection stuff. I found the ideal guest blogger to cover this issue: Orla Lynskey, a very good friend, and an extremely promising academic in the field of IT Law who’s been assistant at the College of Europe, competition lawyer at Howrey, case handler at DG Comp, holds a PhD in European Data Protection Law from Cambridge University and is now a lecturer at LSE focusing on data protection and competition law. I leave you with her:
In late March the European Data Protection Supervisor (EDPS), an agency which oversees compliance with data protection rules by EU institutions and advises on the development of data protection law within the EU, issued a preliminary opinion on the intersection of data protection, consumer protection and competition law. Both scholars and the EU institutions have been musing on the relationship between data protection and competition law over the past few years. However, despite this attention, it is not yet apparent whether, and if so how, these two fields actually intersect.
Kuschewsky and Geradin have recently published a paper on the impact of data protection in Commission investigations and in particular in dawn raids. The use of fundamental rights as a shield to secure procedural guarantees is now well integrated in competition law (think, for instance, of the integration of ne bis in idem in transnational competition procedures). This narrow intersection between data protection and competition law should therefore come as no surprise.
The EDPS report attempts to identify other areas in which parallels exist, or could potentially exist, between the two fields. For instance, the report highlights that if the new data protection regulation is adopted (a big if at the moment..), both data protection and competition law would apply to entities established in third-country whose actions have effects in the EU. These type of parallels are of course present however they merely help us to compare the regimes rather than get to grips with how they intersect. Moreover, some of the parallels identified are less credible than others. For example, I still fail to see anything beyond a very superficial similarity between ‘substitutability’ for the purposes of the HMT in competition law and the notion of ‘compatibility’ in the data protection principle of purpose limitation (according to which data processed for one purpose should not be processed for another secondary purpose which is incompatible with the initial purpose).
Beyond these micro-comparisons, in a second (earlier) paper Kuschewsy and Geradin had set out some ‘preliminary thoughts’ on the bigger issues at stake. In particular, they questioned whether EU competition law can limit the accumulation and processing of personal data and whether personal data could be deemed an essential facility. However, the EDPS report seems to be kick-starting a much more ambitious discussion than that initiated by Kuschewsy and Geradin. It appears to me that the EDPS is querying, albeit indirectly, whether the notion of consumer welfare should incorporate data protection considerations. By this, I mean that competition law would incorporate fundamental rights into its substantive analysis when conducting an investigation under Article 101 or 102 TFEU or examining a concentration under the EUMR. To be very clear, this would mean a departure from a purely economic analysis of consumer welfare. If Commissioner Alumnia’s speech on the matter is anything to go by, this is not something the Commission is expecting (‘although Coates refers to this potential intersection – but certainly does not endorse it – in his book on Competition Law and Regulation of Technology Markets’.
I realise that this would represent a radical departure from the status quo and as nobody seems to be willing to move beyond ‘preliminary’ thoughts on this matter, I am merely adding my own ‘preliminary’ observations to the mix (that is a disclaimer in case I change my mind tomorrow).
I see two arguments which support this shift in policy. First, the current consumer welfare standard seeks, inter alia, to facilitate consumer choice. In industries which are heavy on data aggregation – social networking sites, search engines, micro-blogging platforms etc – network effects based on personal data constitute a significant barrier to entry. The monopolisation of these industries, in turn, poses serious problems for the application of data protection rules. In the EU, all personal data processing must have a legitimate legal basis and the legal basis most frequently used by private sector entities is ‘individual consent’. This consent must be freely given, specific and informed. However, the argument has been made (for instance before the Irish regulator in the Europe-v-Facebook audit) that consent to processing by a monopoly cannot be ‘freely given’. While this argument would never fly in the US (for reasons which I shall not explain here), it may have some traction in the EU where data protection rules seek (to little avail) to rectify power asymmetries between the individual and the data controllers. Data protection advocates have long been arguing that competition law should help facilitate actual consumer choice.
More convincingly perhaps, since 2009 data protection has been recognised as a fundamental right in the EU legal order, independently of the right to privacy. As such, it is binding on the EU institutions when enacting legislation or adopting decisions. Failure to respect this right will lead to the invalidity of the measure at stake (as we saw last week when the Data Retention Directive was declared invalid on the basis of its incompatibility with this Charter right). This may well therefore be the trump card.
This being said, there are arguments to be made against the incorporation of data protection and fundamental rights considerations into the consumer welfare standard (and I am sure readers of this blog will be very happy to point them out to me!). The primary objections I can identify are threefold. First, intervention on these grounds looks like punishing dominance and might entail significant interference with the commercial freedom of companies concerned. This should ordinarily be the purview of regulation (although as Dunne noted recently in a JCLE article, ‘regulatory competition’ is on the rise in the EU through the rollout of commitment decisions). Second, it is arguable that this would be another example of the ‘instrumentalisation’ of competition law and that it would be detrimental to the internal coherence of the discipline to incorporate fundamental rights into the substantive analysis of competition law. I have a certain amount of this sympathy for this view. Third, it might be argued that data protection regulation should adequately protect the right to data protection of individuals. This is effectively what the Commission stated in the context of the GoogleDoubleclick merger and what the Court determined in the ASNEF Equifax case. However, these matters were determined pre-2009 and the constitutional landscape has changed significantly since then. Moreover, it would now seem a little disingenuous for the Commission to argue that competition law does not apply to regulated sectors.
In short, it seems to me that whether competition lawyers agree or not, this preliminary report may be the first baby step towards a more holistic approach to the protection of data protection within the EU. Arguments to the contrary are also welcome however (I can then include them in my work in progress paper!).
Chillin'Competition 