April 7, 2016 at 5:00 am ET
It’s no secret to those attending this week’s American Bar Association’s annual antitrust meeting that the biggest technology companies are in the crosshairs of European regulators.
In what appears to be a further ratcheting up of this campaign, Europe’s Commissioner for Competition, Margrethe Vestager, who will be addressing the antitrust practitioners, seems poised to prosecute based on a new and untested theory—that the ownership of big data by large internet companies is, by itself, a competition problem.
The European Commission is already stretching the bounds of antitrust. The EC’s competition authority has filed formal charges against Google for favoring its own comparison shopping service and is continuing to investigate other Google search services, its advertising business, as well as its Android mobile operating system. At the same time, the Commission has opened investigations of Amazon’s e-book business and Apple’s tax arrangements with Ireland.
Data ownership would represent an additional foray into a new frontier of antitrust enforcement. Perhaps the first real salvo in this new antitrust world is the German competition authority’s probe of Facebook’s data collection practices.
Not to be outdone, Commissioner Vestager, earlier this year, said “if just a few companies control the data you need to satisfy customers and cut costs, that could give them the power to drive their rivals out of the market. And with less competition, there’s a risk that there won’t be enough incentive for companies to keep using big data to serve customers better.” She added, “we haven’t found a competition problem yet. This certainly doesn’t mean we never will.” Unfortunately, the old aphorism, “seek and ye shall find,” comes to mind.
Commissioner Vestager didn’t point to any economic theory or empirical analysis indicating a causal relationship between data and anticompetitive behavior. Rather, her approach seems designed to encompass internet companies that have gotten too big and successful.
The Commissioner’s key implication seems to be that having too much data can deter entry. It is true that a successful consumer-facing internet company will necessarily accumulate a lot of consumer data. These data are used to improve services as well as for marketing purposes.
However, companies like Amazon, Google, and Facebook have succeeded not primarily because they have accumulated a lot of data. The causal relationship likely goes the other way. More importantly, the key to their success is their stock of human and intellectual capital, which gives them the ability to analyze and use the data, in many cases better than other companies can. It is this “intangible capital” that makes big data and these companies valuable, not the data itself.
Moreover, even if one accepts the contention that access to troves of data is necessary for entry, consumer data are widely available regardless of how much any single company accumulates. No company, no matter how large, can meaningfully “control” such consumer data to the exclusion of others. Information about consumers is replicable and markets for all sorts of data are ubiquitous.
Consumers interact with a large number of companies and websites, leaving a data trail as they go. A thriving market in consumer data, with companies like Acxiom, Experian and Bluekai, as well as many smaller data brokers, supplements data that firms gather in the course of doing business.
Competition and data protection authorities, in both Europe and the U.S., should have a better appreciation of the competitive benefits of data before heading off on a new antitrust crusade. Incumbents have lots of information about their users and visitors to their web sites, but the multitude of data sources about consumers available in the digital age enables entrants to begin competing relatively easily.
As a result, regulations that limit the availability of data, for example, by limiting the gathering, sharing and reuse of data, are likely to be anticompetitive, benefiting those who already have data at the expense of those who would otherwise acquire it to enter a market. Similarly, research shows that the commonly used notice-and-consent-based approach to privacy regulation will favor large firms and make it more difficult for small firms to get started.
Investment in intangibles, which include big data, is now the dominant form of investment in advanced economies and has been a major driver of productivity change and growth. The European competition authorities seem poised to adopt policies that explicitly penalize such investment. This is something regulators on both sides of the Atlantic can ill afford to do as their economies struggle to return to pre-recession growth rates.
Thomas M. Lenard is president of the Technology Policy Institute.