The new competition issues raised by access to data in the digital economy

Patrick Waelbroeck, Télécom Paris – Institut Mines-Télécom and Antoine Dubus, Télécom Paris – Institut Mines-Télécom

In the digital economy, data is king. While recent problems with data theft and loss have made headlines following the introduction of the General Data Protection Regulation (GDPR) in May 2018 , the link between access to data and market competition is still in the observation phase. We will consider some recent cases.

In 2014, the European Commission investigated the consequences of Facebook’s purchase of WhatsApp. By merging, the two companies could combine their databases and therefore increase the amount of information they have about their users. In 2017, when it was found that Facebook had deliberately lied about the possibility of associating WhatsApp users’ phone numbers with their Facebook profiles, the Commission imposed a €110 million fine. This mishandling of personal data led one of WhatsApp’s co-founders to resign. However, the American giant was charged only for lying to investigators, and not for combining the two companies’ databases.

Business assets for digital giants

In the US, when Google and DoubleClick merged in 2007, the Federal Trade Commission, an independent government agency, examined the possibility that the companies could combine their databases, without focusing on the impact of the data on competition.

These initial analyses therefore suggest that access to data can be considered to have a minimal impact on competition. The European Commission nevertheless wished to carry out a more detailed analysis, publishing a report on competition in the digital era. The report shows that data represents a barrier to entry for new companies. The authors therefore recommend that major digital players open up their databases, the argument being that by giving all companies access to data, its value is not concentrated in the hands of a few players who use it to dominate the market. This proposal seems rather unrealistic since data represents a business asset for digital companies.

In any event, this second analysis considers data as an external constraint imposed on digital companies. But it is becoming increasingly clear that access to data can stem from strategic decisions for at least two reasons.

First, access to data is often monopolized by platforms that act as an intermediary between different groups of users in what is referred to as a multi-sided market. The player that controls the platform also controls who has access to its data. It can therefore distort market competition by excluding certain companies.

Data provides market power

Certain Facebook practices were disclosed during a hearing before the British parliament and reported by the New York Times in late 2018. Facebook allegedly favored data exchange with partner apps such as Airbnb, Lyft and Netflix and allegedly cut off access to its data for apps seen as competitors such as Twitter’s Vine application.

 

Second, a distinctive feature of databases is that they can create synergies when they are merged. Two companies who pool their data, for example in the event of a WhatsApp/Facebook type of merger, can therefore benefit from an exponential increase in information, which, as it becomes increasingly precise, increases the economic value of the consolidated data. Data-driven mergers also change the merged entity’s strategies related to data collection. A firm with access to the highest quality of information will increase its market power, which will in turn give it access to even more information. The link between market power and data collection is therefore strengthened, leading  to the emergence of dominant players.

In conclusion, access to data ensures a basis for healthy competition in digital markets. The accumulation of data leads to the emergence of dominant players who can then influence competition between third parties, by granting or refusing access their data. It is therefore important to verify that data collection is in compliance with applicable regulations (GDPR). It is no longer only a matter of personal data protection; it has become a competition law issue.

Patrick Waelbroeck, Professor of Economics, Télécom Paris – Institut Mines-Télécom and Antoine Dubus, PhD student, Télécom Paris – Institut Mines-Télécom

The original version of this article (in French) was published in The Conversation. Read the original article.